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What changed in Hyliion Holdings Corp.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Hyliion Holdings Corp.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+317 added−463 removedSource: 10-K (2024-02-13) vs 10-K (2023-02-28)

Top changes in Hyliion Holdings Corp.'s 2023 10-K

317 paragraphs added · 463 removed · 140 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

87 edited+151 added−273 removed62 unchanged
Biggest changeOur research and development is primarily focused on: • electrified powertrain development and system integration; • control software and algorithms for our powertrain systems; • next generation packaging and cooling for our battery systems; • interoperability with third-party powertrain components, such as e-motors, inverters and axles; • component integration; • development of the KARNO generator including testing and validation; • integration of the KARNO generator technology into the Hypertruck system; • accelerated lifetime testing processes to improve reliability, maintainability and system-level robustness; • data analytics; and • alternative products for existing and in-development components and technology.
Biggest changeOur research and development is primarily focused on: • development of the KARNO generator including testing and validation; • integration of the KARNO generator technology into various applications; • accelerated lifetime testing processes to improve reliability, maintainability and system-level robustness; • development of battery systems that can be used as a starter power source for the KARNO generator or as a load buffer solution; • data analytics; and • alternative products for existing and in-development components and technology.
We collect, store, transmit and otherwise process customer, driver, employee and others’ data as part of our business operations, which may include personal data or confidential or proprietary information. We also work with partners and third-party service providers or vendors that collect, store and process such data on our behalf in connection with our business.
We collect, store, transmit and otherwise process customer, employee and others’ data as part of our business operations, which may include personal data or confidential or proprietary information. We also work with partners and third-party service providers or vendors that collect, store and process such data on our behalf in connection with our business.
These fluctuations may occur due to a variety of factors, many of which are outside of our control, including: • the pace at which we continue to design, develop and produce new products and increase production capacity; • the number of customer orders in a given period; • changes in manufacturing costs; • the timing and cost of and level of investment in, research and development relating to our technologies and our current or future facilities; • relationships, partnerships, contracts and other agreements with suppliers and development partners; • our ability to achieve favorable pricing from suppliers for component purchases; • our ability to obtain required certifications for our powertrain systems; • developments involving our competitors; and • changes in governmental regulations or applicable law.
These fluctuations may occur due to a variety of factors, many of which are outside of our control, including: • the pace at which we continue to design, develop and produce new products and increase production capacity; • the number of customer orders in a given period; • changes in manufacturing costs; • the timing and cost of and level of investment in, research and development relating to our technologies and our current or future facilities; • relationships, partnerships, contracts and other agreements with suppliers and development partners; • our ability to achieve favorable pricing from suppliers for component purchases; • our ability to obtain required certifications for our KARNO generators; • developments involving our competitors; and • changes in governmental regulations or applicable law.
Our ability to obtain funds or incentives from government sources is subject to the availability of funds under applicable government programs and approval of our applications to participate in such programs. The application process for these funds and other incentives will likely be highly competitive.
Our, and our potential customers’ ability to obtain funds or incentives from government sources is subject to the availability of funds under applicable government programs and approval of applications to participate in such programs. The application process for these funds and other incentives will likely be highly competitive.
In addition, non-compliance with these laws or a significant breach of our third-party service providers’ or 21 Table of Contents vendors’ or our own network security and systems could have serious negative consequences for our business and future prospects, including possible fines, penalties and damages, reduced customer demand for our vehicles and harm to our reputation and brand.
In addition, non-compliance with these laws or a significant breach of our third-party service providers’ or vendors’ or our own network security and systems could have serious negative consequences for our business and future prospects, including possible fines, penalties and damages, reduced customer demand for our vehicles and harm to our reputation and brand.
We cannot assure you that we will be successful in obtaining any of these additional grants, loans and other incentives. Risks Related to Ownership of Our Securities Concentration of ownership among our existing executive officers, directors and their respective affiliates may prevent new investors from influencing significant corporate decisions.
We cannot assure you that we, or our potential customers, will be successful in obtaining any of these additional grants, loans and other incentives. Risks Related to Ownership of Our Securities Concentration of ownership among our existing executive officers, directors and their respective affiliates may prevent new investors from influencing significant corporate decisions.
We are dependent on our suppliers, some of which are single or limited-source suppliers, and the inability of these suppliers to deliver necessary components of our vehicles at prices, volumes, and performance specifications acceptable to us could have a material adverse effect on our business, prospects, financial condition and operating results.
We are dependent on our suppliers, some of which are single or limited-source suppliers, and the inability of these suppliers to deliver necessary components for our generator at prices, volumes, and performance specifications acceptable to us could have a material adverse effect on our business, prospects, financial condition and operating results.
Our third-party suppliers may not be able to meet their product specifications and performance characteristics or our desired specifications, performance and pricing, which would impact our ability to achieve our product specifications and performance characteristics as well.
Our third-party suppliers may not be able to meet their product specifications and performance characteristics or our desired specifications and pricing, which would impact our ability to achieve our product specifications and performance characteristics.
Due to this, as well as our overall profitability estimate as 22 Table of Contents noted above, we have recorded a full valuation allowance related to our net operating loss carryforwards and other deferred tax assets due to the uncertainty of the ultimate realization of the future benefits of those assets.
Due to this, as well as our overall profitability estimate as noted above, we have recorded a full valuation allowance related to our net operating loss carryforwards and other deferred tax assets due to the uncertainty of the ultimate realization of the future benefits of those assets.
However, there are no assurances that we will be able to continue to identify or secure suitable business 23 Table of Contents relationship opportunities in the future or our competitors may capitalize on such opportunities before we do. Moreover, identifying such opportunities could require substantial management time and resources, and negotiating and financing relationships involves significant costs and uncertainties.
However, there are no assurances that we will be able to continue to identify or secure suitable business relationship opportunities in the future or our competitors may capitalize on such opportunities before we do. Moreover, identifying such opportunities could require substantial management time and resources, and negotiating and financing relationships involves significant costs and uncertainties.
Any product defects or any other failure of our electrified powertrain solutions and software to perform as expected could harm our reputation and result in adverse publicity, lost revenue, delivery delays, product recalls, negative publicity, product liability claims and significant warranty and other expenses and could have a material adverse impact on our business, prospects, financial condition and operating results.
Any product defects or any other failure of our KARNO generator and software to perform as expected could harm our reputation and result in adverse publicity, lost revenue, delivery delays, product recalls, negative publicity, product liability claims and significant warranty and other expenses and could have a material adverse impact on our business, prospects, financial condition and operating results.
In response to a determination that we have infringed upon or misappropriated a third party’s intellectual property rights, we may be required to (a) cease development, sales or use of our products that incorporate the asserted intellectual property, (b) pay substantial damages, (c) obtain a license from the owner of the asserted intellectual property right, which license may not be available on reasonable terms or at all or (d) redesign one or more aspects or systems of our electrified powertrain solutions.
In response to a determination that we have infringed upon or misappropriated a third party’s intellectual property rights, we may be required to cease development, sales or use of our products that incorporate the asserted intellectual property, pay substantial damages, obtain a license from the owner of the asserted intellectual property right, which license may not be available on reasonable terms or at all, or redesign one or more aspects or systems of our products.
We may not be able to obtain or agree on acceptable terms and conditions for all or a significant portion of the government grants, loans and other incentives for which we may apply. As a result, our business, prospects, financial condition and operating results may be adversely affected.
We, or our potential customers, may not be able to obtain or agree on acceptable terms and conditions for all or a significant portion of the government grants, loans and other incentives which are applied for. As a result, our business, prospects, financial condition and operating results may be adversely affected.
We are in the early stages of developing key commercial relationships with suppliers and customers, and our ability to predict the outcome of those relationships is limited. 12 Table of Contents We are in the process of developing relationships to accelerate the development, production and sale of our solutions.
We are in the early stages of developing key commercial relationships with suppliers, and our ability to predict the outcome of those relationships is limited. We are in the process of developing relationships to accelerate the development, production and sale of our solutions.
Risks Related to Technology, Data and Privacy-Related Matters We are subject to cybersecurity risks to operational systems, security systems, infrastructure, integrated software in our electrified powertrain solutions and customer data processed by us or third-party vendors or suppliers and any material failure, weakness, interruption, cyber event, incident or breach of security could prevent us from effectively operating our business.
Risks Related to Technology, Data and Privacy-Related Matters We are subject to cybersecurity risks to operational systems, security systems, infrastructure, and customer data processed by us or third-party vendors or suppliers and any material failure, weakness, interruption, cyber event, incident or breach of security could prevent us from effectively operating our business.
While we plan to obtain components from multiple sources whenever possible, some of the components used in our vehicles will be purchased by us from a single source.
While we plan to obtain components from multiple sources whenever possible, some of the components used in our generator may be purchased by us from a single source.
We, our outsourcing partners and our suppliers are or may be subject to substantial regulation and unfavorable changes to, or failure by us, our outsourcing partners or our suppliers to comply with, these regulations could substantially harm our business and operating results.
Risks Related to Environmental and Regulatory Matters We, our outsourcing partners and our suppliers are or may be subject to substantial regulation and unfavorable changes to, or failure by us, our outsourcing partners or our suppliers to comply with, these regulations could substantially harm our business and operating results.
We continue to evaluate requirements for licenses, approvals, certificates and governmental authorizations necessary to manufacture, sell or service our electrified powertrain solutions in the jurisdictions in which we plan to operate and intend to take such actions necessary to comply.
