What changed in POWER SOLUTIONS INTERNATIONAL, INC.'s 2023 10-K compared to 2022?

Across the narrative sections we track, POWER SOLUTIONS INTERNATIONAL, INC. (PSIX) added 223 paragraphs, removed 281, and edited 168 between the 2022 and 2023 10-K filings. The biggest movers are Item 7. Management's Discussion & Analysis (+87/−127), Item 1A. Risk Factors (+78/−89), Item 1. Business (+54/−62).

Did POWER SOLUTIONS INTERNATIONAL, INC. add new Risk Factors in the 2023 10-K?

Yes — Item 1A Risk Factors shows 78 new/edited paragraphs and 89 removed paragraphs versus the 2022 10-K.

What changed in POWER SOLUTIONS INTERNATIONAL, INC.'s MD&A (Item 7) in 2023?

Item 7 Management's Discussion & Analysis shows 87 new/edited paragraphs and 127 removed paragraphs year-over-year. Read the side-by-side diff to see exactly which revenue, margin, and outlook commentary was rewritten.

Where does this PSIX 10-K diff come from?

The source filings are POWER SOLUTIONS INTERNATIONAL, INC.'s official 2022 and 2023 Form 10-K annual reports from SEC EDGAR. 10q10k.net parses each filing, aligns paragraphs by section (Item 1, 1A, 1C, 2, 3, 7, 7A), and highlights every added, removed and edited sentence side-by-side.

What changed in POWER SOLUTIONS INTERNATIONAL, INC.'s 10-K — 2022 vs 2023

Paragraph-level year-over-year comparison of POWER SOLUTIONS INTERNATIONAL, INC.'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.

+223 added−281 removedSource: 10-K (2024-03-14) vs 10-K (2023-04-14)

Item 1. Business

Business — how the company describes what it does

42 edited+12 added−20 removed63 unchanged

2022 filing

2023 filing

Biggest changeThese programs consist of (i) internal aftermarket service parts programs with worldwide sales and distribution capabilities and (ii) internal OEM-developed service parts programs for components and products supplied by the Company. 5 The Company’s end markets, product categories and equipment are as highlighted in the following table: End Market Product Categories Equipment/Products (End Use) Power Systems Electric Power Generation (“Gensets”) Large Custom Genset Enclosures Mobile and Stationary Gensets for: Emergency Standby Rental Prime Power Demand Response Microgrid Oil & Gas Data Center Renewable Energy Resiliency (Wind, Solar, Storage) Combined Heat and Power (“CHP”) Industrial Material Handling Agricultural/Arbor Care Irrigation/Pumps Construction Compressors New Energy Other Industrial Forklifts Wood Chippers Stump Grinders Sweepers/Industrial Scrubbers Aerial Lift Platforms/Scissor Lifts Irrigation Pumps Oil and Gas Compression Oil Lifts Off Road Utility Vehicles Ground Support Equipment Ice Resurfacing Equipment Pump Jacks Battery Packs Transportation Trucks Buses Fuel Systems and Tanks Class 2 - 7 Vocational Trucks and Vans School Buses (Type A and Type C) Transit Buses Terminal and Utility Tractors Products The Company’s sourced and internally designed and manufactured engine blocks are engineered and integrated with associated components in a range of configurations that includes basic engine blocks integrated with appropriate fuel system parts as well as completely packaged power systems that include combinations of front accessory drives, cooling systems, electronic systems, air intake systems, fuel systems, housings, power takeoff systems, exhaust systems, hydraulic systems, enclosures, brackets, hoses, tubes, packaging, telematics and other assembled componentry.

The Company’s short-term and long-term incentive plans are designed to provide a variable pay opportunity to reward the attainment of key financial and operational goals as well as shareholder value creation. In addition to the base and variable pay plans, the Company offers employees other benefits including medical, paid-time off, and retirement savings plans.

The Company’s short-term and long-term incentive plans are designed to provide a 10 variable pay opportunity to reward the attainment of key financial and operational goals as well as shareholder value creation. In addition to the base and variable pay plans, the Company offers employees other benefits including medical, paid-time off, and retirement savings plans.

Similarly, the EU has adopted more restrictive standards under its Stage V regulations. Tier 4 and Stage V regulations call for reductions in levels of particulate matter and oxides of nitrogen. The Company’s entry into the transportation end market began in 2013 with the development of its 8.8L power systems targeted for 2015 regulatory standards.

Similarly, the EU has adopted more restrictive standards under its Stage V regulations. Tier 4 and Stage V regulations call for reductions in levels of particulate matter and oxides of nitrogen. 11 The Company’s entry into the transportation end market began in 2013 with the development of its 8.8L power systems targeted for 2015 regulatory standards.

Strategic Initiatives/Growth Strategies The Company continues to execute against a comprehensive set of business objectives aimed at improving profitability, streamlining processes, strengthening the business and focusing on achieving growth in higher-return product lines. Key elements of these objectives and other initiatives are highlighted below.

Strategic Initiatives/Growth Strategies The Company continues to execute a comprehensive set of business objectives aimed at improving profitability, streamlining processes, strengthening the business and focusing on achieving growth in higher-return product lines. Key elements of these objectives and other initiatives are highlighted below.

Improve profitability The Company continues to execute on its plan to enhance profitability through the review of its customer and product portfolio. To date, this has resulted in strategic price increases in certain areas of the business, along with product redesign and the re-sourcing of certain components , to support improved margins.

Sustained profitability The Company continues to execute on its plan to enhance profitability through the review of its customer and product portfolio. To date, this has resulted in strategic price increases in certain areas of the business, along with product redesign and the re-sourcing of certain components , to support improved margins.

(“Doosan”), a subsidiary of Doosan Group, Shenyang Aerospace Mitsubishi Motors Engine Manufacturing Co., Ltd. (“SAME”), General Motors Company (“GM”) and Weichai. The Company also sources other power system components and coordinates design efforts with third-party suppliers for some of its key components.

(“Doosan”), a subsidiary of Doosan Group, Shenyang Aerospace Mitsubishi Motors Engine Manufacturing Co., Ltd. (“SAME”) and Weichai. The Company also sources other power system components and coordinates design efforts with third-party suppliers for some of its key components.

Since its engines are sold into both off-road and on-road markets, the Company must ensure certification to the specific regulations within the applicable statutory segment. For products sold into the U.S. market, both EPA and CARB have imposed specific regulations on engines used in both off-road equipment and on-road vehicles.

Because its engines are sold into both off-road and on-road markets, the Company must ensure certification to the specific regulations within the applicable statutory segment. For products sold into the U.S. market, both EPA and CARB have imposed specific regulations on engines used in both off-road equipment and on-road vehicles.

This program is a multi-year effort and will entail a strategic assessment of certain areas in which profitability does not meet established thresholds. The Company also continues to transform its manufacturing operations through the ongoing adoption of lean, agile and flexible lines, which provides opportunities for improved efficiency, margins and profitability, particularly as volume and sales improve.

This program is a multi-year effort and will entail a strategic 6 assessment of certain areas in which profitability does not meet established thresholds. The Company also continues to transform its manufacturing operations through the ongoing adoption of lean, agile and flexible lines, which provides opportunities for improved efficiency, margins and profitability, particularly as volume and sales increase.

The Company has also been investing heavily in the expansion of its heavy-duty engine product line, particularly through its collaboration with 6 Weichai America Corp., a wholly-owned subsidiary of Weichai Power Co., Ltd. (HK2338, SZ000338) (herein collectively referred to as “Weichai”). This product line has historically provided better margins.

The Company has also been investing heavily in the expansion of its heavy-duty engine product line, particularly through its collaboration with Weichai America Corp., a wholly-owned subsidiary of Weichai Power Co., Ltd. (HK2338, 000338.SZ) (herein collectively referred to as “Weichai”). This product line has historically provided better margins.

Manufacturing The Company manufactures and assembles its products at facilities in suburban Chicago, Illinois, and Darien, Wisconsin, and customizes its power systems to meet specific requirements of OEM applications and the needs of its OEM customers.

Manufacturing The Company manufactures and assembles its products at facilities in suburban Chicago, Illinois, as well as in Darien and Beloit, Wisconsin, and customizes its power systems to meet specific requirements of OEM applications and the needs of its OEM customers.

Within several applications for which the Company provides solutions, it maintains supplier relationships with customers, which are often among the largest in that category. 8 The Company’s largest customer, represented 19% of consolidated net sales in 2022.

The Company’s net research, development and engineering expenditures for 2022 and 2021 were $18.9 million and $22.4 million, respectively. Supplier Relationships In addition to producing its own engines, the Company has established relationships with its suppliers for certain engines that are integrated into its comprehensive power systems, the most significant of which are Doosan Infracore Co., Ltd.

The Company’s net research, development and engineering expenditures for 2023 and 2022 were $19.5 million and $18.9 million, respectively. Supplier Relationships In addition to producing its own engines, the Company has established relationships with its suppliers for certain engines that are integrated into its comprehensive power systems, the most significant of which are Doosan Infracore Co., Ltd.

The Company also uses tools such as Six Sigma, Lean Manufacturing, 80/20, Value Stream Mapping and other manufacturing engineering strategies to help manage its business, build quality, and drive performance and a continuous improvement culture within the manufacturing operations’ teams.

The Company also uses tools such as Six Sigma, Lean Manufacturing, 80/20, Value Stream Mapping and other manufacturing engineering strategies to help manage its business, build quality, drive performance and continually improve culture within the manufacturing operations’ teams.

Xykis served as Vice President of Engineering for the Company. He has more than 30 years of professional experience in multi-disciplined engineering areas including senior management and executive positions at various companies including Cummins Inc., a publicly traded company on the NYSE, and Generac Power Systems, a publicly traded company on the NYSE. Mr.

He has more than 30 years of professional experience in multi-disciplined engineering areas including senior management and executive positions at various companies including Cummins Inc., a publicly traded company on the NYSE, and Generac Power Systems, a publicly traded company on the NYSE. Mr.

The Company’s engines and power systems include both emission-certified compression and spark-ignited internal combustion engines ranging from 0.99 liters (“L”) to 53L of displacement, which are enabled by advanced controls to run on a wide variety of clean, alternative fuels, including natural gas, propane, and biofuels, as well as gasoline and diesel options, within the power systems, industrial and transportation end markets.

The Company’s engines and power systems include both emission-certified compression and spark-ignited internal combustion engines which are enabled by advanced controls to run on a wide variety of clean, alternative fuels, including natural gas, propane, and biofuels, as well as gasoline and diesel options, within the power systems, industrial and transportation end markets.

The Company is committed to producing high quality products that provide reduced emissions and to operating its facilities in a manner that mitigates their impact on the environment. For the full year ended 2022, approximately 70% of the engines sold run on either propane or natural gas.

The Company is committed to producing high quality products that provide reduced emissions and to operating its facilities in a manner that mitigates their impact on the environment. For the full year ended 2023, approximate ly 76% of the engines sold run on either propane or natural gas.

Building on its broad product offering the Company received EPA certification for its 32L and 40L heavy-duty engines in 2018 and for its 53L heavy-duty engines in 2019.

Continuing to build on its broad product offering the Company received EPA certification for its 32L and 40L heavy-duty engines in 2018 and for its 53L heavy-duty engines in 2019.

These heavy-duty engines provide a natural-gas-fueled power range from 500 kilowatt-electric (“kWe”) to 1.25 megawatt (“MW”), which is well above the Company’s prior capabilities, allowing it to serve a greater portion of the demand response, microgrid, combined heat and power, and oil and gas markets.

These heavy-duty engines provide a natural-gas-fueled power range from 500 kilowatt-electric (“kWe”) to 1.25 megawatt (“MW”), allowing it to serve a greater portion of the demand response, microgrid, combined heat and power, and oil and gas markets.

In January 2022, PSI and Société Internationale des Moteurs Baudouin (“Baudouin”), a subsidiary of Weichai, entered into an international distribution and sales agreement which enables Baudouin to bring PSI’s power systems line of products into the European, Middle Eastern, and African markets, which resulted in over $2.0 million of sales.

The Company and Weichai also entered into a strategic collaboration agreement (the “Collaboration Agreement”) under which they have been working together to accelerate market opportunities for each company’s respective product lines across various geographic and end-user markets. The Collaboration Agreement was extended for three years in March 2020 and was set to expire in March 2023 .

The Company and Weichai also entered into a strategic collaboration agreement (the “Collaboration Agreement”) under which they have been working together to accelerate market opportunities for each company’s respective product lines across various geographic and end-user markets. On March 22, 2023, the Collaboration Agreement was extended for an additional term of three years.

The Company was also party to a supply agreement with SAME through December 31, 2022, for the exclusive purchase and distribution of engines around the world, with the exception of China (including Hong Kong, Macao and Taiwan), within the forklift and marine markets.

The Company was also party to a supply agreement with SAME, for the exclusive purchase and distribution of engines around the world, with the exception of China (including Hong Kong, Macao and Taiwan), within the forklift market.

It approves, through its human 10 resources department, the replacement of key positions that it believes are critical to sustaining improved business performance and analyzes departure data to continually improve upon the experience of employees. Turnover for salaried employees in 2022 was approximately 23.0%.