We continue to evaluate requirements for licenses, approvals, certificates and governmental authorizations necessary to manufacture, sell, or service our KARNO generator in the jurisdictions in which we plan to operate and intend to take such actions necessary to comply.
We have incurred losses during our history and do not expect to become profitable in the near future, and may never achieve profitability. To the extent that we continue to generate taxable losses, unused losses will carry forward to offset future taxable income, if any, until such unused losses expire, if at all.
We have incurred losses during our history and do not expect to become profitable in the near future, and may never achieve profitability. To the extent that we continue to generate taxable losses, unused losses will carry forward to offset future taxable 15 Table of Contents income, if any, until such unused losses expir e, if at all.
In an effort to protect our brand, as of December 31, 2022, we had three registered and seven pending trademarks in the United States and 39 registered and 11 pending trademarks internationally. We regularly review our development efforts to assess the existence and patentability of new intellectual property.
In an effort to protect our brand, as of December 31, 2023, we had three registered and seven pending trademarks in the United States and 44 registered and four pending trademarks internationally. We regularly review our development efforts to assess the existence and patentability of new intellectual property.
If we are unable to obtain components and materials used in our electrified powertrain solutions from our suppliers or if our suppliers decide to create or supply a competing product, our business could be adversely affected.
If we are unable to obtain components and materials used in our generator solution from our suppliers or if our suppliers decide to create or supply a competing product, our business could be adversely affected.
The laws and regulations to which we are subject govern, among others: • water use; • air emissions; • use of recycled materials; • energy sources; • the storage, handling, treatment, transportation and disposal of hazardous materials; • the protection of the environment; • natural resources and endangered species; and • the remediation of environmental contamination.
The laws and regulations to which we are subject govern, among others: • water use; • air emissions; • energy sources; • the storage, handling, treatment, transportation and disposal of hazardous materials; • the protection of the environment; and • natural resources.
We expect to incur significant expenses, which will impact our profitability and available capital, including costs for research and development efforts, component and service procurement, sales, general and administrative costs, and production, distribution and support of our electrified powertrain solutions.
We expect to incur significant expenses, which will impact our profitability and available capital, 9 Table of Contents including costs for research and development efforts, component and service procurement, sales, general and administrative costs, and production, distribution and support.
Companies, organizations or individuals, including our competitors, may own or obtain patents, trademarks or other proprietary rights that would prevent or limit our ability to make, use, develop or sell our electrified powertrain solutions, which could make it more difficult for us to operate our business.
Companies, organizations or individuals, including our competitors, may own or obtain patents, trademarks or other proprietary rights that would prevent or limit our ability to make, use, develop or sell our KARNO generator and other products, which could make it more difficult for us to operate our business.
We are at risk for interruptions, outages and breaches of: (a) operational systems; (b) facility security systems; (c) transmission control modules or other in-product technology; in each case owned by us or our third-party vendors or suppliers as well as (a) the integrated software in our electrified powertrain solutions; or (b) customer or driver data that we process or our third-party vendors or suppliers process on our behalf.
We are at risk for interruptions, outages and breaches of our operational systems, facility security systems, transmission control modules or other in-product technology; in each case owned by us or our third-party vendors or suppliers as well as the integrated software in our KARNO generators; or customer data that we process or our third-party vendors or suppliers process on our behalf.
Violations of these laws, regulations, or permits and licenses may result in substantial civil and criminal fines, penalties, orders to cease the violating operations, or to conduct or pay for corrective works. In some instances, violations may also result in the suspension or revocation of permits and licenses. EPA and CARB Emissions Compliance and Certification Under the U.S.
Violations of these laws, regulations, or permits and licenses may result in substantial civil and criminal fines, penalties, orders to cease the violating operations, or to conduct or pay for corrective works. In some instances, violations may also result in the suspension or revocation of permits and licenses.
Moreover, if we or our customers find that our Hybrid system does not perform as expected or if our orders for Hybrid systems do not materialize in large numbers, we may cease to distribute our Hybrid system, or recall some or all of our product, and future distributions may be delayed or cease for some period of time or indefinitely.
Moreover, if 10 Table of Contents we or our customers find that our KARNO generator does not perform as expected or if our orders for KARNO generators do not materialize in large numbers, we may cease to distribute our KARNO generators, or recall some or all of our product, and future distributions may be delayed or cease for some period of time or indefinitely.
Because we are still getting to know our suppliers and customers, these relationships could result in controversies or even litigation, which could have a material adverse effect on our ability to continue our plans for strategic growth and ultimately our business results.
Because we are still getting to know our suppliers, these relationships could result in controversies or even litigation, which could have a material adverse effect on our ability to continue our plans for strategic growth and ultimately our business results. Increases in costs, disruption of supply or shortage of our components could harm our business.
If we cannot raise additional funds when we need them, our business, prospects, financial condition and operating results could be materially adversely affected. Our ability to use net operating loss carryforwards and other tax attributes may be limited as a result of ownership changes.
If we cannot obtain equipment and other asset financing when we need it, our business prospects, financial condition and operating results could be materially adversely affected. Our ability to use net operating loss carryforwards and other tax attributes may be limited as a result of ownership changes.
If we are unable to meet our customers’ performance requirements or industry specifications, identify target customers or convert early trial deployments into meaningful orders or obtain additional deployments in the future, our business, prospects, financial condition and operating results would be materially adversely affected.
If we are unable to meet our customers’ performance requirements or industry specifications, identify target customers or convert early-stage products into meaningful orders, our business, prospects, financial condition and operating results would be materially adversely affected.
Regardless of outcome, such proceedings or claims can have an adverse impact on us because of defense and settlement costs, diversion of resources and other factors and there can be no assurances that favorable outcomes will be obtained. Available Information Additional information about Hyliion is available at www.hyliion.com.
Regardless of outcome, such proceedings or claims can have an adverse impact on us because of defense and settlement costs, diversion of resources and other factors and there can be no assurances that favorable outcomes will be obtained.
Risks Related to Capital and Tax Matters We may need to raise additional funds and these funds may not be available to us when we need them. If we cannot raise additional funds when we need them, our business, prospects, financial condition and operating results could be negatively affected.
Risks Related to Capital and Tax Matters We may need to raise additional funds and these funds may not be available to us when we need them. If we cannot raise additional funds when we need them, our business, prospects, financial condition and operating results could be negatively affected. The design, production, sale and servicing of our products is capital-intensive.
As of December 31, 2022, our executive officers, directors and their respective affiliates, as a group, beneficially owned approximately 22.2% of our outstanding common stock.
As of December 31, 2023, our executive officers, directors and their respective affiliates, as a group, beneficially owned approximately 19.6% of our outstanding common stock.
We plan to partner with one or more third party service providers to perform some or all of the servicing on our electrified powertrain solutions, and there can be no assurance that we will be able to enter into an acceptable arrangement with any such third-party provider.
Servicing distributed generators requires specialized skills, including high voltage training and servicing techniques. We may partner with one or more third party service providers to perform some or all of the servicing on our electrified powertrain solutions, and there can be no assurance that we will be able to enter into an acceptable arrangement with any such third-party provider.
In the future, we may voluntarily or involuntarily, initiate a recall if any of our products (including the batteries we design, develop and manufacture) prove to be defective or noncompliant with applicable federal motor vehicle safety standards or other laws or regulations.
In the future, we may voluntarily or involuntarily, initiate a recall if any of our products prove to be defective or noncompliant with applicable safety standards or other laws or regulations.
Our electrified powertrain solutions may contain defects in design and production that may cause them not to perform as expected or they may require repair. There can be no assurance that we will be able to detect and fix any defects in our electrified powertrain solutions.
Our KARNO generators may contain defects in design and production that may cause them not to perform as expected or they may require repair or not achieve the expected low maintenance characteristics. There can be no assurance that we will be able to detect and fix any defects in our KARNO generators.
The design, production, sale and servicing of our electrified powertrain solutions is capital-intensive. On October 1, 2020, the Company raised net proceeds of $516.5 million. At December 31, 2020, all outstanding warrants were either exercised or redeemed, with gross proceeds of $140.8 million raised, of which $16.3 million was collected during the first quarter of 2021.
On October 1, 2020, the Company raised net proceeds of $516.5 million. At December 31, 2020, all outstanding warrants were either exercised or redeemed, with gross proceeds of $140.8 million raised, of which $16.3 million was collected during the first quarter of 2021.
To the extent the laws change, our electrified powertrain solutions and our suppliers’ products may not comply with applicable international, federal, state or local laws, which would have an adverse effect on our business. Compliance with changing regulations could be burdensome, time consuming and expensive.
We expect to incur significant costs in complying with these regulations. To the extent the laws change, our products may not comply with applicable international, federal, state or local laws, which would have an adverse effect on our business. Compliance with changing regulations could be burdensome, time consuming and expensive.
The regulatory framework for data privacy and security is rapidly evolving, and we may not be able to monitor and react to all developments in a timely manner. For example, California requires connected devices to maintain minimum information security requirements.
The regulatory framework for data privacy and security is rapidly evolving, and we may not be able to monitor and react to all developments in a timely manner.
Competition for individuals with experience designing, producing and servicing electrified vehicles and their software is intense, and we may not be able to attract, integrate, train, motivate, or retain additional highly qualified personnel, particularly with respect to software engineers in the Austin, Texas area where we are headquartered.
Competition for individuals with experience designing, producing and servicing distributed generators and their software is intense, and we may not be able to attract, integrate, train, motivate, or retain additional highly qualified personnel in the Austin, Texas and Cincinnati, Ohio areas where we are located.
As of December 31, 2022, we had U.S. federal net operating loss carryforwards of approximately $229.5 million.
As of December 31, 2023, we had U.S. federal net operating loss carryforwards of approximately $297.9 million.
Any unauthorized access to or control of our electrified powertrain solutions, or any loss of customer data, could result in legal claims or proceedings and remediation of such problems could result in significant, unplanned capital expenditures. Inability to leverage vehicle and customer data could impact our software algorithms and impact research and development operations.
Any unauthorized access to or control of our electrified powertrain solutions, or any loss of customer data, 13 Table of Contents could result in legal claims or proceedings and remediation of such problems could result in significant, unplanned capital expenditures.
We have limited experience servicing our electrified powertrain solutions and our integrated software. If we are unable to address the service requirements of our customers, our business, prospects, financial condition and operating results may be materially and adversely affected.
We have limited experience servicing our KARNO generators and our integrated software. If we are unable to address the service requirements of our customers, our business, prospects, financial condition and operating results may be materially and adversely affected. We have limited experience in servicing our KARNO generators and expect to increase our servicing capabilities as we begin commercial production.
We welcome the diversity of all team members and encourage the integration of their unique skills, thoughts, experiences and identities. By fostering an inclusive culture, we enable every member of the workforce to leverage their unique talents and deliver high-performance standards to drive innovation and success.
By fostering an inclusive culture, we enable every member of the workforce to leverage their unique talents and deliver high-performance standards to drive innovation and success.
We may receive inquiries from patent, copyright or trademark owners inquiring whether we infringe upon their proprietary rights. We may also be the subject of allegations that we have misappropriated their trade secrets or other proprietary rights.
We may receive inquiries from patent, copyright or trademark owners inquiring whether we infringe upon their proprietary rights. We may also be the subject of allegations that we have misappropriated their trade secrets or other proprietary rights. Companies owning patents or other intellectual property rights relating to distributed generators may allege infringement or misappropriation of such rights.
We believe that we compete favorably with our competitors on the basis of these factors; however, most of our current and potential competitors have greater financial, technical, manufacturing, marketing and other resources than us.
We believe that we compete favorably with our competitors on the basis of these factors; however, most of our current and potential competitors have greater financial, technical, manufacturing, marketing and other resources than us. Our competitors may be able to deploy greater resources to the design, development, manufacturing, distribution, promotion, sales, marketing and support of their generator products.
Our electrified powertrain solutions may not meet customers’ expectations or perform competitively with other vehicles that may become available.
Our products may not meet customers’ expectations or perform competitively with other distributed generators that may become available.
We rely on third-party suppliers, some of whom are single-source suppliers, for the provision and development of many of the key components and materials used in our electrified powertrain solutions, such as natural gas generators.
We rely on third-party suppliers, some of whom are single-source suppliers, for the provision and development of many of the key components and materials used in our KARNO generator system, such as linear electric machine component suppliers.
We anticipate applying for federal and state grants, loans and tax incentives under government programs designed to stimulate the economy and support the production of alternative fuel and electric vehicles and related technologies. We anticipate that in the future there will be new opportunities for us to apply for grants, loans and other incentives from federal, state and foreign governments.
We anticipate that we and our potential customers will apply for federal and state grants, loans and tax incentives under government programs designed to stimulate the economy and support the production of alternative fuel and electric vehicles and related technologies.
This will limit the usage of our 2017 and prior year net operating losses, and will cause $2.0 million of such losses to expire unused, regardless of future taxable income. No other such ownership changes have occurred through December 31, 2022.
We have completed such analysis and determined that such an ownership change occurred in 2017. This will limit the usage of our 2017 and prior year net operating losses, and will cause $2.0 million of such losses to expire unused, regardless of future taxable income.
The Hybrid system can either be installed on a new vehicle prior to entering service or retrofit onto an existing in-service vehicle. This feature gives our customers the flexibility to continue using their preferred vehicle brands and maintain their existing fleet maintenance and operations strategies.
The Hybrid system could be installed on new vehicles prior to entering service, or retrofit onto existing in-service vehicles, allowing customers to use their preferred vehicle brands and maintain their existing fleet maintenance and operations strategies.
As legislation continues to develop, we will likely be required to expend significant additional resources to continue to modify or enhance our protective measures and internal processes to comply with such legislation.
For example, California requires connected devices to maintain minimum information security requirements. 14 Table of Contents As legislation continues to develop, we will likely be required to expend significant additional resources to continue to modify or enhance our protective measures and internal processes to comply with such legislation.
Our people are integral to our business, and we are highly dependent on our ability to attract, engage, develop and retain key employees while hiring qualified management, technical, and vehicle engineering personnel.
Our people are integral to our business, and we are highly dependent on our ability to attract, engage, develop and retain key employees while hiring qualified management, technical, and vehicle engineering personnel. We welcome the diversity of all team members and encourage the integration of their unique skills, thoughts, experiences and identities.
In some jurisdictions, we may self-insure against the risk of product liability claims for 14 Table of Contents vehicle exposure, meaning that any product liability claims will likely have to be paid from company funds, not by insurance. Product liability claims could have a material adverse effect on our brand, business and financial condition.
A successful product liability claim against us could require us to pay a substantial monetary award. In some jurisdictions, we may self-insure against the risk of product liability claims for vehicle exposure, meaning that any product liability claims will likely have to be paid from company funds, not by insurance.
Our success, and our ability to increase revenue and operate profitably, depends in part on our ability to identify target customers and to convert early trial deployments with truck fleets into meaningful orders or additional deployments in the future.
We may not be able to successfully engage target customers or convert early-stage products into meaningful orders in the future. Our success, and our ability to increase revenue and operate profitably, depends in part on our ability to identify target customers and to convert early-stage products into meaningful orders in the future.
Moreover, our financial results may not meet expectations of equity research analysts, ratings agencies or investors, who may be overly focused on quarterly financial results or financial valuation models that do not match our expected growth plan. If any of this occurs, the trading price of our common stock could fall substantially, either suddenly or over time.
Moreover, our financial results may not meet expectations of equity research analysts, ratings agencies or investors, who may be overly 12 Table of Contents focused on quarterly financial results or financial valuation models that do not match our expected growth plan.
We also plan to offer the Hypertruck ERX powertrain platform (“Hypertruck ERX system”), which is a complete electrified powertrain system leveraging an onboard CNG-fueled generator to supplement battery range to transform an OEM platform into a range-extended electric vehicle (“REEV”).
The Company also continued development of its Hypertruck ERX powertrain platform (“Hypertruck ERX”), a complete electrified powertrain system leveraging an onboard compact natural-gas-fueled generator to supplement battery range to transform an OEM platform into a range extended electric vehicle.
Risks Related to our Financial Results Our financial results may vary significantly from period to period due to fluctuations in our operating costs and other factors. Our quarterly and annual operating results may fluctuate significantly, which makes it difficult for us to predict our future operating results.
Our quarterly and annual operating results may fluctuate significantly, which makes it difficult for us to predict our future operating results.
Intellectual Property Intellectual property is important to our business, and we seek protection for our strategic intellectual property. We rely upon a combination of patents, copyrights, trade secrets, know-how and trademarks, along with employee and third-party non-disclosure agreements and other contractual restrictions to establish and protect our intellectual property rights.
We rely upon a combination of patents, copyrights, trade secrets, know-how and trademarks, along with employee and third-party non-disclosure agreements and other contractual restrictions to establish and protect our intellectual property rights. As of December 31, 2023, we had 56 issued U.S. patents, 64 pending U.S. patent applications, and 22 foreign patent applications.
Any such issuances of additional shares of common or preferred stock may cause significant dilution, subordinate the rights to holders of common stock to those of preferred stock, cause a change in control, and adversely affect prevailing market prices. General Risks Future product recalls could materially adversely affect our business, prospects, financial condition and operating results.
Any such issuances of additional shares of common or preferred stock may cause significant dilution, subordinate the rights to holders of common stock to those of preferred stock, cause a change in control, and adversely affect prevailing market prices. Our failure to maintain compliance with the NYSE’s continued listing requirements could result in the delisting of our common stock.
Our inability to obtain this data or the necessary rights to use this data could result in delays or otherwise negatively impact our research and development efforts. We may need to defend ourselves against patent, copyright or trademark infringement claims or trade secret misappropriation claims, which may be time-consuming and cause us to incur substantial costs.
We may need to defend ourselves against patent, copyright or trademark infringement claims or trade secret misappropriation claims, which may be time-consuming and cause us to incur substantial costs.
We may be required to obtain and comply with the terms and conditions of multiple environmental permits, many of which are difficult and costly to obtain and could be subject to legal challenges. Compliance with such laws and regulations at an international, regional, national, provincial and local level is an important aspect of our ability to continue operations.
We may be required to obtain and comply with the terms and conditions of multiple environmental permits, many of which are difficult and costly to obtain and could be subject to legal challenges.
Our suppliers may face delays or be unable to meet our business requirements and standards at the quantity, quality, timeliness and price levels needed for our business. The entities that we expect to be customers in the future may decide not to do business with us.
However, all of our commercial relationships are in the early stages of development and we do not have the ability to predict with certainty the outcome of those relationships. Our suppliers may face delays or be unable to meet our business requirements and standards at the quantity, quality, timeliness and price levels needed for our business.