The Company monitors and manages attrition. It approves, through its human resources department, the replacement of key positions that it believes are critical to sustaining improved business performance and analyzes departure data to continually improve upon the experience of employees. Turnover for salaried employees in 2023 was approximately 17.0% .

The key trends include the following: • the worldwide growth of intermittent sources of energy, such as wind and solar, and an aged electric grid in the United States, coupled with power outage activity due to weather or power shutdowns, are driving increased demand for generators, microgrids and demand response equipment; • increasingly stringent regulations and growing efforts to reduce emissions are driving demand for clean energy and alternatives to diesel power engines (e.g., EPA Tier 4 emission standards, CARB regulations, MEE policies in China, and grants, rebates and other incentives for adopting clean energy applications), in several markets such as the power generation market for microgrids and oil and gas applications, school bus and arbor care markets, among others; • growth in data centers and their increasing demand for electricity, which is driving growth for backup power (commercial generators/microgrids); • growth in e-commerce activity around the world, which is driving demand for last-mile delivery vehicles; and • the availability of automotive engines that are suited for industrial application.

The Company sets annual targets for its Total Recordable Incident Rate (“TRIR”) and Days Away, Restricted or Transferred (“DART”) and regularly reviews these metrics. For 2022, the Company achieved an overall TRIR of 4.8, meaning that for every 100 employees, 0.48 employees incurred an injury that resulted in recordable medical treatment.

The Company sets annual targets for its Total Recordable Incident Rate (“TRIR”) and Days Away, Restricted or Transferred (“DART”) and regularly reviews these metric s. For 2023, the Company achieved an overall TRIR of 5.9, meaning that for every 100 employees, 0.60 employees incurred an injury that resulted in recordable medical treatment.

Xun (Kenneth) Li was appointed as the Chief Financial Officer on August 26, 2022. Mr. Li is an accomplished executive who has more than 20 years of professional experience in the areas of finance, accounting, financial planning & analysis, internal controls and strategy, among others. Most recently, Mr.

Li is an accomplished executive who has more than 20 years of professional experience in the areas of finance, accounting, financial planning & analysis, internal controls and strategy, among others. Most recently, Mr.

The Company is party to a supply agreement with Doosan, under which it purchases and distributes specified Doosan engines within a territory consisting of the United States, Canada and Mexico.

The Company is party to a supply agreement with Doosan, under which it purchases and distributes specified Doosan engines within a territory consisting of the United States, Canada and Mexico. On October 1, 2019, the supply agreement with Doosan was amended and extended to December 31, 2023.

The DART was 4.3 i n 2022, meaning that for every 100 employees, 0.43 individuals experienced an incident that resulted in days away from work or restricted work tasks.

The DART was 5.5 in 2023, meaning that for every 100 employees, 0.60 individuals experienced an incident that resulted in days away from work or restricted work tasks.

On March 22, 2023, the Collaboration Agreement was extended for an additional term of three years. The Collaboration Agreement provides the Company with strategic benefits and opportunities, including the ability to leverage Weichai’s strengths and capabilities in R&D, manufacturing, procurement and distribution and its widespread sales channels in China and other emerging markets.

The Collaboration Agreement provides the Company with strategic benefits and opportunities, including the ability to leverage Weichai’s strengths and capabilities in R&D, manufacturing, procurement and distribution and its widespread sales channels in China and other emerging markets.

He is responsible for the oversight of the Company’s advanced product development, engineering design and analysis, on-highway engineering, applied engineering, emissions and certification, Waterford, Michigan engineering operations, program management and product strategic planning. Since joining the Company 12 in 2010 and until his appointment as Chief Technical Officer in March 2021, Mr.

Xykis was also appointed as the Company’s Chief Technical Officer on March 15, 2021. He is responsible for the oversight of the Company and its advanced product development, engineering design and analysis, on-highway engineering, applied engineering, emissions and certification, Waterford, Michigan engineering operations, program management and product strategic planning.

He also holds an M.S. in Mechanical Engineering from the University of Oklahoma and a Bachelors of Science degree in Mechanical Engineering from Shanghai JiaoTong University. Mr. Li is also a certified public accountant in the state of Illinois. Sidong Shao was appointed as the Executive Vice President on September 26, 2022.

He also holds an M.S. in Mechanical Engineering from the University of Oklahoma and a Bachelors of Science degree in Mechanical Engineering from Shanghai JiaoTong University. Mr. Li is also a certified public accountant in the state of Illinois. Randall D. Lehner was appointed as the General Counsel on March 4, 2024. Mr.

None of the members of the Company’s workforce are represented by a union or covered by a collective bargaining agreement. Part of the Company’s values focus on developing and maintaining a world class workforce through personal accountability, teamwork, customer service and innovation. The Company monitors and manages attrition.

Employees and Human Capital As of December 31, 2023, the Company’s workforce consisted of approximately 700 full-time employees. None of the members of the Company’s workforce are represented by a union or covered by a collective bargaining agreement. Part of the Company’s values focus on developing and maintaining a world class workforce through personal accountability, teamwork, customer service and innovation.

The Company continues to make significant investments into the necessary intellectual property that supports full compliance of the Company’s engines now and into the foreseeable future. 11 The first EPA emissions regulations adopted for diesel engines, known as Tier 1, applied to diesel engines used in mobile off-highway applications in the U.S., and similar standards for diesel engines, known as Stage I regulations, were implemented thereafter in the EU.

The first EPA emissions regulations adopted for diesel engines, known as Tier 1, applied to diesel engines used in mobile off-highway applications in the U.S., and similar standards for diesel engines, known as Stage I regulations, were implemented thereafter in the EU.

Xykis has also served on the advisory board of Civil, Environmental, and Geo-Engineering, College of Science and Engineering, University of Minnesota for the past eight years. Mr. Xykis holds a Bachelor’s degree in Structural Engineering, a Master’s degree in Vibration/Dynamics, and a PhD. in Structural/Applied Mechanics from the University of Minnesota, Minneapolis.

Xykis has also served on the advisory board of Civil, Environmental, and Geo-Engineering, College of Science and Engineering, University of Minnesota for the past eight years. Mr.

On October 1, 2019, the supply agreement with Doosan was amended and extended to December 31, 2023, after which the agreement will automatically be extended for additional one-year terms unless a notice of termination is provided by either party six months prior to the scheduled expiration.

Following December 31, 2023 the supply agreement automatically extends for additional one-year terms unless a notice of termination is provided by either party six months prior to the scheduled expiration. On July 1, 2022, th e supply agreement was amended to remove exclusivity and the minimum product purchase commitments.

Also, through the Company’s relationship with Weichai, it has access to Weichai’s ‘New Energy’ product portfolio and is exploring product diversification opportunities in the areas of battery storage and electrification. Expand global business Through the expansion of its product lineup and the entry into new markets, the Company has a history of growing its product offerings internationally beyond North America.

The Company also leverages its technical resources to provide service and support functions for its power systems sold to OEM customers. Backlog Backlog generally is not considered a significant factor in the Company’s business. Employees and Human Capital As of December 31, 2022, the Company’s workforce consisted of approximately 800 full-time employees.

The Company further supports its customers by engaging regional providers to perform warranty services and offer support for its power systems. The Company also leverages its technical resources to provide service and support functions for its power systems sold to OEM customers. Backlog Backlog generally is not considered a significant factor in the Company’s business.

Information about the Company’s Executive Officers The following selected information for each of the Company’s current executive officers was prepared as of April 10, 2023 . Name Age Executive Officer Since Present Position with the Company C.

Failure to comply with these standards could result in materially adverse effects on the Company’s future financial results. Information about the Company’s Executive Officers The following selected information for each of the Company’s current executive officers was prepared as of March 7, 2024 . Name Age Executive Officer Since Present Position with the Company C.

The Company also continues to make investments in technology to further enhance its tools and processes. Streamlining of business processes and footprint rationalization The Company has an ongoing program to review and identify cost reductions throughout the organization. As part of this program, the Company has adopted tighter controls, monitors major areas of spending and is centralizing certain business processes.

Streamlining of business processes and footprint rationalization The Company has an ongoing program to review and identify cost reduction opportunities throughout the organization while simultaneously planning for strategic growth. As part of this program, the Company has adopted tighter controls over spending and centralized certain business processes.

The Company plans to capitalize on its technologically sophisticated, in- 7 house design, prototyping, testing and application engineering capabilities to further refine its superior power system te chnology. Leverage the Company’s relationship with Weichai In March 2017, the Company executed a share purchase agreement (the “SPA”) with Weichai America Corp.

The Company plans to capitalize on its technologically sophisticated, in-house design, prototyping, testing and application engineering capabilities to further refine its superior power system te chnology. In 2023, due to increasing demand for new energy and latest market trends, the Company began to offer battery packs for its industrial market.

The agreement included minimum purchase commitments which had no financial impact or monetary penalties for the year ended December 31, 2022 . Product Support The Company’s dedicated team of product and application engineers enables it to deliver high-quality, responsive technical support to its OEM and end-user customers.

Product Support The Company’s dedicated team of product and application engineers enables it to deliver high-quality, responsive technical support to its OEM and end-user customers. The Company provides technical support and training to its customers, including in-plant training and support through web- and phone-based field service.

Warranty expense mitigation efforts The Company aims to curtail its warranty expense through various mitigation efforts. As part of this, the Company is developing reimbursement and commercial remedies from key suppliers, where applicable. Also, the Company is undergoing a continued evaluation and improvement of its engineering validation and reliability programs for products and applications.

Warranty expense mitigation efforts The Company continues to limit its warranty expense through various mitigation efforts. As part of this, the Company is developing reimbursement and commercial remedies from key suppliers for components supplied by third parties, where applicable, at the same time ensuring any contractual obligations with customers include more favorable warranty terms for the Company wherever possible.

(Dino) Xykis 63 2020 Interim Chief Executive Officer, Chief Technical Officer Xun (Kenneth) Li 53 2022 Chief Financial Officer Sidong Shao 42 2022 Executive Vice President C. (Dino) Xykis was appointed as the Interim Chief Executive Officer on June 1, 2022. Mr. Xykis was also appointed as the Company’s Chief Technical Officer on March 15, 2021.

(Dino) Xykis 64 2020 Chief Executive Officer, Chief Technical Officer Xun (Kenneth) Li 54 2022 Chief Financial Officer Randall D. Lehner 52 2024 General Counsel C. (Dino) Xykis was appointed as the Chief Executive Officer on April 24, 2023, after serving as Interim CEO since June 2, 2022. Mr.

Removed

There were no changes to the product categories or equipment/products (end use).

Added

Natural gas, gasoline, propane, and biofuel engines range from 0.99 liters (“L”) to 53L , while Diesel options range from 20L to 88L. The Company also designs and fabricates power system enclosures and sources electrification components that are engineered and integrated into desired configurations deemed “New Energy” within the industrial end market.

Removed

Products The Company’s sourced and internally designed and manufactured engine blocks are engineered and integrated with associated components in a range of configurations that includes basic engine blocks integrated with appropriate fuel system parts as well as completely packaged power systems that include combinations of front accessory drives, cooling systems, electronic systems, air intake systems, fuel systems, housings, power takeoff systems, exhaust systems, hydraulic systems, enclosures, brackets, hoses, tubes, packaging, telematics and other assembled componentry.

Added

Also, the Company continues to evaluate and improve its engineering validation and reliability programs for products and applications as well as make investments in technology to further enhance its tools and processes.

Removed

During 2022, the Company continues to align its staffing with current needs and streamlining certain roles.

Added

During 2023, the Company consolidated two of its leased facilities in the Chicago area to increase efficiencies and reduce overhead costs for engine manufacturing lines.

Removed

New product expansion by leveraging deep industry experience Throughout the Company’s history, it has evolved from a provider of diesel power systems to becoming a major supplier of power systems fueled by alternatives to diesel, including gasoline, propane, and natural gas, among others.

Added

Leverage the Company’s relationship with Weichai In March 2017, the Company executed a share purchase agreement (the “SPA”) with Weichai America Corp.

Removed

The Weichai stock purchase warrant, as last amended (the “Weichai Warrant”), was exercisable commencing on April 1, 2019 for such number of shares of the Company’s Common Stock as was sufficient to provide Weichai with majority ownership of the Company’s Common Stock.

Added

Near the end of 2023, the importing of SAME products was suspended as a result of the intensified enforcement and expansion of the UFLPA. The Company is actively working to re-source these products through new channels as quickly as possible to minimize the effect on future sales while maintaining the Company’s high-quality standards.

Removed

On April 23, 2019, Weichai exercised the Weichai Warrant resulting in the Company issuing 4,049,759 shares of the Company’s Common Stock. See Note 1. Summary of Significant Accounting Policies and Other Information–Stock Ownership and Control in Part II. Item 8. Financial Statements and Supplemental Information , for additional information.

Added

The Company continues to make significant investments into the necessary intellectual property that supports full compliance of the Company’s engines now and into the foreseeable future.

Removed

Weichai is currently the Company’s majority stockholder, holding over 51% of the Company’s outstanding Common Stock, as of December 31, 2022 . Expand global business Through the expansion of its product lineup and the entry into new markets, the Company has a history of growing its product offerings internationally beyond North America.

Added

Since joining the Company in 2010 and until his appointment as Chief Technical Officer in March 2021, Mr. Xykis served as Vice President of Engineering for the Company.