The majority of our current activities are focused on the research and development of our electrified powertrain systems, third-party component integration and the underlying proprietary battery and software technology platforms. We undertake significant testing and validation of our products and components to ensure that they will meet the demands of our customers.
The majority of our current activities are focused on the research and development of our KARNO generator. We undertake significant testing and validation of our products and components to ensure that they will meet the demands of our customers. Intellectual Property Intellectual property is important to our business, and we seek protection for our strategic intellectual property.
We began selling the Hybrid system in late 2021 and it has been installed on a variety of our customers’ commercial vehicles, utilizing multiple original equipment manufacturer (“OEM”) platforms. Our Hybrid system deployments are with innovative fleets in the transportation and logistics sector and include a variety of duty cycles, use cases and geographical regions.
The Company began selling the Hybrid system in late 2021, with deployments to fleets in the transportation and logistics sector in a variety of duty cycles, use cases, and geographical regions.
We may need to sell our products at a loss or discounted prices in the near term in order to win initial customer orders and gain the confidence of fleet customers.
We may need to sell our products at a loss or discounted prices in the short term in order to win initial customer orders and gain the confidence of potential customers. If we are unable to efficiently design, produce, market, sell, distribute and service our KARNO generator, our margins, profitability, and long-term prospects will be materially and adversely affected.
These competitors also compete with us in recruiting and retaining qualified research and development, sales, marketing and management personnel, as well as in acquiring technologies complementary to, or necessary for, our products. Additional mergers and acquisitions may result in even more resources being concentrated in our competitors.
Additionally, our competitors also have greater name recognition, longer operating histories, larger sales forces, broader customer and industry relationships and other tangible and intangible resources than us. These competitors also compete with us in recruiting and retaining qualified research and development, sales, marketing and management personnel, as well as in acquiring technologies complementary to, or necessary for, our products.
It is uncertain if and to what extent various states will conform to the Tax Act or the CARES Act. Under Section 382 of the Code, substantial changes in our ownership may result in an annual limitation on the amount of net operating loss carryforwards that could be utilized in the future to offset our taxable income.
Under Section 382 of the Code, substantial changes in our ownership may result in an annual limitation on the amount of net operating loss carryforwards that could be utilized in the future to offset our taxable income. Generally, this limitation may arise in the event of a cumulative change in ownership of more than 50% within a three-year period.
We believe the primary competitive factors in the long-haul Class 8 semi-truck market include, but are not limited to: • total cost of ownership; • emissions profile; • availability of charging or fueling network; • ease of integration into existing operations; • product performance and uptime; • vehicle quality, reliability and safety; • vehicle support, parts and on-road service network; • technological innovation specifically around battery, software and data analytics; and • fleet management.
We believe the primary competitive factors in the stationary generator market include, but are not limited to: • total cost of ownership; 7 Table of Contents • emissions profile; • availability of fueling sources; • ease of integration into existing operations; • product performance and uptime; and • generator quality, reliability, safety and noise.
At December 31, 2022, the Company had total equity of $423.6 million, inclusive of cash and cash equivalents of $119.5 million and total investments of $302.3 million. We may determine that additional funds are necessary earlier than anticipated. This capital may be necessary to fund our ongoing operations, continue research, development and design efforts, create new products and improve infrastructure.
At December 31, 2023, the Company had total equity of $306.3 million, inclusive of cash and cash equivalents of $12.9 million and total investments of $278.5 million. We may determine that additional funds are necessary earlier than anticipated.
The unexpected loss of or failure to retain one or more of our key employees could adversely affect our business. If we fail to manage our growth effectively, including failing to attract qualified personnel, we may not be able to develop, produce, market and sell our electrified powertrain solutions successfully.
If we fail to manage our growth effectively, including failing to attract qualified personnel, we may not be able to develop, produce, market and sell our distributed generation products successfully. Any failure to manage our growth effectively could materially and adversely affect our business, prospects, operating results and financial condition. We intend to expand our operations in future years.
Increases in costs, disruption of supply or shortage of our components, particularly battery cells, could harm our business. Once we begin commercial production of our electrified powertrain solutions, we may experience increases in the cost or a sustained interruption in the supply or shortage of our components.
Once we begin commercial production of our KARNO generator, we may experience increases in the cost or a sustained interruption in the supply or shortage of our components. Any such increase or supply interruption could materially negatively impact our business, prospects, financial condition and operating results.
We cannot be sure that patents will be granted with respect to any of our pending patent applications or with respect to any patent applications we may own or license in the future, nor can we be sure that any of our existing patents or any patents we may own or license in the future will be useful in protecting our technology.
We cannot be sure that patents will be granted with respect to any of our pending patent applications or with respect to any patent applications we may own or license in the future, nor can we be sure that any of our existing patents or any patents we may own or license in the future will be useful in protecting our technology. 6 Table of Contents Human Capital As of December 31, 2023, we had approximately 85 full-time employees, excluding employees working on the wind-down of our powertrain operations whose positions are expected to be eliminated by the end of the first quarter of 2024.
We must also successfully market our electrified powertrain solutions and services to customers, sell our systems at prices needed to achieve positive gross margins and control operating and production costs.
Our ability to become profitable in the future will require us to complete the design, development and testing of our KARNO generator while achieving projected performance criteria. We must also successfully market our KARNO generator and related services to customers, sell our systems at prices needed to achieve positive gross margins, and control operating and production costs.
In September 2022 we acquired assets including new hydrogen and fuel-agnostic-capable generator technology from General Electric Company's GE Additive business. The KARNO generator emerged out of GE’s long-running R&D investments in metal additive manufacturing across multiple industries and in areas such as generator thermal and performance design.
Products and Services KARNO Generator System The KARNO generator emerged out of GE’s long-running research and development investments in aerospace engines and metal additive manufacturing across multiple industries and in areas such as generator thermal and performance design.
Due to the specific skills required, the strong job market nationally and the high cost of living and competition in the Austin, Texas area, we may experience increased compensation, recruiting and relocation expenses to achieve our hiring goals.
Due to the specific skills required and the strong job market nationally, we may experience increased compensation, recruiting and relocation expenses to achieve our hiring goals. The failure to attract, integrate, train, motivate and retain these additional employees could seriously harm our business, prospects, financial condition and operating results.
Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may become material and adversely affect our business. Risks Related to our Business We are an early-stage company with a history of losses, and expect to incur significant expenses and continuing losses for the foreseeable future.
Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may become material and adversely affect our business. Risks Related to our Business We may experience significant delays in the design, production and launch of the KARNO generator which could harm our business, prospects, financial condition and operating results.
The failure to attract, integrate, train, motivate and retain these additional employees could seriously harm our business, prospects, financial condition and operating results. Risks Related to our Products If our electrified powertrain solutions fail to perform as expected, our ability to develop, market and sell our electrified powertrain solutions could be harmed.
The prices for our components fluctuate depending on 11 Table of Contents market conditions and global demand and could adversely affect our business, prospects, financial condition and operating results. Risks Related to our Products If our KARNO generators fail to perform as expected, our ability to develop, market and sell our products could be harmed.
We may raise additional funds through the issuance of equity, equity related or debt securities or through obtaining credit from government or financial institutions. We cannot be certain that additional funds will be available to us on favorable terms when required, or at all.
We cannot be certain that additional funds will be available to us on favorable terms when required, or at all. If we cannot raise additional funds when we need them, our business, prospects, financial condition and operating results could be materially adversely affected.
Our electrified powertrain solutions are still in the development and testing phase, and commercial deliveries of the Hypertruck ERX system are not expected to begin until late 2023 or later, and may not occur at all.
The KARNO generator is still in the development and testing phase, and commercial deliveries are not expected to begin until late 2024 or later, and may not occur at all. Initial deployments may not be recognized as revenue, or there may be a need to deploy units at a decreased price or for free to obtain initial customers.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeOur lease of this facility expires in April 2027 and we have the option to extend the lease for two additional five-year terms. We also lease an approximately 12,000 square foot facility in West Chester, Ohio, where we design and develop the KARNO technology. Our lease of the Ohio facility expires in September 2023.
Biggest changeWe also lease an approximately 30,000 square foot facility in Milford, Ohio near, Cincinnati, Ohio, where we design and develop the KARNO technology. Our lease of the Ohio facility expires in June 2028, with the option to extend the term for up to two consecutive terms of three years.
We believe that our current facilities are in good working order and are capable of supporting our operations for the foreseeable future; however, we will continue to evaluate buying or leasing additional space as needed to accommodate our growth.
We believe that our current facilities are in good working order and are capable of supporting our operations for the foreseeable future; however, we will continue to evaluate buying or leasing additional space as needed to accommodate our growth. 18 Table of Contents
ITEM 2. PROPERTIES Our headquarters are located in an approximately 152,000 square foot facility comprised of two buildings that we lease in Cedar Park, Texas, just north of Austin, Texas, where we design, develop, prototype and perform low volume assembly and installation of our electrified powertrain systems and components.
ITEM 2. PROPERTIES Our headquarters are located in an approximately 152,000 square foot facility comprised of two buildings that we lease in Cedar Park, Texas, just north of Austin, Texas, where our administrative function is primarily located. Our lease of this facility expires in April 2027 and we have the option to extend the lease for two additional five-year terms.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeRefer to Note 17 of the notes to the consolidated financial statements for further information on our legal proceedings. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 24 Table of Contents Part II
Biggest changeRefer to Note 14 of the notes to the consolidated financial statements for further information on our legal proceedings. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 19 Table of Contents Part II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeMARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information Our common stock is currently listed on the NYSE under the symbol “HLYN.” Prior to the consummation of the Business Combination, our common stock was listed on the NYSE under the symbol “SHLL.” Holders As of February 17, 2023, there were 84 holders of record of our Common Stock.
Biggest changeITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information Our common stock is currently listed on the NYSE under the symbol “HYLN.” Holders As of February 6, 2024, there we re 74 holders of record of our Common Stock.
Recent Sales of Unregistered Equity Securities In connection with the acquisition of assets from General Electric Company, acting solely by and through its GE Additive business unit, on September 26, 2022, we issued an aggregate of 5,500,000 shares of our common stock (the “Share 25 Table of Contents Consideration”) to General Electric Company as a portion of the consideration for the assets.
Recent Sales of Unregistered Equity Securities In connection with the acquisition of assets from General Electric Company, acting solely by and through its GE Additive business unit, on September 26, 2022, we issued an aggregate of 5,500,000 shares of our common stock (the “Share Consideration”) to General Electric Company as a portion of the consideration for the assets.
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We may retain future earnings, if any, for future operations, expansion and debt repayment and have no current plans to pay cash dividends for the foreseeable future.
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Issuer Purchases of Equity Securities The following table provides information regarding repurchases of our Common Stock during the quarter ended December 31, 2023: Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) Maximum Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (2) October 1 - 31, 2023 — $ — — $ 20,000,000 November 1 - 30, 2023 — $ — — $ 20,000,000 December 1 - 31, 2023 37,062 $ 0.85 37,062 $ 19,968,338 Total 37,062 37,062 1 Share repurchases are conducted under our share repurchase program announced in December 2023, which has no expiration date, authorizing the repurchase of up to $20 million in shares. 2 This column includes the total value of shares available for repurchase under the Company's share repurchase program.
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Stock Performance Graph This performance graph shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or incorporated by reference into any filing of Hyliion under the Securities Act of 1933, as amended (the “Securities Act”), or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.
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Shares under our share repurchase program may be repurchased in open market transactions, including pursuant to a trading plan adopted in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934, or through privately negotiated transactions.
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The following graph shows a comparison, from January 1, 2020 through December 31, 2022, of the cumulative total return on our common stock, the NASDAQ Composite Index and the S&P American SmallCap Capital Goods Index.
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The timing, manner, price and amount of repurchases will be determined at our discretion and the share repurchase program may be suspended, terminated or modified at any time for any reason.
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Data for the NASDAQ Composite Index and the S&P American SmallCap Capital Goods Index assumes an investment of $100 on January 1, 2020 and reinvestment of dividends.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeAs a result of our acquisition of the KARNO generator technology, we plan to assume a government contract with the United States Office of Naval Research that is not expected to have a material impact on our business. 28 Table of Contents Results of Operations Comparison of Years Ended December 31, 2022 and 2021 The following table summarizes our results of operations on a consolidated basis for the years ended December 31, 2022 and 2021 (in thousands, except share and per share data): Year Ended December 31, 2022 2021 $ Change % Change Revenues Product sales and other $ 2,106 $ 200 $ 1,906 953.0 % Total revenues 2,106 200 1,906 953.0 % Cost of revenues Product sales and other 8,778 2,737 6,041 220.7 % Total cost of revenues 8,778 2,737 6,041 220.7 % Gross loss (6,672) (2,537) (4,135) 163.0 % Operating expenses Research and development 110,370 58,261 52,109 89.4 % Selling, general and administrative expenses 41,988 35,299 6,689 18.9 % Total operating expenses 152,358 93,560 58,798 62.8 % Loss from operations (159,030) (96,097) (62,933) 65.5 % Interest income 5,724 779 4,945 634.8 % Loss on impairment and disposal of assets (19) (730) 711 (97.4) % Other expense, net (32) — (32) N/A Net loss $ (153,357) $ (96,048) $ (57,309) 59.7 % Net loss per share, basic and diluted $ (0.87) $ (0.56) $ (0.31) 55.4 % Weighted-average shares outstanding, basic and diluted 175,400,486 172,216,477 3,184,009 1.8 % Revenue Sales increased $1.9 million, driven by sales associated with our Hybrid products.
Biggest changeWe plan to seek additional government contracts in the future and may reassess the classification of such contracts as revenue based on business strategy. 22 Table of Contents Results of Operations Comparison of Years Ended December 31, 2023 and 2022 The following table summarizes our results of operations on a consolidated basis for the years ended December 31, 2023 and 2022 (in thousands, except share and per share data): Year Ended December 31, 2023 2022 $ Change % Change Revenues Product sales and other $ 672 $ 2,106 $ (1,434) (68.1) % Total revenues 672 2,106 (1,434) (68.1) % Cost of revenues Product sales and other 1,716 8,778 (7,062) (80.5) % Total cost of revenues 1,716 8,778 (7,062) (80.5) % Gross loss (1,044) (6,672) 5,628 (84.4) % Operating expenses Research and development 82,240 110,370 (28,130) (25.5) % Selling, general and administrative 42,611 41,988 623 1.5 % Exit and termination costs 11,474 — 11,474 N/A Total operating expenses 136,325 152,358 (16,033) (10.5) % Loss from operations (137,369) (159,030) 21,661 (13.6) % Interest income 13,808 5,724 8,084 141.2 % Gain (loss) on impairment and disposal of assets 1 (19) 20 N/A Other income (expense), net 50 (32) 82 N/A Net loss $ (123,510) $ (153,357) $ 29,847 (19.5) % Net loss per share, basic and diluted $ (0.68) $ (0.87) $ 0.19 (21.8) % Weighted-average shares outstanding, basic and diluted 181,411,069 175,400,486 6,010,583 3.4 % Revenue Sales associated with our Hybrid products decreased $1.4 million.
Cash used primarily related to a net loss of $153.4 million, adjusted for $8.7 million change in working capital accounts and $45.2 million in certain non-cash expenses (including $28.8 million related to acquired in-process research and development comprised of the noncash component and the cash component attributable to investing activities, $7.0 million related to share-based compensation, $5.6 million related to inventory write-downs and $2.5 million related to depreciation, amortization and accretion charges).
Cash used primarily related to a net loss of $153.4 million, adjusted for $8.7 million change in working capital accounts and $45.2 million in certain non-cash expenses (including $28.8 million related to acquired in-process research and development comprised of the non-cash component and the cash component attributable to investing activities, $7.0 million related to share-based compensation, $5.6 million related to inventory write-downs and $2.5 million related to depreciation, amortization and accretion charges).
The unrealized gains and losses of the portfolio may remain volatile as changes in the general interest environment and supply and demand fluctuations of the securities within our portfolio impact daily market valuations.
The unrealized gains and losses of the portfolio may remain volatile as changes in the general interest rate environment and supply and demand fluctuations of the securities within our portfolio impact daily market valuations.
In addition, these unusual and unpredictable market developments may also create liquidity challenges for certain of the assets in our investment portfolio. Based on our past performance, we believe our current assets will be sufficient to continue and execute on our business strategy and meet our capital requirements for the next twelve months.
In addition, these unusual and unpredictable market developments may also create liquidity challenges for certain of the assets in our investment portfolio. Based on our past performance, we believe our current and long-term assets will be sufficient to continue and execute on our business strategy and meet our capital requirements for the next twelve months.
However, even with this approach we may incur investment losses as a result of unusual or unpredictable market developments, and we may experience reduced investment earnings if the yields on investments deemed to be low risk decline due to unpredictable market developments.
However, even with this approach we may incur investment losses as a result of unusual or unpredictable market developments, and we may experience reduced investment earnings if the yields on investments deemed to be low risk remain low or decline further due to unpredictable market developments.
While our significant accounting policies are described in the notes to our financial statements (see Note 2 in the accompanying audited consolidated financial statements), we believe that the following accounting policies require a greater degree of judgment and complexity.
While our significant accounting policies are described in the notes to our financial statements (see Note 3 in the accompanying audited consolidated financial statements), we believe that the following accounting policies require a greater degree of judgment and complexity.
Factors that also affect SG&A expense include the total number of employees, costs incurred as a result of operating as a public company, including compliance with the rules and regulations of the U.S. Securities and Exchange Commission, legal, audit, insurance, investor relations activities and other administrative and professional services.
Factors that also affect selling, general and administrative expense include the total number of employees, costs incurred as a result of operating as a public company, including compliance with the rules and regulations of the U.S. Securities and Exchange Commission, legal, audit, insurance, investor relations activities and other administrative and professional services.
Management bases its estimates on historical experience and on various other assumptions believed to be reasonable, the results of which form the basis for 31 Table of Contents making judgments about the carrying values of assets and liabilities. Actual results could differ from those estimates, and such differences could be material to our financial statements.
Management bases its estimates on historical experience and on various other assumptions believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results could differ from those estimates, and such differences could be material to our financial statements.
Cash used primarily related to the purchase of investments totaling $268.6 million, the cash component of acquired in-process research and development of $14.4 million and property and equipment of $2.9 million, partially offset by the sale or maturity of investments of $263.7 million. For the year ended December 31, 2021, cash flows used in investing activities were $66.0 million.
For the year ended December 31, 2022, cash flows used in investing activities were $22.0 million. Cash used primarily related to the purchase of investments totaling $268.6 million, the cash component of acquired in-process research and development of $14.4 million and property and equipment of $2.9 million, partially offset by the sale or maturity of investments of $263.7 million.
The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the balance sheet date, as well as the reported expenses incurred during the reporting period.