Removed

The addendum also included minimum product purchase commitments for the period 2019 through 2023, subject to reductions based on market declines in oil prices and defined prescribed payments to Doosan triggered by shortfalls in purchases made by the Company during each annual calendar period.

Added

Xykis holds a Bachelor’s degree in Structural Engineering, a Master’s degree in Vibration/Dynamics, and a PhD. in Structural/Applied Mechanics from the University of Minnesota, Minneapolis. 12 Xun (Kenneth) Li was appointed as the Chief Financial Officer on August 26, 2022. Mr.

Removed

On July 1, 2022, the supply agreement was amended to remove exclusivity and the minimum product purchase commitments. The Company had an exclusive supply agreement with GM through December 31, 2019 to purchase and distribute GM 6.0L engines to on-highway customers.

Added

Lehner is an accomplished Legal Counsel who has more than 20 years of legal experience in the areas of complex commercial litigation, arbitration, regulatory compliance, internal controls and strategy, among others. Most recently, from May 2020 to February 2024, Mr.

Removed

With the GM announcement that it will discontinue its production of the GM 6.0L engine, the Company conducted last-time buys of this engine during 2019 through 2021 (including certain engines where prepayment was provided), to ensure adequate supply to certain transportation customers .

Added

Lehner served as associate general counsel for Guaranteed Rate, LLC, a leading mortgage company, where he was a member of the executive leadership management team with primary responsibility for litigation and legal risk management. Prior to this role, from 2015 through 2020, Mr.

Removed

At December 31, 2022, the Company holds a small quantity of other GM 6.0L engines which it expects to deliver to customers throughout 2023. The Company does not have a supply agreement with GM for its successor product to the GM 6.0L engine; however, it will source the 6.0L through a GM designated third party manufacturer.

Added

Lehner was a partner with Kelly, Drye & Warren, LLP, where his practice focused on commercial litigation, regulatory, internal investigations and government enforcement actions. Prior to Kelly, Drye & Warren, LLP, from 1997 to 2014, Mr. Lehner worked at several other prestigious law firms. Mr. Lehner holds a Juris Doctor degree from Duke University with high honors.

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The Company provides technical support and training to its customers, including in-plant training and support through web- and phone-based field service. The Company further supports its customers by engaging regional providers to perform warranty services and offer support for its power systems.

Added

He also holds a Bachelor of Arts degree in political science from the University of Michigan with high honors.

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Failure to comply with these standards could result in materially adverse effects on the Company’s future financial results. On August 16, 2022, President Biden signed the Inflation Reduction Act of 2022 (the “IRA”) into law.

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The IRA contains several revisions to the Internal Revenue Code, including a 15% corporate minimum income tax and a 1% excise tax on corporate stock repurchases in tax years beginning after December 31, 2022.

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While these tax law changes have no immediate effect and are not expected to have a material adverse effect on our results of operations going forward, we will continue to evaluate their impact as further information becomes available.

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The IRA also includes incentives and other provisions for companies to address climate change, increase investment in renewable energy, and enhance energy efficiency. The Company increased governance procedures with its Board of Directors (the “Board”) to monitor and identify opportunities and implications presented as a result of the IRA.

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He is responsible for the oversight of the Company’s product management, purchasing and supply chain. Prior to being appointed to his current positions Mr. Shao served on the Company’s Board from December 2020 to September 2022. Mr. Shao served on the Board as a Weichai designee and was also a member of the Executive Committee. Mr.

Removed

Shao previously served as the President and Chairman of the Board of Directors of Weichai from 2019 to September 2022. From May 2012 to April 2018, Mr.

Removed

Shao was President of Weichai Westport Inc., a joint venture between Weichai Power and Westport Fuel Systems Inc., a publicly traded company on the NASDAQ and Toronto Stock Exchanges, that manufactures and sells alternative-fuel engines for automobiles, heavy-duty trucks, power generation and shipping applications. Mr. Shao has a Bachelor’s degree in Industrial Energy and Power Engineering from Shandong University. Mr.

Removed

Shao also holds a Master’s degree in Power Engineering from Tianjin University and a Masters of Business Administration degree from Missouri State University.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

60 edited+18 added−29 removed93 unchanged

2022 filing

2023 filing

Biggest changeThe continued market acceptance and growth of the market for efficient alternative-fueled, spark-ignited power systems, including natural gas, propane and gasoline, is a key tenet of the Company’s growth strategy. The impact of diesel emission regulations is expected to increase the cost and complexity of diesel power systems, but this may not materialize to the expected extent or at all.

Biggest changeGrowth and Profitability The market for alternative-fueled, spark-ignited power systems may not continue to develop as expected. The continued market acceptance and growth of the market for efficient alternative-fueled, spark-ignited power systems, including natural gas, propane and gasoline, is a key tenet of the Company’s growth strategy.

The Company’s plans to alleviate the substantial doubt about its ability to continue as a going concern may not be successful, and it may be forced to limit its business activities or be unable to continue as a going concern, which would have a material adverse effect on its results of operations and financial condition.

The success of its business depends in large part on its ability to provide single assembly, integrated, comprehensive, technologically sophisticated power 21 systems to its customers. The development or enhancement by its competitors of similar capabilities could adversely affect the Company’s business. Technology and Intellectual Property Failure to keep pace with technological developments may adversely affect the Company’s operations.

The success of its business depends in large part on its ability to provide single assembly, integrated, comprehensive, technologically sophisticated power systems to its customers. The development or enhancement by its competitors of similar capabilities could adversely affect the Company’s business. Technology and Intellectual Property Failure to keep pace with technological developments may adversely affect the Company’s operations.

Other legislation has been, and may in the future be, enacted in other locations in which the Company manufactures or sells its products. If the Company or its component suppliers fail to timely comply with applicable legislation, its customers may refuse to purchase its products, or it may face increased operating costs as a result of taxes, fines or penalties.

E ach of these stockholders, by virtue of 22 their significant equity ownership in the Company, may be able to significantly influence, and, in the case of Weichai, control the outcome of all matters requiring stockholder approval, including the election and removal of directors and any merger or other significant corporate transactions.

E ach of these stockholders, by virtue of their significant equity ownership in the Company, may be able to significantly influence, and, in the case of Weichai, control the outcome of all matters requiring stockholder approval, including the election and removal of directors and any merger or other significant corporate transactions.

Other companies, some of which have longer operating histories, greater name recognition and significantly greater financial and marketing resources than the Company, are currently engaged in the development of products and technologies that are similar to, or may be competitive with, certain of the Company’s products and power system technologies.

Other companies, some of which have longer operating histories, greater name recognition and significantly greater 20 financial and marketing resources than the Company, are currently engaged in the development of products and technologies that are similar to, or may be competitive with, certain of the Company’s products and power system technologies.

Further, the imposition of tariffs on imports from China and other countries have the potential to materially and adversely impact the Company’s sales, profitability and future product launches. The Company also sells its products on a global basis; and, therefore, its export sales could be impacted by the tariffs.

Further, the imposition of tariffs on imports from China and other countries have the potential to materially and adversely impact the Company’s sales, profitability and future product launches. The Company 14 also sells its products on a global basis; and, therefore, its export sales could be impacted by the tariffs.

Such warranty claims may necessitate a redesign, re-specification, a change in manufacturing processes and/or a recall of its power systems, which could have a material adverse impact on the Company’s financial condition and results of 18 operations and on existing or future sales of its power systems and other products.

Such warranty claims may necessitate a redesign, re-specification, a change in manufacturing processes and/or a recall of its power systems, which could have a material adverse impact on the Company’s financial condition and results of operations and on existing or future sales of its power systems and other products.

In order to address the impact of the transition of its emission regulation requirements in 2021, the Company licensed its technology to a third-party small manufacturer to produce and certify the 6.0L gasoline engine and utilized averaging, banking, and trading compliance provisions for the sale of its 8.8L gasoline engine.

These and other economic factors may materially and adversely affect the Company’s business, results of operations, financial condition and stock price. The Company is exposed to political, economic and other risks, in addition to various laws and regulations that arise from operating a multinational business.

These and other economic factors may materially and adversely affect the Company’s business, results of operations, financial condition and stock price. 13 The Company is exposed to political, economic and other risks, in addition to various laws and regulations that arise from operating a multinational business.

Any of these factors could have a material adverse effect on the Company’s business and results of operations. Also, the Company is subject to, and may become subject to, various state, federal and international laws and regulations governing its business, environmental, labor, trade and tax practices.

In addition, the Company’s debt obligations could make it more vulnerable to adverse economic and industry conditions and could limit its flexibility in planning for or reacting to changes in its business and the industries in which it 16 operates.

The existence of any material weakness or significant deficiency would require management to devote significant time and incur significant expense to remediate any such material weaknesses or significant deficiencies, and management may not be able to remediate any such material weaknesses or significant deficiencies in a timely manner.

The existence of any material weakness or significant deficiencies would require management to devote significant time and incur significant expense to remediate any such material weaknesses or significant deficiencies, and management may not be able to remediate any such material weaknesses or significant deficiencies in a timely manner.

The Company continuously evaluates its portfolio of assets and its operational structure in an effort to identify opportunities to optimize its cost structure including as a result of its on-going business needs and its high warranty costs.

The Company continuously evaluates its portfolio of assets and its operational structure in an effort to identify opportunities to optimize its cost structure as a result of its on-going business needs and its high warranty costs.

Various factors, such as capital allocation strategies, oil pricing, rig counts, and governments policies, among others, could lead oil and gas producers curtail or limit capital expenditures as was experienced in both 2021 and 2022 . In addition, oil and gas producers may cease or suspend production at well sites that have or are likely to become unprofitable.

Various factors, such as capital allocation strategies, oil pricing, rig counts, and governments policies, among others, could lead oil and gas producers curtail or limit capital expenditures as was experienced in both 2022 and 2023. In addition, oil and gas producers may cease or suspend production at well sites that have or are likely to become unprofitable.

The provisions the Company makes for warranty accrual may not be sufficient, or it may be unable to rely on a warranty provided by a third-party manufacturer or recover costs incurred associated with defective components or products provided by its suppliers. The Company may recognize additional expenses as a result of warranty claims in excess of its current expectations.

The provisions the Company makes for warranty accruals may not be sufficient, or it may be unable to rely on a warranty provided by a third-party manufacturer or recover costs incurred associated with defective components or products provided by its suppliers. The Company may recognize additional expenses as a result of warranty claims in excess of its current expectations.

Liquidity and Indebtedness The Company’s management has concluded as of the filing of this 2022 Annual Report that, due to uncertainty surrounding the Company’s ability to extend or refinance its current debt agreements and uncertainty as to whether it will have sufficient liquidity to fund its business activities, substantial doubt exists as to its ability to continue as a going concern.

Liquidity and Indebtedness The Company’s management has concluded as of the filing of this 2023 Annual Report that, due to uncertainty surrounding the Company’s ability to extend or refinance its current debt agreements and uncertainty as to whether it will have sufficient liquidity to fund its business activities, substantial doubt exists as to its ability to continue as a going concern.

The Company has international operations with sales outside the U.S. representing a 27% of the Company’s total net sales. Further, the Company’s global supply chain is large, complex and a majority of the Company’s supplier facilities, are located outside the U.S. As a result, the Company’s operations and performance depend significantly on global and regional economic conditions.

The Company has international operations with sales outside the U.S. representing a 17% of the Company’s total net sales. Further, the Company’s global supply chain is large, complex and a majority of the Company’s supplier facilities, are located outside the U.S. As a result, the Company’s operations and performance depend significantly on global and regional economic conditions.

Accordingly, the Company is subject to the political, economic and other risks that are inherent in operating a multinational company, including risks related to the following: • general economic conditions; • the imposition of tariffs and other import or export barriers, which could potentially disrupt the Company’s existing supply chains and impose additional costs on the Company’s business; • trade and technology protection measures; • compliance with regulations governing import and export activities; • import and export duties and restrictions; • currency fluctuations and exchange restrictions; • transportation delays and interruptions; • potentially adverse income tax consequences; • political and economic instability; • terrorist activities; • acts of war, including the events currently underway in Ukraine, which could lead to volatility in commodity availability and pricing, access to current or new markets, and general overall market volatility and weakness, among other factors; • labor unrest; • natural disasters; and • public health concerns including the potential negative impacts to suppliers, customers or the Company’s business.

Accordingly, the Company is subject to the political, economic and other risks that are inherent in operating a multinational company, including risks related to the following: • general economic conditions; • the imposition of tariffs and other import or export barriers, which could potentially disrupt the Company’s existing supply chains and impose additional costs on the Company’s business; • trade and technology protection measures; • compliance with regulations governing import and export activities; • import and export duties and restrictions; • currency fluctuations and exchange restrictions; • transportation delays and interruptions; • political and economic instability; • terrorist activities; • acts of war, including the events currently underway in Ukraine and Israel, which could lead to volatility in commodity availability and pricing, access to current or new markets, and general overall market volatility and weakness, among other factors; • labor unrest; • natural disasters; and • public health concerns including the potential negative impacts to suppliers, customers or the Company’s business.

The Company’s management has concluded that, due to uncertainties surrounding the Company’s future ability to refinance, extend and amend, or repay its outstanding indebtedness under its existing debt arrangements, maintain sufficient liquidity to fund its business activities, and other requirements under the Third Amended and Restated Credit Agreement and other outstanding debt, in the future, substantial doubt exists as to its ability to continue as a going concern within one year after the date that these financial statements are issued.