The preparation of these consolidated financial statements requires us to make estimates 25 Table of Contents and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the balance sheet date, as well as the reported expenses incurred during the reporting period.
See Recent Accounting Pronouncements issued, not yet adopted under Note 2 – Summary of Significant Accounting Policies in the notes to the 2022 consolidated financial statements for more information about recent accounting pronouncements, the timing of their adoption and our assessment, to the extent we have made one, of their potential impact on our financial condition and results of operations.
See Recent Accounting Pronouncements issued, not yet adopted under Note 3 – Summary of Significant Accounting Policies in the notes to the 2023 consolidated financial statements for more information about recent accounting pronouncements, the timing of their adoption and our assessment, to the extent we have made one, of their potential impact on our financial condition and results of operations.
We do not offer any sales returns. Amounts billed to customers related to shipping and handling are classified as revenue, and we have elected to recognize the cost for freight and shipping when control has transferred to the customer as a cost of revenue. Our policy is to exclude taxes collected from customers from the transaction price of contracts.
We did not offer any sales returns. Amounts billed to customers related to shipping and handling were classified as revenue, and we have elected to recognize the cost for freight and shipping when control has transferred to the customer as a cost of revenue. Our policy is to exclude taxes collected from customers from the transaction price of contracts.
We recognize revenue on Hybrid system sales and Class 8 semi-trucks outfitted with Hybrid systems upon delivery to, and acceptance of the vehicle by, the customer, which is when control transfers. Contracts are reviewed for significant financing components and payments are typically received within 30 days of delivery.
We recognized revenue on Hybrid system sales and Class 8 semi-trucks outfitted with Hybrid systems upon delivery to, and acceptance of the vehicle by, the customer, which is when control transfers. Contracts were reviewed for significant financing components and payments were typically received within 30 days of delivery.
Research and Development Expense Research and development expenses consist primarily of costs incurred for the discovery and development of our electrified powertrain solutions, which include: • personnel-related expenses including salaries, benefits, travel and share-based compensation, for personnel performing research and development activities; • fees paid to third parties such as contractors for outsourced engineering services and to consultants; • expenses related to truck components for development and test vehicles, materials, supplies and other third-party services; • depreciation for equipment used in research and development activities; • acquired in-process research and development from asset acquisition; and • allocation of general overhead costs.
Research and Development Expense Research and development expenses consist primarily of costs incurred for the discovery and development of our KARNO stationary generator and electrified powertrain solutions, which include: • personnel-related expenses including salaries, benefits, travel and share-based compensation, for personnel performing research and development activities; • fees paid to third parties such as contractors for outsourced engineering services and to consultants; • expenses related to components for development and testing, materials, supplies and other third-party services; • depreciation for equipment used in research and development activities; • acquired in-process research and development from asset acquisition; and • allocation of general overhead costs.
We consider factors such as, but not limited to, which entity has the primary responsibility for fulfilling the promise to provide the specified good or service, which entity has inventory risk before the specified good or service has been transferred to a customer and which entity has discretion in establishing the price for the specified good or service.
We considered factors such as, but not limited to, which entity had the primary responsibility for fulfilling the promise to provide the specified good or service, which entity had inventory risk before the specified good or service had been transferred to a customer and which entity had discretion in establishing the price for the specified good or service.
The Company’s products are marketed and sold to end-user fleet customers in North America. When our contracts with customers contain multiple performance obligations and where material, the contract transaction price is allocated on a relative standalone selling price basis to each performance obligation.
The Company’s products were marketed and sold to end-user fleet customers in North America. When our contracts with customers contained multiple performance obligations and where material, the contract transaction price was allocated on a relative standalone selling price basis to each performance obligation.
“Risk Factors.” During the periods presented, we did not have any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities, which were established for the purpose of facilitating off-balance sheet arrangements.
During the periods presented, we did not have any relat ionships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities, which were established for the purpose of facilitating off-balance sheet arrangements.
Revenue Recognition Revenue is comprised of sales of Hybrid systems for Class 8 semi-trucks, Class 8 semi-trucks outfitted with Hybrid systems and specific other features and services that meet the definition of a performance obligation, including internet connectivity and data processing. We provide installation services for the Hybrid system onto the customers’ vehicle.
Revenue Recognition Revenue was historically comprised of sales of Hybrid systems for Class 8 semi-trucks, Class 8 semi-trucks outfitted with Hybrid systems and specific other features and services that met the definition of a performance obligation, including internet connectivity and data processing. We provided installation services for the Hybrid system onto the customers’ vehicle.
The sale of a Hybrid system to an end-use fleet customer consists of a completed modification to the customer vehicle and the installation services involve significant integration of the Hybrid system with the customer’s vehicle. Installation services are not distinct within the context of the contract and together with the sale of the Hybrid system represent a single performance obligation.
The sale of a Hybrid system to an end-use fleet customer consisted of a completed modification to the customer vehicle and the installation services involved significant integration of the Hybrid system with the customer’s vehicle. Installation services were not distinct within the context of the contract and together with the sale of the Hybrid system represented a single performance obligation.
Cash Flows Net cash, cash equivalents and restricted cash provided by or used in operating activities, investing activities and financing activities for is summarized as follows for the periods indicated and should be read in conjunction with our consolidated financial statements and the notes thereto included in Part II, Item 8 of this Annual Report on Form 10-K (in thousands): Year Ended December 31, 2022 2021 Cash from operating activities $ (116,877) $ (80,502) Cash from investing activities (22,022) (65,991) Cash from financing activities (78) 15,898 $ (138,977) $ (130,595) Cash from Operating Activities For the year ended December 31, 2022, cash flows used in operating activities were $116.9 million.
Cash Flows Net cash, cash equivalents and restricted cash provided by or used in operating activities, investing activities and financing activities is summarized as follows for the periods indicated and should be read in conjunction with our consolidated financial statements and the notes thereto included in Part II, Item 8 of this Annual Report on Form 10-K (in thousands): Year Ended December 31, 2023 2022 Cash from operating activities $ (116,962) $ (116,877) Cash from investing activities 18,308 (22,022) Cash from financing activities (15) (78) $ (98,669) $ (138,977) Cash from Operating Activities For the year ended December 31, 2023, cash flows used in operating activities were $117.0 million.
Contractual Obligations and Capital Resources We manage our use of cash in the operation of our business to support the execution of our primary strategic goals including the design, development and sale of electrified powertrain systems for long haul Class 8 semi-trucks. We primarily use cash for research and development activities, capital investments and general and administrative costs.
Contractual Obligations and Capital Resources We manage our use of cash in the operation of our business to support the execution of our primary strategic goals including the design, development and sale of the KARNO generator. We primarily use cash for research and development activities, capital investments and general and administrative costs.
The increase in cost of revenues includes: • Inventory write-downs of $3.2 million attributable to inventory on hand that had a cost higher than its expected net realizable value; • Costs associated with sales of Hybrid systems and class 8 semi-trucks of $2.2 million; and • Warranty costs of $0.6 million for estimated costs to administer and maintain the warranty program for labor, transportation and parts, excluding any contribution from vendors.
The decrease in cost of revenues includes: • A decrease in inventory write-downs of $4.5 million attributable to inventory on hand that had a cost higher than its expected net realizable value as we purchased less inventory in the current year; • A decrease in costs associated with sales of Hybrid systems of $2.2 million; and • A decrease in warranty costs of $0.4 million for estimated costs to administer and maintain the warranty program for labor, transportation and parts, excluding any contribution from vendors as we sold fewer Hybrid systems in the current year.
Should product failure rates and fulfillment costs differ from these estimates, material revisions to the estimated warranty liability would be required. Warranty expense is recorded as a component of cost of revenue.
We recognize the cost of the warranty upon transfer of control based on estimated and historical claims rates and fulfillment costs, which are variable. Should product failure rates and fulfillment costs differ from these estimates, material revisions to the estimated warranty liability would be required. Warranty expense is recorded as a component of cost of revenue.
The amount and timing of our future funding requirements, if any, will depend on many factors, including the pace and results of our research and development efforts, the breadth of product offerings we plan to commercialize, the pace of sales and production growth, as well as factors that are outside of our control.
“Risk Factors.” The amount and timing of our future funding requirements, if any, will depend on many factors, including the pace and results of our research and development efforts, the breadth of product offerings we plan to commercialize, the pace of sales, and our long-term plan manufacturing plan for the KARNO generator including plans for financing additive printer investments, as well as factors that are outside of our control.
For the year ended December 31, 2021, cash flows used in operating activities were $80.5 million.
For the year ended December 31, 2022, cash flows used in operating activities were $116.9 million.
Cash flows were primarily due to payment of taxes related to net share settlement of equity awards of $0.2 million. For the year ended December 31, 2021, cash flows provided by financing activities were $15.9 million.
Cash from Financing Activities For the year ended December 31, 2023, cash flows used in financing activities were nil. For the year ended December 31, 2022, cash flows used in financing activities were $0.1 million. Cash flows were primarily due to payment of taxes related to net share settlement of equity awards of $0.2 million.
During the fourth quarter of 2021, we changed from a research and development phase to a production phase for our Hybrid system product.
During the fourth quarter of 2021, we changed from a research and development phase to a production phase for our Hybrid system product. Through December 31, 2023, we have not yet commercialized the KARNO generator.
Our current liabilities were $14.7 million primarily comprised of accounts payable, accrued expenses and operating lease liabilities. We believe the credit quality and liquidity of our investment portfolio as of December 31, 2022 is strong and will provide sufficient liquidity to satisfy operating requirements, working capital purposes and strategic initiatives.
We believe the credit quality and liquidity of our investment portfolio at December 31, 2023 is strong and will provide sufficient liquidity to satisfy operating requirements, working capital purposes and strategic initiatives.
Future share-based compensation cost will increase to the extent that we grant additional share-based awards to employees and nonemployees. If there are any modifications or cancellations of the underlying unvested securities, we may be required to accelerate any remaining unearned share-based compensation cost or incur incremental cost.
If there are any modifications or cancellations of the underlying unvested securities, we may be required to accelerate any remaining unearned share-based compensation cost or incur incremental cost. Share-based compensation cost affects our research and development and selling, general and administrative expenses.
We expect to continue to invest in research and development activities to achieve operational and commercial goals and as we develop new platforms that incorporate our Hypertruck ERX system.
We expect to continue to invest in research and development activities to achieve operational and commercial goals.
Further, we plan to develop and commercialize the fuel agnostic Hypertruck KARNO with an anticipated commercial launch a few years after the Hypertruck ERX. However, actual results could vary materially and negatively as a result of a number of factors including, but not limited to, those discussed in Part I, Item 1A.
However, actual results could vary materially and negatively as a result of a number of factors including, but not limited to, those discussed in Part I, Item 1A.
Certain costs incurred for components acquired prior to our determination of reaching a commercial stage were previously expensed as research and development costs, resulting in zero cost basis for those components, which affected the 32 Table of Contents moving-average price.
Costs incurred for components acquired prior to our determination of reaching a commercial stage are expensed as research and development 26 Table of Contents costs, resulting in zero cost basis for those components. As a result, moving-average prices for inventory that is capitalized in future periods may be significantly affected by those zero cost items.
Cash used primarily related to a net loss of $96.0 million, adjusted for $4.2 million changes in working capital accounts and $11.4 million in certain non-cash expense (including $4.9 million related to share-based compensation, $2.3 million related to inventory write-downs, $1.8 million related to amortization of investment premiums and discounts, $0.9 million related to depreciation and amortization, $0.7 million related to non-cash lease expense and $0.7 million related to loss on impairment or disposal of assets).
Cash used primarily related to a net loss of $123.5 million, adjusted for $2.9 million change in working capital accounts and $9.5 million in certain non-cash expenses (including $6.2 million related to share-based compensation, $1.1 million related to inventory write-downs and $0.6 million related to depreciation, amortization and accretion charges).
In the fourth quarter of fiscal 2021, we began taking deposits to secure future Hypertruck ERX production slots. When a Class 8 semi-truck outfitted with a Hybrid system is resold to a customer, judgment is required to determine if we are the principal or agent in the arrangement.
When a Class 8 semi-truck outfitted with a Hybrid system was resold to a customer, judgment was required to determine if we were the principal or agent in the arrangement.
We have limited sales history of our Hybrid systems and therefore are required to make certain estimates and assumptions with regard to the recognition of revenue including, among other things, the value of any future performance obligations. We expect to refine our sales processes, contracts and services as our business matures.
We have determined that we were the principal in transactions involving the resale of Class 8 semi-trucks outfitted with the Hybrid system. We had limited sales history of our Hybrid systems and therefore were required to make certain estimates and assumptions with regard to the recognition of revenue including, among other things, the value of any future performance obligations.
Our cash requirements beyond twelve months include: • Operating and Finance Leases — Refer to Note 11 of the notes to the consolidated financial statements for further information of our obligations and the timing of expected payments. • Warranties — Refer to Note 15 of the notes to the consolidated financial statements for further information of our obligations.
Our cash requirements beyond twelve months include: • Leases — Refer to Note 9 of the notes to the consolidated financial statements for further information of our obligations and the timing of expected payments. • Purchase Commitments — Purchase obligations include non-cancelable purchase commitments related to materials purchase agreements and volume commitments which are entered into from time to time.
Semi-truck inventory is valued using the specific identification cost method and all other inventory is valued using the moving-average cost method. Inventory is stated at the lower of cost or net realizable value. We review our inventory to determine whether its carrying value exceeds the net amount realizable we expect to receive upon the ultimate sale of the inventory.
We review our inventory to determine whether its carrying value exceeds the net amount realizable we expect to receive upon the ultimate sale of the inventory.
Cash used primarily related to the purchase of investments totaling $317.8 million, partially offset by the sale or maturity of investments of $254.2 million. Cash from Financing Activities For the year ended December 31, 2022, cash flows used in financing activities were $0.1 million.
Cash from Investing Activities For the year ended December 31, 2023, cash flows provided by investing activities were $18.3 million. Cash used primarily related to the purchase of investments totaling $189.7 million and property and equipment of $7.4 million, offset by the sale or maturity of investments of $215.4 million.
Research and Development Research and development expenses increased $52.1 million primarily due to: • $28.8 million related to acquisition of hydrogen and fuel agnostic capable generator technology (“KARNO”) in September 2022 from General Electric Company's GE Additive business to develop and commercialize the fuel-agnostic Hypertruck KARNO; • An increase of $19.0 million for the design and testing of our Hypertruck ERX system including an increase in expenses related to components, services and personnel as we build out our engineering, operations and supply chain teams and associated capabilities; and 29 Table of Contents • An increase of $3.4 million for the design and testing of our Hypertruck KARNO system.
Research and Development Research and development expenses decreased $28.1 million due to: • A decrease of $28.8 million related to KARNO technology acquired in September 2022 from General Electric Company’s GE Additive business to develop and commercialize the fuel agnostic KARNO generator; and • A decrease of $13.4 million for the design and testing of our Hypertruck ERX system; offset by • An increase of $14.1 million for the design and testing of our KARNO stationary generator. 23 Table of Contents Selling, General and Administrative Selling, general, and administrative expenses increased $0.6 million primarily due to: • An increase of $1.3 million in professional services and other one-time charges; and • An increase of $1.2 million in personnel and benefits, offset by costs related to the prior-year departure of our previous Chief Financial Officer; partially offset by • A decrease of $2.3 million for insurance costs.
We expect to continue to incur net losses in the short term, as we continue to execute on our strategic initiatives by (i) completing the development and commercialization of the electrified drive systems for Class 8 semi-trucks, (ii) scaling the Company’s operations to meet anticipated demand and (iii) hiring personnel.
We expect to continue to incur net losses in the short term, as we continue to execute on our strategic initiatives by completing the development and commercialization of the KARNO generator with anticipated initial customer deployments in late 2024.
Due to this, as well as our overall profitability estimate as noted above, we have recorded a full valuation allowance related to our net operating loss carryforwards and other deferred tax assets due to the uncertainty of the ultimate realization of the future benefits of those assets. 33 Table of Contents New and Recently Adopted Accounting Pronouncements From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) or other standard setting bodies that are adopted by us as of the specified effective date.
New and Recently Adopted Accounting Pronouncements From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) or other standard setting bodies that are adopted by us as of the specified effective date.
Key Factors Affecting Operating Results We believe that our performance and future success depend on several factors that present significant opportunities for us but also pose risks and challenges, including but not limited to those discussed below and in Item 1A “Risk Factors”.
We do not undertake, and expressly disclaim, any obligation to publicly update any forward-looking statements, whether as a result of new information, new developments or otherwise, except to the extent that such disclosure is required by applicable law. 20 Table of Contents Key Factors Affecting Operating Results We believe that our performance and future success depend on several factors that present significant opportunities for us but also pose risks and challenges, including but not limited to current economic uncertainties, supply chain disruptions, inflation and high interest rates as well as those discussed below and referenced in Item 1A “Risk Factors”.
The warranty period typically extends for the lesser of two years or 200,000 miles following transfer of control and solely relates to correction of product defects during the warranty period. We recognize the cost of the warranty upon transfer of control based on estimated and historical claims rates and fulfillment costs, which are variable.
Warranties We historically provided limited assurance-type warranties under our contracts and do not offer extended warranties. We plan to continue to service legacy warranties through their remaining term. The warranty period typically extends for the lesser of two years or 200,000 miles following transfer of control and solely relates to correction of product defects during the warranty period.
At December 31, 2022, we had federal net operating loss carryforwards of $229.5 million and state net operating loss carryforwards of $12.5 million that expire in various years starting in 2036. The Company also has R&D credits of $4.1 million that begin to expire in 2037.
Incom e Taxes We recognize deferred taxes for temporary differences between the basis of assets and liabilities for financial statement and income tax purposes. At December 31, 2023, we had federal net operating loss carryforwards of $297.9 million and state net operating loss carryforwards of $12.5 million that expire in various years starting in 2036.
Cash flows were primarily due to proceeds from the exercise of warrants of $16.3 million and proceeds from the exercise of common stock options of $0.6 million, partially offset by repayment of $0.9 million from a Paycheck Protection Program loan. 30 Table of Contents Liquidity and Capital Resources At December 31, 2022, our current assets were $324.2 million, consisting primarily of cash and cash equivalents of $119.5 million, short-term investments of $193.7 million, and prepaid expenses of $9.8 million.
Liquidity and Capital Resources At December 31, 2023, our current assets were $181.7 million, consisting primarily of cash and cash equivalents of $12.9 million, short-term investments of $150.3 million, and prepaid expenses of $18.5 million. Our current liabilities were $15.1 24 Table of Contents million primarily comprised of accounts payable, accrued expenses and operating lease liabilities.