The Company’s management has concluded that, due to uncertainties surrounding the Company’s future ability to refinance, extend and amend, or repay its outstanding indebtedness under its existing debt arrangements, maintain sufficient liquidity to fund its business activities, and other requirements under the Credit Agreement and other outstanding debt, in the future, substantial doubt exists as to its ability to continue as a going concern within one year after the date that these financial statements are issued.

There are no assurances that the Company will have adequate financial or technical resources in the future to maintain compliance with government emissions standards. Historically, the Company’s 6.0L and 8.8L gasoline engines qualified for the small manufacturer exemption for Phase 1 GHG under Title 40 of the Code of Federal Regulation Section 1036.150(d).

There are no assurances that the Company will have adequate financial or technical resources in the future to maintain compliance with government emissions standards. Prior to 2020, the Company’s 6.0L and 8.8L gasoline engines qualified for the small manufacturer exemption for Phase 1 GHG under Title 40 of the Code of Federal Regulation Section 1036.150(d).

The Company’s ability to continue as a going concern is dependent on generating profitable operating results, having sufficient liquidity, maintaining compliance with the covenants and other requirements under the Third Amended and Restated Credit Agreement and shareholder loan agreements, in the future, and extending and amending, refinancing or repaying the indebtedness outstanding under the Company’s existing debt arrangements.

The Company’s ability to continue as a going concern is dependent on generating profitable operating results, having sufficient liquidity, maintaining compliance with the covenants and other requirements under the Credit Agreement and shareholder loan agreements, in the future, and extending and amending, refinancing or repaying the indebtedness outstanding under the Company’s existing debt arrangements.

The potential impact of future disruptions, continued economic uncerta inty, and depressed crude oil prices and low rig count levels may have a significant adverse impact that may result in the recognition of material impairments or other related charges.

The potential impact of future disruptions, continued economic uncertainty, and depressed crude oil prices and low rig count levels may have a significant adverse impact that may result in the recognition of material impairments or other related charges.

The Company’s Third Amended and Restated Credit Agreement places limitations on its ability to make acquisitions and restricts its ability to incur additional indebtedness, while certain loan agreements with Weichai place limitations or restrictions on the Company’s usage of borrowed funds.

The Company’s Credit Agreement places limitations on its ability to make acquisitions and restricts its ability to incur additional indebtedness, while certain loan agreements with Weichai place limitations or restrictions on the Company’s usage of borrowed funds.

O n March 24, 2023, the Company amended and restated its $130.0 million uncommitted senior secured revolving credit agreement with Standard Chartered (the “Third Amended and Restated Uncommitted Revolving Credit Agreement”), which extends the maturity date of loans outstanding under its previous credit facility to the earlier of March 22, 2024 or the demand of Standard Chartered.

O n March 24, 2023, the Company amended and restated its $130.0 million uncommitted senior secured revolving credit agreement with Standard Chartered, the Third Amended and Restated Uncommitted Revolving Credit Agreement (the "Credit Agreement")”, which extends the maturity date of loans outstanding under its previous credit facility to the earlier of March 22, 2024 or the demand of Standard Chartered.

The consolidated financial statements included herein have been prepared assuming the Company will continue as a going concern. As of December 31, 2022 , the Company had $209.8 million of total borrowings outstanding under its debt arrangements with Standard Chartered Bank (“Standard Chartered”) and Weichai.

The consolidated financial statements included herein have been prepared assuming the Company will continue as a going concern. As of December 31, 2023 , the Company had $144.8 million of total borrowings outstanding under its debt arrangements with Standard Chartered Bank (“Standard Chartered”) and Weichai.

The Company’s business could be harmed by adverse changes in its relationships with these suppliers if its competitors gain access to such technology. The viability of certain key third-party suppliers, or the exiting by certain suppliers of certain business lines, could require the Company to find other suppliers for 19 materials or components.

Some components cannot be quickly or inexpensively re-sourced to another supplier due to long lead times and contractual commitments that might be required by another supplier in order to provide the components or materials.

S ome components cannot be quickly or inexpensively re-sourced to another supplier due to long lead times and contractual commitments that might be required by another supplier in order to provide the components or materials.

The first amended Shareholder's Loan Agreement (the "first amended Shareholder's Loan Agreement") continues to provide the Company with a $130.0 million subordinated loan under which Weichai is obligated to advance funds solely for purposes of repaying outstanding borrowings under the $130.0 million Third Amended and Restated Uncommitted Revolving Credit Agreement if the Company is unable to pay such borrowings.

The first amended Shareholder’s Loan Agreement (the "first Amended Shareholder's Loan Agreement") continues to provide the Company with a $130.0 million subordinated loan under which Weichai is obligated to advance funds solely for purposes of repaying outstanding borrowings under the $130.0 million Credit Agreement if the Company is unable to pay such borrowings.

The Company has a significant amount of indebtedness and is highly leveraged. Its existing debt or any potential new debt could adversely affect its business and growth prospects. As of December 31, 2022, the Company’s total debt obligations, including indebtedness under agreements with Standard Chartered and Weichai, was $211.0 million .

The Company has a significant amount of indebtedness and is highly leveraged. Its existing debt or any potential new debt could adversely affect its business and growth prospects. As of December 31, 2023, the Company’s total debt obligations, including indebtedness under agreements with Standard Chartered and Weichai, was $145.2 million .

Additional expenses currently expected to be incurred and that may occur in the future and/or liabilities that may be imposed in connection with actions against certain of the Company’s past and present directors and officers and certain current and former employees who are entitled to indemnification will be funded by the Company with its existing cash resources.

Expenses that may occur in the future and/or liabilities that may be imposed in connection with actions against certain of the Company’s past and present directors and officers and certain current and former employees who are entitled to indemnification would be funded by the Company with its existing cash 16 resources.

The Company estimates that as much as approximately $47.0 million and $25.0 million of its 2022 and 2021 net sales, respectively, were attributable to the sale of products used within the 20 oil and gas industry.

The Company estimates that as much as approximately $72.1 million and $47.0 million of its 2023 and 2022 net sales, respectively, were attributable to the sale of products used within the oil and gas industry.

The existence of any material weakness in our internal control over financial reporting could also result in errors in our financial statements that could require us to restate our financial statements, cause us to fail to meet our reporting obligations, subject us to investigations from regulatory authorities or cause stockholders to lose confidence in our reported financial information, all of which could materially and adversely affect us. 17 The Company has experienced substantial net losses in recent fiscal years.

We have had material weaknesses in our internal controls in the past and we cannot be certain that we will be successful in maintaining adequate internal control over our financial reporting and financial processes in the future.

We may in the future discover areas of our internal controls that need improvement. We have had material weaknesses in our internal controls in the past and we cannot be certain that we will be successful in maintaining adequate internal control over our financial reporting and financial processes in the future.

T he Company has approximately $8.8 million accrued for the reimbursement to Travelers Casualty and Surety Company of America (“Travelers”) related to the matter involving former officers and employees. In June 2020, the Company entered into a new directors’ and officers’ liability insurance policy, which was renewed in June 2021, and again in June 2022.

T he Company has approximately $8.8 million accrued for the reimbursement to Travelers Casualty and Surety Company of America (“Travelers”) related to the matter involving former officers and employees. T he Company entered into a new directors’ and officers’ liability insurance policy, which expires in July 2024 .

With the exercise of the Weichai Warrant, Weichai alone owns a majority of the outstanding shares of Common Stock and, therefore, it possesses voting control over the Company sufficient to prevent any change of control from occurring. Weichai maintains certain rights through its Investor Rights Agreement with the Company.

Weichai alone owns a majority of the outstanding shares of Common Stock and, therefore, it possesses voting control over the Company sufficient to prevent any change of control from occurring. Weichai maintains certain rights through its Investor Rights Agreement with the Company. Weichai entered into an Investor Rights Agreement (the “Rights Agreement”) with the Company upon execution of the SPA.

If the Company should fail to generate a sufficient level of taxable income prior to the expiration of the NOL carryforward periods, then it will lose the ability to apply the NOLs as offsets to future taxable income. Similar limitations also apply to certain U.S. federal tax credits.

The third amended Shareholder's Loan Agreement (the “third amended Shareholder’s Loan Agreement”) continues to provide the Company with access to up to $50.0 million of credit at the discretion of Weichai. All of the amended shareholder loan agreements with Weichai are subject to customary events of default and covenants.

The fourth amended Shareholder’s Loan Agreement (the “fourth Amended Shareholder’s Loan Agreement”) continues to provide the Company with access to up to $30.0 million of credit at the discretion of Weichai and matures on March 31, 2024. All of the amended shareholder loan agreements with Weichai are subject to customary events of default and covenants.

Furthermore, if the Company cannot raise capital on acceptable terms, it may not, among other things, be able to do the following: • continue to expand the Company’s research and product investments and sales and marketing organization; • expand operations both organically and through acquisitions; and • respond to competitive pressures or unanticipated working capital requirements.

These consolidated financial statements do not include any adjustments that might result from the outcome of the Company’s efforts to address these issues. 15 Furthermore, if the Company cannot raise capital on acceptable terms, it may not, among other things, be able to do the following: • continue to expand the Company’s research and product investments and sales and marketing organization; • expand operations both organically and through acquisitions; and • respond to competitive pressures or unanticipated working capital requirements.

Weichai entered into an Investor Rights Agreement (the “Rights Agreement”) with the Company upon execution of the SPA. The Rights Agreement provides Weichai with majority representation on the Company’s Board and management representation rights. Weichai currently has four representatives on the Board which constitutes the majority of the directors serving on the Board.

The Rights Agreement provides Weichai with majority representation on the Company’s Board and management representation rights. Weichai currently has four representatives on the Board which constitutes the majority of the directors serving on the Board.

There can be no assurance that the Company’s management will be able to successfully complete an extension and amendment of its existing debt agreements or obtain new financing on acceptable terms, when required or if at all. These consolidated financial statements do not include any adjustments that might result from the outcome of the Company’s efforts to address these issues.

Because techniques used to obtain unauthorized access or to sabotage systems change frequently and generally are not recognized until they are launched against a target, the Company may be unable to anticipate these techniques or to implement adequate preventive measures.

A cyber incident could be caused by malicious outsiders using sophisticated methods to circumvent firewalls, encryption and other security defenses. Because techniques used to obtain unauthorized access or to sabotage systems change frequently and generally are not recognized until they are launched against a target, the Company may be unable to anticipate these techniques or to implement adequate preventive measures.

Winemaster, the Company’s founder, former Chairman of the Board, former Chief Executive Officer, and President and nonexecutive Chief Strategy Officer, beneficially owned approximately 14.5% of the Company’s outstanding shares of Common Stock, and Kenneth J. Winemaster, the Company’s co-founder and former Executive Vice President, beneficially owned approximately 9.6% of the Company’s outstanding shares of Common Stock.

Winemaster, the Company’s co-founder and former Executive Vice President, beneficially owned approximately 9.6% of the Company’s outstanding shares of Common Stock.

This volatility, as with any commodity, will occur from time to time and may adversely affect the Company’s business. Also, a significant portion of the Company’s sales and profitability has historically been derived from sales of products that are used in the oil and gas industry, primarily in support of operating wells.

Also, a significant portion of the Company’s sales and profitability has historically been derived from sales of products that are used in the oil and gas industry, primarily in support of operating wells.

The price differential among various fuel alternatives can impact OEMs and their decisions on which, if any, power systems they purchase from the Company. Furthermore, if OEMs do decide to purchase the Company’s power systems, relative fuel prices may affect which power systems they purchase, and the margins can vary significantly among the Company’s various power systems.

The price differential among various fuel alternatives can impact OEMs and their decisions on which, if any, power systems they purchase from the Company.

In addition, spending may be materially and adversely affected in response to financial market volatility, negative financial news, conditions in the real estate and mortgage markets, declines in income or asset values, energy shortages and cost increases, labor and healthcare costs and other economic factors. 13 In addition, uncertainty about, or a decline in, global or regional economic conditions may have a significant impact on the Company’s suppliers, contract manufacturers, logistics providers, distributors, and other channel partners.

As the Company continues to expand, it will need to promote and hire additional staff, and, as a result of increased compensation and benefit mandates, it may be difficult to attract or retain such individuals without incurring significant additional costs. 21 Common Stock Ownership and Stockholder Influence Ownership of the Company’s stock is concentrated among certain former employees and Weichai, therefore limiting other stockholders’ ability to influence corporate matters.

Without additional financing, the Company anticipates that it will not have sufficient cash and cash equivalents to repay amounts owed under its existing debt arrangements as they become due.

The Company has covenanted to secure any amounts borrowed under either of the agreements upon payment in full of all amounts outstanding under the $130.0 million Credit Agreement. Without additional financing, the Company anticipates that it will not have sufficient cash and cash equivalents to repay amounts owed under its existing debt arrangements as they become due.

Also, customers, or potential customers, may not substitute natural gas-, propane- and gasoline-powered power systems for diesel power systems in response to these regulations.

The impact of diesel emission regulations is expected to increase the cost and complexity of diesel power systems, but this may not materialize to the expected extent or at all. Also, customers, or potential customers, may not substitute natural gas-, propane- and gasoline-powered power systems for diesel power systems in response to these regulations.

The second amended Shareholder’s Loan Agreement (the “second amended Shareholder’s Loan Agreement”) continues to provide the Company with a $25.0 million subordinated loan at the discretion of Weichai. The fourth amended Shareholder's Loan Agreement (the “fourth amended Shareholder’s Loan Agreement”) agreement continues to provide the Company with access to up to $30.0 million of credit at the discretion of Weichai.

The third amended Shareholder’s Loan Agreement (the “third Amended Shareholder’s Loan Agreement”) continues to provide the Company with access to up to $50.0 million of credit at the discretion of Weichai and matures on November 30, 2024.

The Company may be affected by the price of oil and gas. For example, when the price of oil declines, oil becomes a more favorable source of fuel in the short term, and alternative fuel and energy producers suffer as a result.

For example, when the price of oil declines, oil becomes a more favorable source of fuel in the short term, and alternative fuel and energy producers suffer as a result. This volatility, as with any commodity, will occur from time to time and may adversely affect the Company’s business.

There is no assurance that material weaknesses or significant deficiencies in internal controls will not be identified in the future or that we will be successful in adequately remediating any such material weaknesses and significant deficiencies. We may in the future discover areas of our internal controls that need improvement.

Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. There is no assurance that material weaknesses or significant deficiencies in internal controls will not be identified in the future or that we will be successful in adequately remediating any such material weaknesses and significant deficiencies.

Before an OEM commits to purchase power systems, they often require a significant technical review, assessment of competitive products and approval at a number of management levels within their organization. 17 During the time the Company’s customers are evaluating its products, the Company may incur substantial sales and marketing, engineering, and research and development expenses to customize the power systems to the customer’s needs.

In addition, the Company incurred significant legal and professional expenses associated with indemnifications of certain former employees of the Company. Some of these costs could remain in future periods. The Company could incur restructuring and impairment charges as it evaluates its portfolio of assets and identifies opportunities to restructure its business to optimize its cost structure.

The Company could incur restructuring and impairment charges as it evaluates its portfolio of assets and identifies opportunities to restructure its business to optimize its cost structure.

During the time the Company’s customers are evaluating its products, the Company may incur substantial sales and marketing, engineering, and research and development expenses to customize the power systems to the customer’s needs. Warranty, Safety Standards, and Emissions The Company could suffer warranty claims or be subject to product liability claims, both of which could materially adversely affect its business.

Warranty, Safety Standards, and Emissions The Company could suffer warranty claims or be subject to product liability claims, both of which could materially adversely affect its business.

Cyber incidents could materially disrupt operational systems, result in loss of trade secrets or other proprietary or competitively sensitive information, compromise personally identifiable information regarding customers or employees, and jeopardize the security of the Company’s facilities. 23 A cyber incident could be caused by malicious outsiders using sophisticated methods to circumvent firewalls, encryption and other security defenses.

The Company’s operations routinely involve receiving, storing, processing and transmitting sensitive information pertaining to its business, customers, dealers, suppliers, employees and other sensitive matters. Cyber incidents could materially disrupt operational systems, result in loss of trade secrets or other proprietary or competitively sensitive information, compromise personally identifiable information regarding customers or employees, and jeopardize the security of the Company’s facilities.

The insurance policy includes standard exclusions including for any ongoing or pending litigation such as the disclosed investigations by the SEC and USAO. Financial Condition, Results of Operations, and Cash Flows If we fail to maintain an effective system of internal controls, we may not be able to accurately determine our financial results or prevent fraud.

Financial Condition, Results of Operations, and Cash Flows If we fail to maintain an effective system of internal controls, we may not be able to accurately determine our financial results or prevent fraud. As a result, our stockholders could lose confidence in our financial results, which could materially and adversely affect us.

The $130.0 million Third Amended and Restated Uncommitted Revolving Credit Agreement is subject to customary events of default and covenants and is secured by substantially all of the Company’s assets.

The $130.0 million Credit Agreement is subject to customary events of default and covenants and is secured by substantially all of the Company’s assets. In addition, Standard Chartered has the right to demand payment of any and all outstanding borrowings and other amounts outstanding at any point in time at its discretion.

Since exhausting its primary directors’ and officers’ liability insurance coverage in early 2020, the Company has incurred $15.8 million related to its indemnification obligation in 2022 and 2021 combined.

The Company has incurred less than $0.1 million related to its indemnification obligation in 2023 and 2022 combined.

Potential effects include financial instability; inability to obtain credit to finance operations and purchases of the Company’s products; and insolvency.

Also, uncertainty about, or a decline in, global or regional economic conditions may have a significant impact on the Company’s suppliers, contract manufacturers, logistics providers, distributors, and other channel partners. Potential effects include financial instability; inability to obtain credit to finance operations and purchases of the Company’s products; and insolvency.

Removed

Lastly, the Company’s overseas sales are subject to numerous stringent U.S. and foreign laws, including the Foreign Corrupt Practices Act (“FCPA”) and comparable foreign laws and regulations, which prohibit improper payments or offers of payments to foreign governments and their officials and political parties by U.S. and other business entities for the purpose of obtaining or retaining business.

Added

Any material reduction in sales may have a material adverse effect on the Company’s results of operations. We may incur fines or penalties, damage to our reputation or other adverse consequences if our employees, suppliers, sub-suppliers or other contract parties, agents or business partners violate anti-bribery, competition, export and import, trade sanctions, data privacy, environmental, human rights or other laws.

Removed

Safeguards that the Company implements to discourage these practices could prove to be ineffective, and violations of the FCPA and other laws may result in severe criminal or civil sanctions, or other liabilities or proceedings against 14 the Company, including class action lawsuits and enforcement actions from the SEC, the United States Attorney’s Office for the Northern District of Illinois (“USAO”) and overseas regulators.

Added

We are subject to regulation under a wide variety of U.S. federal and state and non-U.S. laws, regulations and policies, including laws related to anti-corruption, human rights, anti-bribery, export and import compliance, trade sanctions, data privacy, anti-trust and money laundering, due to our domestic and global operations. In particular, the U.S.

Removed

Any of these factors, or any other international factors, could impair the Company’s ability to effectively sell its power systems, or other products or services that it may develop, outside of the U.S.

Added

Foreign Corrupt Practices Act and similar anti-bribery laws in other jurisdictions generally prohibit companies and their intermediaries from making improper payments to government officials for the purpose of obtaining or retaining business, and we operate in many parts of the world that have experienced government corruption to some degree.

Removed

Any material reduction in sales may have a material adverse effect on the Company’s results of operations.

Added

We cannot provide assurance our internal controls will always protect us from the improper conduct of our employees, suppliers, sub-suppliers or other contract parties, agents and business partners.

Removed

COVID-19 Pandemic The Company’s financial condition, results of operations and cash flows have been impacted by the COVID-19 pandemic and future periods may continue to be adversely affected by the COVID-19 pandemic or other outbreaks of infectious diseases or similar public health threats and the resulting economic impact.

Added

Violations of these laws, which are complex, may conflict with laws of other jurisdictions and often are difficult to interpret and apply, could subject us to civil or criminal investigations in the United States and other jurisdictions, could lead to substantial civil or criminal, monetary and non-monetary penalties and related stockholder lawsuits, could lead to increased costs of compliance and could damage our reputation, business, financial condition, operating result s and cash flows.

Removed

Any outbreaks of contagious diseases and other adverse public health developments could have a material and adverse effect on the Company’s business, results of operations and financial condition.

Added

During 2023, the Company also amended four shareholder’s loan agreements with Weichai, to among other things, extend the maturities thereof.

Removed

The COVID-19 pandemic resulted in the implementation of significant governmental measures to control the spread of the virus, including quarantines, travel restrictions, business shutdowns and restrictions on the movement of people in the United States and abroad. Further, the Company sources a significant amount of inventory from China, where the above mentioned governmental measures continue to be prominent.

Added

The maturity of the first Amended Shareholder’s Loan Agreement was extended to April 25, 2024. The second amended Shareholder’s Loan Agreement (the “second Amended Shareholder’s Loan Agreement”) continues to provide the Company with a $25.0 million subordinated loan at the discretion of Weichai and matures on May 20, 2024.

Removed

These factors have impacted and may continue to impact the Company’s operations, financial condition and demand for the Company’s goods and services. Due to the severity and longevity of the COVID-19 pandemic, the Company’s business, employees, customers, suppliers and stockholders may continue to experience significant negative impacts for future periods.

Added

The statute compliance disruptions associated with goods shipped from certain regions in China could cause supply chain interruptions and raw material shortages. In December 23, 2021, the UFLPA became law in the United States. The UFLPA, among other matters, prohibits the import of goods from the Xinjiang Uyghur Autonomous Region of the People’s Republic of China.

Removed

Such a negative impact on the Company’s business, results of operations and financial condition cannot be reasonably estimated at this time, but the impact may continue to be material in the future.

Added

In July 2023, the Company began experiencing delays in the imports of raw materials directly related to the UFLPA. Near the end of 2023, the importing of certain forklift products was suspended because of the intensified enforcement and expansion of the UFLPA.

Removed

The degree to which the COVID-19 pandemic continues to impact the Company’s financial condition, cash flows, and results of operations depends upon future developments, which are highly uncertain and cannot be predicted, including, but not limited to, the duration, location, and spread of future outbreaks, its severity, government and business measures to contain the virus and address its impact, and how quickly and to what extent normal economic and operating conditions can resume.

Added

The Company is actively working to re-source these products through new channels as quickly as possible to minimize the effect on future sales while maintaining the Company’s high-quality standards.

… 27 more changes not shown on this page.

Item 2. Properties

Properties — owned and leased real estate

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2022 filing

2023 filing

Biggest changeThe Company’s primary manufacturing, assembly, engineering, research and development, sales and distribution facilities are located in suburban Chicago, Illinois and Darien, Wisconsin. The Company believes that all of its facilities have been adequately maintained, are in good operating condition and are suitable for its current needs. These facilities are expected to meet the Company’s needs in the foreseeable future.

Biggest changeThe Company’s primary manufacturing, assembly, engineering, research and development, sales and distribution facilities are located in suburban Chicago, Illinois, as well as in Darien and Beloit, Wisconsin. The Company believes that all of its facilities have been adequately maintained, are in good operating condition and are suitable for its current needs.

Added

These facilities are expected to meet the Company’s needs in the foreseeable future.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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2022 filing

2023 filing

Biggest changeAs of April 10, 2023, the sale price for the Company’s Common Stock, as reported by the OTC Market, was $3.10 per share. Holders As of April 10, 2023, there were approximately 53 holders of record of the Company’s Common Stock. Dividend Policy The Company has not paid any cash dividends on its Common Stock to date.

Biggest changeAs of March 7, 2024, the sale price for the Company’s Common Stock, as reported by the OTC Market, was $2.08 per share. Holders As of March 7, 2024, there were approximately 50 holders of record of the Company’s Common Stock. Dividend Policy The Company has not paid any cash dividends on its Common Stock to date.

The payment of dividends is currently restricted by the Amended and Restated Uncommitted Revolving Credit Agreement. The Company intends to retain its future earnings to support operations, to finance expansion and reduce debt. Recent Sales of Unregistered Securities None. Issuer Purchases of Equity Securities During 2022 and 2021, the Company did not repurchase any equity securities. Item 6. Reserved

The payment of dividends is currently restricted by the Credit Agreement. The Company intends to retain its future earnings to support operations, to finance expansion and reduce debt. Recent Sales of Unregistered Securities None. Issuer Purchases of Equity Securities During 2023 and 2022, the Company did not repurchase any equity securities. Item 6. Reserved

Item 7. Management's Discussion & Analysis

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

63 edited+24 added−64 removed23 unchanged

2022 filing

2023 filing

Biggest changeWith the introduction of numerous natural gas and diesel engines over the past few years, coupled with its existing strong product lineup, despite economic disruptions related to the COVID-19 pandemic, and supply chain challenges, the Company believes that it has a solid foundation to achieve long-term growth, particularly within the power systems market. 28 Results of Operations Results of operations for the year ended December 31, 2022 compared with the year ended December 31, 2021 : (in thousands, except per share amounts) For the Year Ended December 31, 2022 2021 Change % Change Net sales (from related parties $2,749 and $493 for the year ended December 31, 2022 and December 31, 2021, respectively) $ 481,333 $ 456,255 $ 25,078 5 % Cost of sales (from related parties $2,262 and $346 for the year ended December 31, 2022 and December 31, 2021, respectively) 392,770 414,984 (22,214) (5) % Gross profit 88,563 41,271 47,292 115 % Gross margin % 18.4 % 9.0 % 9.4 % Operating expenses: Research, development and engineering expenses 18,896 22,435 (3,539) (16) % Research, development and engineering expenses as a % of sales 3.9 % 4.9 % (1.0) % Selling, general and administrative expenses 42,941 57,871 (14,930) (26) % Selling, general and administrative expenses as a % of sales 8.9 % 12.7 % (3.8) % Amortization of intangible assets 2,124 2,535 (411) (16) % Total operating expenses 63,961 82,841 (18,880) (23) % Operating income (loss) 24,602 (41,570) 66,172 159 % Other expense, net: Interest expense 13,028 7,307 5,721 78 % Other expense, net — 1 (1) NM Total other expense, net 13,028 7,308 5,720 78 % Income (Loss) before income taxes 11,574 (48,878) 60,452 124 % Income tax expense (benefit) 304 (406) 710 NM Net income (loss) $ 11,270 $ (48,472) $ 59,742 123 % Earnings (Loss) per common share: Basic $ 0.49 $ (2.12) $ 2.61 123 % Diluted $ 0.49 $ (2.12) $ 2.61 123 % Non-GAAP Financial Measures: Adjusted net income (loss) * $ 15,735 $ (26,749) $ 42,484 159 % Adjusted income (loss) per share * $ 0.69 $ (1.16) $ 1.85 159 % EBITDA * $ 31,292 $ (34,165) $ 65,457 192 % Adjusted EBITDA * $ 35,757 $ (12,442) $ 48,199 NM NM Not meaningful * See reconciliation of non-GAAP financial measures to GAAP results below Net Sales Net sales increased $25.1 million, or 5%, compared to 2021, as a result of sales increases of $56.4 million and $71.4 million within the power systems and industrial end markets, respectively, partly offset by a decrease of $102.7 million in the transportation end market , which was expected during the year as the Company focuses on driving improved long-term profitability.