We anticipate that a substantial portion of our capital resources and efforts in the near future will be focused on the continued development and commercialization of our drivetrain solutions and for working capital purposes as we ramp up production volumes of the Hypertruck ERX system.
Successful Commercialization of KARNO Generator Our focus in the fourth quarter of 2023 was on continuing development and testing of our fuel-agnostic KARNO stationary generator and deploying initial revenue-generating units with customers in 2024. We anticipate that a substantial portion of our capital resources and efforts in the near future will be focused these activities.
Other Income (Expense) Total other income increased $5.6 million primarily due to: • An increase of $4.9 million in interest income on investments; and • A loss on impairment and disposal of assets of $0.7 million for the year ended December 31, 2021.
Exit and Termination Costs Exit and termination costs of $11.5 million were a result of the strategic plan and items discussed in Note 2 of the notes to the consolidated financial statements. Other Income (Expense ) Total other income increased $8.2 million prim arily due to an increase in interest income on investments.
Removed
We do not undertake, and expressly disclaim, any obligation to publicly update any forward-looking statements, whether as a result of new information, new developments or otherwise, except to the extent that such disclosure is required by applicable law.
Added
Strategic Business Developments On November 7, 2023, the board of directors (the “Board”) of the Company approved a strategic plan to wind down its powertrain business and preserve technology relating to the powertrain business, to better align its workforce with the Company’s future needs, and to reduce the Company’s operating costs (the “Plan”).
Removed
For discussion related to changes in financial condition and the results of operations for fiscal year 2020-related items, refer to Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for fiscal year 2021, which was filed with the Securities and Exchange Commission on February 24, 2022.
Added
As part of the Plan, the Company will continue to focus on commercialization of its KARNO generator technology. Following completion of the Plan, we no longer expect to recognize revenue on products not related to KARNO technology, including the Company’s Hypertruck ERX system (“Hypertruck ERX”) and Hyliion Hybrid system (“Hybrid”).
Removed
Comparability of Financial Information Our historical operations and statements of assets and liabilities may not be comparable to our operations and statements of assets and liabilities as a result of the Business Combination and becoming a public company.
Added
The amount and timing of our future funding requirements, if any, will depend on many factors, including but not limited to the pace of completing initial KARNO generator design, testing and validation, the pace at which we introduce initial generator units to the market, our strategies for manufacturing KARNO generator components (whether in-house or through outsourcing to third parties), the range of product offerings we plan to bring to market and external market factors beyond our control. 21 Table of Contents Key Components of Statements of Operations Revenue We historically generated revenues from sales of Hybrid systems for Class 8 semi-trucks and limited quantities of Class 8 semi-trucks outfitted with the Hybrid system.
Removed
Successful Commercialization of Our Drivetrain Solutions We began selling our Hybrid system in the fourth quarter of 2021 and sales continued throughout 2022.
Added
As a result of the discontinuation of the electrified powertrain systems business and the shift to focus exclusively on the development and commercialization of the Company’s fuel-agnostic KARNO generator technology, we do not anticipate generating future revenues until we begin commercialization of our KARNO generators.
Removed
Our first early development Hypertruck ERX showcase unit was unveiled on August 31, 2021 at the ACT Expo in Long Beach, California and throughout 2021 and 2022 we’ve offered potential customers the opportunity to experience its operation in demonstration events and in real-world applications hauling freight for shippers.
Added
Exit and Termination Costs Exit and termination costs consist of employee severance and retention payments, accelerated non-cash stock-based compensation expense, contract termination and other cancellation costs, and non-cash charges including accelerated depreciation and amortization.
Removed
The Hybrid system offers fleets a solution that is easy to install, service and operate. It draws upon the real-world feedback we have received from customers and the millions of miles logged with the system.
Added
These costs are a result of the Plan approved on November 7, 2023 to wind down our powertrain business to better align its workforce with the Company’s future needs. Other Income (Expense) Other income currently consists primarily of interest income earned on our investments.
Removed
Due to shortages of various components caused by global supply chain disruptions, we experienced longer delivery times for a portion of the orders we received on new Hybrid systems in 2022. In addition, we continually assess the potential demand impact for the Hybrid system offering in light of recent changes within the competitive landscape.
Added
As a result of our acquisition of the KARNO generator technology, we plan to assume a government contract with the United States Office of Naval Research that is not expected to have a material impact on our business.
Removed
In November 2021, we began our Hypertruck ERX roadshow, which consists of numerous technology fleet experiences focused on demonstrating the features and benefits of the electric powertrain firsthand.
Added
As a result of our strategic review and decision to wind down our powertrain business, we do not anticipate further revenue until we begin commercialization of our KARNO generator. Cost of Revenues Cost of revenues associated with our Hybrid products decreased $7.1 million.
Removed
The roadshow consists of “Ride and Drive” events and in-depth product education of the Hypertruck ERX system's features and benefits, including how it enables fleet decarbonization goals while also reducing total cost of ownership.
Added
We also had $128.2 million of investments in longer-term liquid securities which we maintain to generate higher income on capital that we do not expect to spend in the next 12 months.
Removed
Our development timeline is expected to extend into late 2023 to allow for design verification and testing inclusive of critical summer and winter seasons, fleet trials with customers, as well as the accumulation of up to one million miles of operation prior to production.
Added
We do not expect to need to raise additional equity capital for the foreseeable future. Our primary short-term cash needs are costs associated with KARNO generator development and the exit from our powertrain business.
Removed
During 2022 we made significant progress achieving a series of milestones on a development roadmap that we first laid out in late 2021. We completed assembly of the first verification vehicles early in the year that we subsequently used for design validation, on-road testing, customer Ride and Drive events and controlled fleet trials with customers.
Added
Longer term, our capital needs will be determined by our go-to-market strategy, which may include development of our own KARNO generator manufacturing capacity or outsourcing this work to third parties or business partners. In December 2023, we annou nced an authorized share repurchase program to repurchased up to $20 million of our outstanding common stock.
Removed
We successfully completed summer testing of the Hypertruck ERX system by taking four vehicles to Davis Dam in Arizona where they were subjected to rigorous operation, hauling heavy loads up steep grades and over long distances in temperatures of up to 110 degrees Fahrenheit.
Added
We repurchased $33 thousand in common stock during the year ended December 31, 2023. Based on current projections of operating expenses, capital spending, working capital growth and share repurchases, we expect to have between $220 and $230 million in cash, short-term and long-term investments remaining on our balance sheet at the end of 2024.
Removed
We also deployed verification vehicles into controlled fleet trials with customers, where the trucks are used in standard freight hauling operations with the fleets’ customers. Fleet trials provide the opportunity for Hyliion engineers and technicians to 26 Table of Contents closely monitor vehicles operations and obtain feedback from drivers on how well the powertrain functions.
Added
As of December 31, 2023, there were no such non-cancelable purchase commitments. Refer to Note 2 of the notes to the consolidated financial statements for further information of our exit obligations and the timing of expected payments.
Removed
Late in 2022, we began subjecting verification vehicles to winter testing where we observe system operation in extremely cold conditions.
Added
Inventories Inventory is comprised of raw materials, work in process and finished goods. Semi-truck inventory is valued using the specific identification cost method and all other inventory is valued using the moving-average cost method. Inventory is stated at the lower of cost or net realizable value.
Removed
Prior to beginning commercialization of the Hypertruck ERX system, which is expected in late 2023, we will complete winter testing, expanded fleet trials with more trucks and more customers and complete required certifications with the California Air Resources Board, the U.S. Environmental Protection Agency, and the National Highway Traffic Safety Administration.
Added
Acquisitions and Disposals Disposals O n November 7, 2023, the Board approved a strategic plan to wind down its powertrain business and preserve technology relating to the powertrain business, to better align its workforce with the Company’s future needs, and to reduce the Company’s operating costs (the “Plan”).
Removed
Supply chain constraints in 2022 were widespread in the trucking industry, causing shortages of semiconductors and other key components needed for truck production and extending delivery times for new trucks into 2023.
Added
We have made certain estimates of the cash expenditures and charges that the Company expects to incur in connection with the Plan which may differ m aterially from estimates.
Removed
We placed orders with Peterbilt for all chassis needed in 2022 early in the year and secured build slots for the 2023 calendar year to mitigate future potential supply chain impacts to our Hypertruck ERX development and production schedule.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Removed
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to a variety of market and other risks, including the effects of changes in interest rates and inflation, as well as risks to the availability of funding sources, hazard events and specific asset risks. Interest Rate Risk We hold cash and cash equivalents for working capital purposes.
Added
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are a smaller reporting company as defined in Rule 12b-2 under the Exchange Act. As a result, pursuant to Item 305(e) of Regulation S-K, we are not required to provide the information required by this Item. 28 Table of Contents
Removed
As of December 31, 2022, we had a cash balance of $119.5 million, consisting of operating and money market accounts, which are not affected by changes in the general level of U.S. interest rates.
Removed
We do not have material exposure to interest rate risk with respect to cash and cash equivalents as these are all highly liquid investments with a maturity date of 90 days or less at the time of purchase.
Removed
A hypothetical change in prevailing interest rates of 10 basis points would have increased or decreased our unrealized gain or loss on our short-term and long-term investments for the years ended December 31, 2022 and 2021 by $0.2 million and $0.1 million, respectively. Inflation Risk We do not believe that inflation currently has a material effect on our business.
Removed
Inflation may become a greater risk in the event of changes in current economic and governmental fiscal policy. 34 Table of Contents

Other HYLN 10-K year-over-year comparisons