Biggest changeWith the introduction of numerous natural gas and diesel engines over the past few years, coupled with its existing strong product lineup, the Company believes that it has a solid foundation to achieve long-term growth, particularly within the power systems market. 28 Results of Operations Results of operations for the year ended December 31, 2023 compared with the year ended December 31, 2022 : (in thousands, except per share amounts) For the Year Ended December 31, 2023 2022 Change % Change Net sales (from related parties $2,449 and $2,749 for the year ended December 31, 2023 and 2022, respectively) $ 458,973 $ 481,333 $ (22,360) (5) % Cost of sales (from related parties $1,790 and $2,262 for the year ended December 31, 2023 and 2022, respectively) 353,109 392,770 (39,661) (10) % Gross profit 105,864 88,563 17,301 20 % Gross margin % 23.1 % 18.4 % 4.7 % Operating expenses: Research and development expenses 19,457 18,896 561 3 % Research and development expenses as a % of sales 4.2 % 3.9 % 0.3 % Selling, general and administrative expenses 40,386 42,941 (2,555) (6) % Selling, general and administrative expenses as a % of sales 8.8 % 8.9 % (0.1) % Amortization of intangible assets 1,746 2,124 (378) (18) % Total operating expenses 61,589 63,961 (2,372) (4) % Operating income 44,275 24,602 19,673 80 % Interest expense (from related parties $7,729 and $4,680 for the year ended December 31, 2023 and 2022, respectively) 17,069 13,028 4,041 31 % Income before income taxes 27,206 11,574 15,632 135 % Income tax expense 900 304 596 NM Net income $ 26,306 $ 11,270 $ 15,036 133 % Earnings per common share: Basic $ 1.15 $ 0.49 $ 0.66 135 % Diluted $ 1.15 $ 0.49 $ 0.66 135 % Non-GAAP Financial Measures: Adjusted net income * $ 26,552 $ 15,735 $ 10,817 69 % Adjusted income per share * $ 1.17 $ 0.69 $ 0.48 70 % EBITDA * $ 49,875 $ 31,292 $ 18,583 59 % Adjusted EBITDA * $ 50,121 $ 35,757 $ 14,364 40 % NM Not meaningful * See reconciliation of non-GAAP financial measures to GAAP results below Net Sales Net sales decreased $22.4 million, or 5%, compared to 2022, as a result of sales decreases of $64.3 million and $3.6 million within the industrial and transportation end markets, respectively, partly offset by an increase of $45.6 million in the power systems end market.

Executive Overview The Company designs, engineers, manufactures, markets and sells a broad range of advanced, emission-certified engines and power systems that run on a wide variety of clean, alternative fuels, including natural gas, propane, and biofuels, as well as gasoline and diesel options, within the power systems, industrial and transportation end markets with primary manufacturing, assembly, engineering, R&D, sales and distribution facilities located in suburban Chicago, Illinois and Darien, Wisconsin.

GAAP, and non-GAAP financial measures as reported by the Company may not be comparable to similarly titled amounts reported by other companies. The non-GAAP financial measures should be considered in conjunction with the consolidated financial statements, including the related notes, and Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations included in this report.

GAAP, and non-GAAP financial measures as reported by the Company may not be comparable to similarly titled measures reported by other companies. The non-GAAP financial measures should be considered in conjunction with the consolidated financial statements, including the related notes, and Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations included in this report.

Additionally, the SEC and the USAO conducted investigations into the Company’s financial reporting, revenue recognition practices and related conduct. These investigations were completed and settled in September 2020 (see Note 10. Commitments and Contingencies , included in Part II. Item 8. Financial Statements and Supplementary Data , for additional information).

Additionally, the SEC and the USAO 27 conducted investigations into the Company’s financial reporting, revenue recognition practices and related conduct. These investigations were completed and settled in September 2020 (see Note 10. Commitments and Contingencies , included in Part II. Item 8. Financial Statements and Supplementary Data , for additional information).

Summary of Significant Accounting Policies and Other Information , included in Item 8. Financial Statements and Supplementary Data , and should be reviewed in connection with the following discussion of accounting policies that require difficult, subjective and complex judgments.

While the Company saw an increase of sales to customers with traditional exposure to the oil and gas markets during 2022, as compared to the prior year, sales remain below pre-pandemic levels. A significant portion of the Company’s sales and profitability has historically been derived from the sale of products that are used within the oil and gas industry.

While the Company saw an increase of sales to customers with traditional exposure to the oil and gas markets during 2023, as compared to the prior year, sales remain below pre-pandemic levels. A significant portion of the Company’s sales and profitability has historically been derived from the sale of products that are used within the oil and gas industry.

Non-GAAP Financial Measure Comparable GAAP Financial Measure Adjusted net income (loss) Net income (loss) Adjusted earnings (loss) per share Earnings (loss) per common share – diluted EBITDA Net income (loss) Adjusted EBITDA Net income (loss) The Company believes that Adjusted net income (loss), Adjusted (loss) earnings per share, EBITDA, and Adjusted EBITDA provide relevant and useful information, which is widely used by analysts, investors and competitors in its industry as well as by the Company’s management in assessing the performance of the Company.

Non-GAAP Financial Measure Comparable GAAP Financial Measure Adjusted net income Net income Adjusted net income per share Net income per common share – diluted EBITDA Net income Adjusted EBITDA Net income The Company believes that Adjusted net income, Adjusted net income per share, EBITDA, and Adjusted EBITDA provide relevant and useful information, which is widely used by analysts, investors and competitors in its industry as well as by the Company’s management in assessing the performance of the Company.

Due to uncertainties surrounding the Company’s future ability to refinance, extend, or repay its outstanding indebtedness under its existing debt arrangements, maintain sufficient liquidity to fund its business activities, and maintain compliance with the covenants and other requirements under the Third Amended and Restated Credit Agreement or shareholder’s loan agreements in the future, substantial doubt exists as to its ability to continue as a going concern within one year after the date that these financial statements are issued.

Due to uncertainties surrounding the Company’s future ability to refinance, extend, or repay its outstanding indebtedness under its existing debt arrangements, maintain sufficient liquidity to fund its business activities, and maintain compliance with the covenants and other requirements under the Credit Agreement or shareholder’s loan agreements in the future, substantial doubt exists as to its ability to continue as a going concern within one year after the date that these financial statements are issued.

Adjusted net income (loss), Adjusted (loss) earnings per share, and Adjusted EBITDA may be useful to an investor because these measures are widely used to evaluate companies’ operating performance without regard to items excluded from the calculation of such measures, which can vary substantially from company to company depending on the accounting methods, the book value of assets, the capital structure and the method by which the assets were acquired, among other factors.

Adjusted net income, Adjusted net income per share, and Adjusted EBITDA may be useful to an investor because these measures are widely used to evaluate companies’ operating performance without regard to items excluded from the 30 calculation of such measures, which can vary substantially from company to company depending on the accounting methods, the book value of assets, the capital structure and the method by which the assets were acquired, among other factors.

As a result of these factors, the Company’s interest expense has increased and is subject to further increases. Accordingly, the above challenges may continue to have a material adverse impact on the Company’s future results of operations, financial position, and liquidity.

As a result, the Company’s interest expense has increased and is subject to further increases. Accordingly, the above challenges may continue to have a material adverse impact on the Company’s future results of operations, financial position, and liquidity.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following discussion and analysis includes forward-looking statements about the Company’s business and consolidated results of operations for the fiscal years ended December 31, 2022 and 2021, including discussions about management’s expectations for the Company’s business.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following discussion and analysis includes forward-looking statements about the Company’s business and consolidated results of operations for the fiscal years ended December 31, 2023 and 2022, including discussions about management’s expectations for the Company’s business.

Adjusted net (loss) income is defined as net income as adjusted for certain items that the Company believes are not indicative of its ongoing operating performance. 30 Adjusted (loss) earnings per share is a measure of the Company’s diluted net (loss) earnings per share adjusted for the impact of special items.

Adjusted net income is defined as net income as adjusted for certain items that the Company believes are not indicative of its ongoing operating performance. Adjusted net income per share is a measure of the Company’s diluted net earnings per share adjusted for the impact of special items.

Adjusted net income (loss), Adjusted (loss) earnings per share, EBITDA, and Adjusted EBITDA are used by management for various purposes, including as a measure of performance of the Company’s operations and as a basis for strategic planning and forecasting.

Adjusted net income, Adjusted net income per share, EBITDA, and Adjusted EBITDA are used by management for various purposes, including as a measure of performance of the Company’s operations and as a basis for strategic planning and forecasting.

Significant uncertainties exist about the Company’s ability to refinance, extend, or repay its outstanding indebtedness under its existing debt arrangements, maintain sufficient liquidity to fund its business activities, and maintain compliance with the covenants and other requirements under the Third Amended and Restated Credit Agreement or shareholder’s loan agreements in the future.

Significant uncertainties exist about the Company’s ability to refinance, extend, or repay its outstanding indebtedness under its existing debt arrangements, maintain sufficient liquidity to fund its business activities, and maintain compliance with the covenants and other requirements under the Credit Agreement or shareholder’s loan agreements in the future.

Strategic Initiatives/Growth Strategies : The Company has initiated a set of business objectives aimed at improving profitability, streamlining processes, strengthening the business and focusing on achieving growth in higher-return product lines. Central to this plan is the Company’s increased emphasis on power systems product offerings through new product development and investments, in addition to leveraging the Company’s relationship with Weichai.

Strategic Initiatives/Growth Strategies : The Company has initiated various business objectives aimed at improving profitability, streamlining processes, strengthening the business and focusing on achieving growth in higher-return product lines. Central to this plan is the Company’s increased emphasis on power systems product offerings through new product development and investments, in addition to leveraging the Company’s relationship with Weichai.

Amounts reflect non-cash stock-based compensation expense. 2. Amounts represent severance and other post-employment costs for certain former employees of the Company. 3. Amounts represent professional services fees related to the Company’s efforts to remediate internal control material weaknesses including certain costs to upgrade IT systems. 4.

As a result of this, the Company expects to see a decline in sales volumes to Hyster-Yale beginning in 2024. The Company believes it is positioned to continue its relationship in a moderated capacity with this customer in 2024 and beyond.

As a result, the Company expects to see a decline in sales volumes to Hyster-Yale in 2024 but believes it is well positioned to continue its relationship in a moderated capacity with this customer in 2024 and beyond.

At December 31, 2022, the Company had five outstanding letters of credit totaling $2.1 million. See Item 8. Financial Statements and Supplementary Data, Note 10. Commitments and Contingencies for additional information related to the Company’s off-balance sheet arrangements and the outstanding letters of credit. Commitments and Contingencies Legal matters are further discussed in Note 10.

At December 31, 2023, the Company had four outstanding letters of credit totaling $1.9 million. See Item 8. Financial Statements and Supplementary Data, Note 10. Commitments and Contingencies for additional information related to the Company’s off-balance sheet arrangements and the outstanding letters of credit. Commitments and Contingencies Legal matters are further discussed in Note 10.

See Note 11. Income Taxes , included in Item 8. Financial Statements and Supplementary Data , for additional information related to the Company’s income tax provision. Non-GAAP Financial Measures In addition to the results provided in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) above, this report also includes non-GAAP (adjusted) financial measures.

Financial Statements and Supplementary Data , for additional information related to the Company’s income tax provision. Non-GAAP Financial Measures In addition to the results provided in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) above, this report also includes non-GAAP (adjusted) financial measures.

Cash Flow from Investing Activities Net cash used in investing activities was $1.4 million for the year ended December 31, 2022 compared to cash provided by investing activities of $0.4 million for year ended December 31, 2021, respectively.

Cash Flow from Investing Activities Net cash used in investing activities was $5.0 million for the year ended December 31, 2023 compared to cash used in investing activities of $1.4 million for year ended December 31, 2022, respectively .

Notwithstanding this outlook, which is being driven in part by expectations for an improvement in supply chain dynamics, including timelier availability of parts, and a continuation of favorable economic conditions within the United States and across the Company’s various markets, the Company cautions that significant uncertainty remains as a result of supply chain challenges, inflationary costs, commodity volatility, rising interest rates, and the prolonged impacts of the COVID-19 pandemic, among other factors.

Notwithstanding this outlook, which is being driven in part by expectations for stable supply chain dynamics and a continuation of favorable economic conditions within the United States and across the Company’s various markets, the Company cautions that significant uncertainty remains as a result of supply chain challenges, inflationary costs, commodity volatility, and rising interest rates among other factors.

Incremental financial reporting, internal control remediation, and government investigation and other legal matter expenses, included in the 2022 and 2021 operating results, were $3.6 million and $19.7 million, respectively.

Incremental financial reporting, internal control remediation, and government investigation and other legal matter expenses, included in the 2023 and 2022 operating results, were $0.2 million and $3.6 million, respectively.

The Collaboration Agreement also provides for the steering committee to create various subcommittees with operating roles and otherwise governs the treatment of intellectual property of parties prior to the collaboration and the intellectual property developed during the collaboration. The Collaboration Agreement was extended for three years in March 2020 and was set to expire in March 2023 .

The Collaboration Agreement also provides for the steering committee to create various subcommittees with operating roles and otherwise governs the treatment of intellectual property of parties prior to the collaboration and the intellectual property developed during the collaboration. On March 22, 2023, the Collaboration Agreement was extended for an additional term of three years.

As of the date of this 2022 Annual Report, the Company continues to judiciously manage its expenses through the continuation of certain measures, including the restriction of all non-essential travel and minimized discretionary expenses and consulting services. The Company continues to review operating expenses, including prioritizing certain R&D investments in support of the Company’s long-term growth objectives.

Recent Trends and Business Outlook As of the date of this 2023 Annual Report, the Company prudently continues to manage its expenses, including the restriction of all non-essential travel and minimized discretionary expenses and consulting services. The Company continues to review operating expenses, including prioritizing certain R&D investments in support of the Company’s long-term growth objectives.

Cash Flow from Financing Activities The Company generated $28.4 million in cash from financing activities in the year ended December 31, 2022 compared to $46.5 million in cash generated by financing activities in the year ended December 31, 2021.

Cash Flow from Financing Activities The Company used $66.8 million in cash from financing activities in the year ended December 31, 2023 compared to $28.4 million in cash generated by financing activities in the year ended December 31, 2022.

As of December 31, 2022 , the Company’s total outstanding debt obligations under the Second Amended and Restated Credit Agreement, the second Amended Shareholder’s Loan Agreement, the third Amended Shareholder's Loan Agreement , the fourth Amended Shareholder's Loan Agreement and for finance leases and other debt were $211.0 million in the aggregate, and its cash and cash equivalents were $24.3 million.

As of December 31, 2023 , the Company’s total outstanding debt obligations under the Credit Agreement , the second Amended Shareholder’s Loan Agreement, the third Amended Shareholder’s Loan Agreement , the fourth Amended Shareholder’s Loan Agreement and for finance leases and other debt were $145.2 million in the aggregate, and its cash and cash equivalents were $22.8 million.

The remaining 18% of engines were dual fuel gasoline/propane, diesel and service/base engines. During 2021, the Company sold over 49,000 engines of which approximately 52% utilized propane or natural gas as their fuel source and 39% utilized gasoline. The remaining 9% of engines were dual fuel gasoline/propane, diesel and service/base engines.

The remaining 7% of engines were dual fuel gasoline/propane, diesel and service/base engines. During 2022 , the Company sold over 47,000 engines of which approximately 70% utilized propane or natural gas as their fuel source and 12% utilized gasoline. The remaining 18% of engines were dual fuel gasoline/propane, diesel and service/base engines.

For contracts with customers that include multiple performance obligations, judgment is required to determine whether performance obligations specified in these contracts are distinct and should be accounted for as separate revenue transactions for recognition purposes. For such arrangements, revenue is allocated to each performance obligation based on its relative standalone selling price.

Starting in 2021 and throughout 2022, the Company took rightsizing actions to align its staffing with current needs, while also streamlining certain roles. During 2021, the glo bal economy began recovering after the global pandemic that led to challenging market conditions across certain areas of the Company’s business and continued to improve during 2022.

Starting in 2021 and throughout 2023, the Company took rightsizing actions to align its staffing with current needs, while also streamlining certain roles. By the end of 2022, the global economy had mostly recovered after the global pandemic, COVID-19. The recovery led to challenging market conditions across certain areas of the Company’s business.

As a result of the uncertainty surrounding the nature and frequency of product recalls and field campaigns, the liability for such actions is generally recorded when the Company commits to a product recall or field campaign. When collection is reasonably assured, the Company also estimates the amount of warranty claim recoveries to be received from its suppliers.

Liquidity and Capital Resources The Company’s sources of funds are cash flows from operations, borrowings made pursuant to our credit facilities, shareholder’s loan agreements, and cash and cash equivalents on hand. Principal uses of funds consist of payments of principal interest on our debt facilities and shareholder’s loan agreements, capital expenditures, and working capital needs.

Financial Statements and Supplementary Data related to the amendments of the Company’s debt arrangements . Liquidity and Capital Resources The Company’s sources of funds are cash flows from operations, borrowings made pursuant to our credit facilities, shareholder’s loan agreements, and cash and cash equivalents on hand.

Warranty The Company offers a standard limited warranty on the workmanship of its products that in most cases covers defects for a defined period. Warranties for certified emission products are mandated by the EPA and/or the CARB and are generally longer than the Company’s standard warranty on certain emission-related products. The Company’s products may also carry limited warranties from suppliers.

Warranty The Company offers a standard limited warranty on the workmanship of its products that in most cases covers defects for a defined period, warranties mandated by governments and warranties for products that carry limited warranties from suppliers.

Through the Weichai Transactions, the Company sought to expand its range of products and its presence in the Pacific Rim. 26 The Company and Weichai executed the Collaboration Agreement in order to achieve their respective objectives, enhance the cooperation alliance and share experiences, expertise and resources.

The Company and Weichai executed the Collaboration Agreement in order to achieve their respective objectives, enhance the cooperation alliance and share experiences, expertise and resources.

The following table presents a reconciliation from Net income (loss) to Adjusted net income (loss): (in thousands) For the Year Ended December 31, 2022 2021 Net income (loss) $ 11,270 $ (48,472) Stock-based compensation 1 385 394 Severance 2 462 1,595 Internal control remediation 3 467 1,283 Governmental investigations and other legal matters 4 3,151 18,451 Adjusted net income (loss) $ 15,735 $ (26,749) 31 The following table presents a reconciliation from Income (Loss) per common share – diluted to Adjusted income (loss) per share – diluted: For the Year Ended December 31, 2022 2021 Income (loss) per common share – diluted $ 0.49 $ (2.12) Stock-based compensation 1 0.02 0.02 Severance 2 0.02 0.07 Internal control remediation 3 0.02 0.06 Governmental investigations and other legal matters 4 0.14 0.81 Adjusted income (loss) per share – diluted $ 0.69 $ (1.16) Diluted shares (in thousands) 22,948 22,908 The following table presents a reconciliation from Net income (loss) to EBITDA and Adjusted EBITDA: (in thousands) For the Year Ended December 31, 2022 2021 Net income (loss) $ 11,270 $ (48,472) Interest expense 13,028 7,307 Income tax expense (benefit) 304 (406) Depreciation 4,566 4,871 Amortization of intangible assets 2,124 2,535 EBITDA 31,292 (34,165) Stock-based compensation 1 385 394 Severance 2 462 1,595 Internal control remediation 3 467 1,283 Governmental investigations and other legal matters 4 3,151 18,451 Adjusted EBITDA $ 35,757 $ (12,442) 1.

The following table presents a reconciliation from Net income to Adjusted net income: (in thousands) For the Year Ended December 31, 2023 2022 Net income $ 26,306 $ 11,270 Stock-based compensation 1 151 385 Severance 2 — 462 Internal control remediation 3 — 467 Governmental investigations and other legal matters 4 195 3,151 Insurance proceeds 5 (100) — Adjusted net income $ 26,552 $ 15,735 The following table presents a reconciliation from Net income per common share – diluted to Adjusted net income per share – diluted: For the Year Ended December 31, 2023 2022 Net income per common share – diluted $ 1.15 $ 0.49 Stock-based compensation 1 0.01 0.02 Severance 2 — 0.02 Internal control remediation 3 — 0.02 Governmental investigations and other legal matters 4 0.01 0.14 Adjusted net income per share – diluted $ 1.17 $ 0.69 Diluted shares (in thousands) 22,973 22,948 The following table presents a reconciliation from Net income to EBITDA and Adjusted EBITDA: (in thousands) For the Year Ended December 31, 2023 2022 Net income $ 26,306 $ 11,270 Interest expense 17,069 13,028 Income tax expense 900 304 Depreciation 3,854 4,566 Amortization of intangible assets 1,746 2,124 EBITDA 49,875 31,292 Stock-based compensation 1 151 385 Severance 2 — 462 Internal control remediation 3 — 467 Governmental investigations and other legal matters 4 195 3,151 Insurance proceeds 5 (100) — Adjusted EBITDA $ 50,121 $ 35,757 1.

R ig counts in the U.S. oil markets increased during 2021 and through 2022, however the average rig counts remains slightly below pre-pandemic levels. The Company also believes that capital spending within the areas of the oil and gas market that it participates in, remains below pre-pandemic levels.

Rig counts in the U.S. oil markets also increased through 2022 but still under pre-pandemic levels as of the end of 2023. Despite increasing rig counts and crude oil prices, the Company believes that capital spending within the areas of the oil and gas market 32 that it participates in, remains below pre-pandemic levels.

Gross margin was 18.4% and 9.0% in 2022 and 2021, respectively. The increase in gross margin is primarily due to lower warranty expense, improved mix and pricing actions.

Gross margin was 23.1% and 18.4% in 2023 and 2022, respectively. The increase in gross margin is primarily due to improved mix, pricing actions and freight cost management.

Net sales by geographic area and by end market for 2022 and 2021 are presented below: (in thousands) For the year ended December 31, 2022 For the Year Ended December 31, 2021 Geographic Area % of Total % of Total United States $ 349,488 73 % $ 406,077 89 % North America (outside of United States) 16,437 3 % 8,616 2 % Pacific Rim 80,681 17 % 25,457 5 % Europe 18,452 4 % 7,457 2 % Others 16,275 3 % 8,648 2 % Total $ 481,333 100 % $ 456,255 100 % (in thousands) For the year ended December 31, 2022 For the Year Ended December 31, 2021 End Market % of Total % of Total Power Systems $ 179,491 37 % $ 123,132 27 % Industrial 224,669 47 % 153,289 34 % Transportation 77,173 16 % 179,834 39 % Total $ 481,333 100 % $ 456,255 100 % During 2022, t he Company sold over 47,000 engines of which approximately 70% utilized propane or natural gas as their fuel source and 12% utilized gasoline.

The Company manages the business as a single reporting segment. 26 Net sales by geographic area and by end market for 2023 and 2022 are presented below: (in thousands) For the year ended December 31, 2023 For the Year Ended December 31, 2022 Geographic Area % of Total % of Total United States $ 378,886 83 % $ 349,488 73 % North America (outside of United States) 21,265 5 % 16,437 3 % Pacific Rim 39,822 8 % 80,681 17 % Europe 13,815 3 % 18,452 4 % Others 5,185 1 % 16,275 3 % Total $ 458,973 100 % $ 481,333 100 % (in thousands) For the year ended December 31, 2023 For the Year Ended December 31, 2022 End Market % of Total % of Total Power Systems $ 225,106 49 % $ 179,491 37 % Industrial 160,334 35 % 224,669 47 % Transportation 73,533 16 % 77,173 16 % Total $ 458,973 100 % $ 481,333 100 % During 2023, the Company sold over 33,500 engines of which approximately 76% utilized propane or natural gas as their fuel source and 17% utilized gasoline.

Summary of Significant Accounting Policies and Other Information , included in Item 8. Financial Statements and Supplementary Data .

Impact of New Accounting Standards For information about recently issued accounting pronouncements, see Note 1. Summary of Significant Accounting Policies and Other Information , included in Item 8. Financial Statements and Supplementary Data .

The cash generated by financing activities for the year ended December 31, 2022 and 2021 was primarily attributable to cash received under the series of Shareholder’s Loan Agreements with Weichai . See additional discussion below and in Note 6. Debt in Item 8. Financial Statements and Supplementary Data related to the amendments of the Company’s debt arrangements .

The cash used by financing activities for the year ended December 31, 2023, was a result of repayment of existing debt during the year. Whereas, cash provided in 2022 was primarily attributable to cash received under the shareholder’s loan agreements with Weichai. Se e additional discussion below and in Note 6. Debt in Item 8.

The Company also experienced inflationary cost pressures for certain materials and shipping-related costs. Additionally, the Company continues to experience ongoing tariff costs for products that did not receive tariff exclusions. The Company is working to mitigate the impact of these matters through price increases and other measures, such as seeking certain tariff 27 exclusions, where possible.

Additionally, the Company continues to experience ongoing tariff costs for products and is trying to mitigate these impacts through price increases and other measures, such as seeking certain tariff exclusions, where possible.

Commitments and Contingencies for further discussion of the Company’s indemnification obligations. The Company expects its sales in 2023 to increase by about 3% versus 2022 levels, a result of expectations for strong growth in the power systems end markets paired with a less significant increase of sales in the industrial and transportation end markets.

The Company expects its sales in 2024 to increase by approximately 3% compared to 2023 levels, as a result of expectations for strong growth in the power systems end market paired with flat sales in the industrial end market and a forecasted reduction in the transportation end markets.

The Company continues to record a full valuation allowance against deferred tax assets, which offsets the tax expense associated with the pre-tax income for the 2022 period and the tax benefits associated with the pre-tax loss for the 2021 period.

The Company continues to record a full valuation allowance against deferred tax assets which offsets the tax expense and tax benefit associated with the pre-tax income and pre-tax loss for both years ended December 31, 2023 and 2022. See Note 11. Income Taxes , included in Item 8.

There can be no assurance that the Company will be able to successfully complete a refinancing on acceptable terms or repay this outstanding indebtedness when required or if at all.

Management currently plans to seek an extension and/or replacement of its existing debt arrangements or seek additional liquidity from its current or other lenders before the maturity dates in 2024. There can be no assurance that the Company will be able to successfully complete a refinancing on acceptable terms or repay this outstanding indebtedness when required or if at all.

Accordingly, the Company saw a substantial decline in these costs during 2022. Additionally, in June 2022, the SEC matter concerning former officers and employees was settled. As a result, the Company’s potential future costs for indemnity obligations related to this matter should cease. Meanwhile, the Company continues to be party to several legal contingencies. Se e Note 10.

As a result, the Company’s potential future costs for indemnity obligations related to this matter significantly decreased in 2023. Meanwhile, the Company continues to be party to several legal contingencies. Se e Note 10. Commitments and Contingencies for further discussion of the Company’s indemnification obligations.

Financial Statements and Supplementary Data for additional information. Income Tax Expense The Company recorded an income tax expense of $0.3 million in 2022, a decrease of $0.7 million, as compared to an income tax benefit of $0.4 million in 2021. The Company’s pretax income was $11.6 million in 2022, compared to pretax loss of $48.9 million in 2021.

Income Tax Expense The Company recorded income tax expense of $0.9 million in 2023, an increase of $0.6 million, as compared to an income tax expense of $0.3 million in 2022. The Company’s pretax income was $27.2 million in 2023, compared to pretax income of $11.6 million in 2022.

For the majority of the Company’s products, revenue is recognized at a point in time when the products are shipped or delivered to the customer based on the shipping terms as that is the point in time when control passes to the customer.

For the majority of the Company’s products, revenue is recognized when the products are shipped or delivered to the customer based on the shipping terms which is usually when control passes to the customer. Conversely, the Company recognizes revenue throughout the manufacturing process when constructing because the customer receives the benefit of the asset as the product is constructed.

The potential for continued supply chain disruptions, economic uncertainty, and unfavorable oil and gas market dynamics may have a material adverse impact on the timing of delivery of customer orders and the levels of future customer orders.

The potential for continued economic uncertainty and unfavorable oil and gas market dynamics may have a material adverse impact on the levels of future customer orders and the Company’s future business operations, financial condition and liquidity. In June 2022 , the SEC matter concerning former officers and employees was settled.

The Company also believes that capital spending within the areas of the oil and gas market that it participates in, remains below pre-pandemic levels. While the Company saw an increase of sales to customers with traditional exposure to the oil and gas markets during 2022, as compared to the prior year, sales remain below pre-pandemic levels.

For the year ended December 31, 2021 , cash provided by investing activities primarily related to a return of investment upon the liquidation of a joint venture partly offset by capital expenditures associated with normal maintenance of the Company’s facilities.

For the years ended December 31, 2023 and 2022, cash used in investing activities primarily related to capital expenditures associated with normal maintenance of the Company’s facilities.

The decrease in cash used by operating activities primarily resulted from the $59.7 million increase in earnings while collections of customer accounts receivable were lower than the prior year, and the Company had higher cash paid against accounts payable contributing to a $6.7 million increase of cash used by working capital accounts.

The increase in cash provided by operating activities primarily resulted from the $15.0 million increase in earnings, reduction in inventory, increased collections on customer accounts receivable and the Company had less cash paid against accounts payable compared to the prior year due to a catch up on payables in the first nine months of 2022, contributing to a $64.9 million increase of cash provided by working capital accounts.

Interest Expense Interest expense increased $5.7 million to $13.0 million in 2022 from $7.3 million in 2021 largely due to higher average outstanding debt and a higher overall effective interest rate on the Company’s debt during 2022, including fees, as compared to prior year. See Note 6. Debt , included in Item 8.

Interest Expense Interest expense increased $4.0 million to $17.1 million in 2023 from $13.0 million in 2022 , largely due to lower average outstanding debt, partially offset by higher overall effective interest rates on the Company’s debt. See Note 6. Debt , included in Item 8. Financial Statements and Supplementary Data for additional information.

Cash Flows Cash was impacted as follows: (in thousands) For the Year Ended December 31, 2022 2021 Change % Change Net cash used in operating activities $ (8,845) $ (61,478) $ 52,633 86 % Net cash (used in) provided by investing activities (1,354) 398 (1,752) NM Net cash provided by financing activities 28,367 46,545 (18,178) 39 % Net increase (decrease) in cash, cash equivalents, and restricted cash $ 18,168 $ (14,535) $ 32,703 NM Capital expenditures $ (1,354) $ (1,968) $ 614 31 % 32 2022 Cash Flows Cash Flow from Operating Activities Net cash used in operations was $8.8 million in 2022 compared to net cash used in operations of $61.5 million in 2021 resulting in a decrease of $52.6 million in cash used in operating activities year-over-year.

Amounts include insurance recoveries related to a prior year incident and have no material impact on the Adjusted earnings per share for the year ended December 31, 2023 and 2022. 31 Cash Flows Cash was impacted as follows: (in thousands) For the Year Ended December 31, 2023 2022 Change % Change Net cash provided by (used in) operating activities $ 70,512 $ (8,845) $ 79,357 NM Net cash used in investing activities (5,020) (1,354) (3,666) NM Net cash (used in) provided by financing activities (66,798) 28,367 (95,165) NM Net (decrease) increase in cash, cash equivalents, and restricted cash $ (1,306) $ 18,168 $ (19,474) (107) % Capital expenditures $ (5,036) $ (1,354) $ (3,682) NM NM Not meaningful Cash Flow from Operating Activities Net cash provided by operations was $70.5 million in 2023 compared to net cash used in operations of $8.8 million in 2022 resulting in an increase of $79.4 million in cash provided by operating activities year-over-year .

During 2021, the glo bal economy began recovering after the global pandemic that led to challenging market conditions across certain areas of the Company’s business and continued to improve during 2022. Average crude oil prices began to improve in 2021 after the unprecedented decreases seen during the global pandemic and reached the highest average price in five years during 2022.

By the end of 2022, the global economy had mostly recovered after the global pandemic, COVID-19. The recovery led to challenging market conditions across certain areas of the Company’s business. Average crude oil prices reached the highest average price in five years in 2022 but has since declined while remaining near atop the 5-year averages through 2023.

Weichai Transactions In March 2017, the Company and Weichai entered into a number of transactions (see Note 3. Weichai Transactions , included in Item 8. Financial Statements and Supplementary Data , for additional information), including the issuance of Common and Preferred Stock and a stock purchase warrant to Weichai for aggregate proceeds of $60.0 million.

Weichai Transactions The Company sought to expand its range of products and its presence in the Pacific Rim through the Weichai Transactions (see Note 3. Weichai Transactions , included in Item 8. Financial Statements and Supplementary Data , for additional information).

PSI also entered into a series of Shareholder Loan agreements with Weichai. See Note 6. Debt , included in Item 8. Financial Statements and Supplementary Data , for additional information.

The Company’s sales to Weichai were $1.7 million and $0.6 million during 2023 and 2022, respectively. The Company purchased $6.2 million and $13.3 million of inventory from Weichai during 2023 and 2022, respectively. PSI also entered into a series of Shareholder Loan agreements with Weichai. See Note 6. Debt , included in Item 8.

The potential for continued economic uncertainty and unfavorable oil and gas market dynamics may have a material adverse impact on the levels of future customer orders and the Company’s future business operations, financial condition and liquidity. Lastly, national inflationary pressures have continued to cause interest rates to remain at elevated levels.

See Note 1. Summary of Significant Accounting Policies and Other Information , included in Item 8. Financial Statements and Supplementary Data for further discussion. Impairment of Long-Lived Assets Long-lived assets, other than goodwill which is separately tested for impairment, are evaluated for impairment whenever events indicate that the carrying amount of such assets may not be recoverable.

Warranty costs and recoveries are included in Cost of sales in the Consolidated Statements of Income. Warranty costs and recoveries are included in Cost of sales in the Consolidated Statements of Income. S ee Note 1. Summary of Significant Accounting Policies and Other Information , included in Item 8. Financial Statements and Supplementary Data for further discussion.

Higher industrial end market sales are primarily due to increased demand for products across various applications, with the largest increase attributable to products used within the material handling/forklift market.

Higher power systems end market sales are primarily due to increased demand for products across various applications, with the largest increases attributable to products used within the demand response market as well as traditional oil and gas products. Gross Profit Gross profit increased by $17.3 million, or 20%, to $105.9 million in 2023, compared to $88.6 million in 2022.

To service customers in the future, the Company has obtained access to a 6.0L engine that another manufacturer will be producing. Hyster-Yale Supply Arrangement : Hyster-Yale has indicated that it will be obtaining some alternative supply beginning in late 2023 for several high-volume engines that the Company currently provides, including the 2.0L and 2.4L engines.

Hyster-Yale Supply Arrangemen t : Hyster-Yale started sourcing alternative supply beginning in late 2023 for several high-volume engines that the Company currently provides, including the 2.0L and 2.4L engines which was accelerated in part due to supply chain issues from the UFLPA enforcement at the end of 2023.

Average crude oil prices began to improve in 2021 after the unprecedented decreases seen during the global pandemic and reached the highest average price in five years during 2022. R ig counts in the U.S. oil markets increased during 2021 and through 2022, however the average rig counts remain slightly below pre-pandemic levels.

Average crude oil prices reached the highest average price in five years in 2022 but has since declined while remaining near atop the 5-year averages through 2023. Rig counts in the U.S. oil markets also increased through 2022 but still under pre-pandemic levels as of the end of 2023.

For the year ended December 31, 2022, warranty costs were $6.4 million, a decrease of $16.4 million compared to warranty costs of $22.8 million last year, due largely to lower charges for transportation end market engines during the year ended December 31, 2022 in part attributable to a contract revision.

For the year ended December 31, 2023, warranty costs were $13.0 million, an increase of 29 $6.6 million compared to warranty costs of $6.4 million in the same period last year, mainly attributable to changes in estimates for preexisting warranties. A majority of the warranty activity is attributable to products sold within the transportation end market in prior years.

Selling, General and Administrative Expenses Selling, general and administrative (“SG&A”) decreased in 2022 by $14.9 million, or 26%, compared to 2021.

Selling, General and Administrative Expenses Selling, general and administrative (“SG&A”) decreased in 2023 by $2.6 million, or 6%, compared to 2022. The decrease is primarily due to lower legal costs during the period. These decreased costs were partially offset by an increase in incentive compensation expense.

Removed

The Company manages the business as a single reporting segment. 25 For 2022, net sales increased $25.1 million, or 5%, compared to 2021, as a result of sales increases of $56.4 million and $71.4 million within the power systems and industrial end markets, respectively, partly offset by a decrease of $102.7 million in the transportation end market.

Added

Financial Statements and Supplementary Data , for additional information.

Removed

Gross margin was 18.4% and 9.0% during 2022 and 2021, respectively. Gross profit increased during 2022 by $47.3 million compared to 2021, while operating expenses decreased by $18.9 million as compared to 2021. Interest expense increased by $5.7 million in 2022 versus 2021.

Added

Despite increasing rig counts and crude oil prices, the Company believes that capital spending within the areas of the oil and gas market that it participates in, remains below pre-pandemic levels.

Removed

Also, the Company recorded an income tax expense of $0.3 million for 2022 versus a benefit of $0.4 million for 2021. Collectively, these factors contributed to a $59.7 million increase in the net income, which totaled $11.3 million in 2022 compared to net loss of $48.5 million in 2021.

Added

The Company has seen logistical challenges experienced during prior years of port congestion and shipping delays ease and return to a pre-pandemic state and, excluding any unforeseen events, expects this to continue.

Removed

Diluted earnings per share was $0.49 in the 2022 period compared to diluted loss per share of $2.12 in 2021. Adjusted net income, which excludes certain items described below that the Company believes are not indicative of its ongoing operating performance, was $15.7 million in 2022 compared to Adjusted net loss of $26.7 million in 2021.

Added

However, the Company continues to experience inflationary cost pressures for certain raw materials and other goods which the Company continues to try to mitigate through price increases and other cost reduction measures.

Removed

Adjusted income per share was $0.69 in 2022 compared to Adjusted loss per share of $1.16 in 2021. Adjusted earnings before interest expense, income taxes, depreciation and amortization (“EBITDA”) was an income of $35.8 million in 2022 compared to Adjusted EBITDA loss of $12.4 million in 2021.

Added

Decreased industrial end market sales are primarily due to decreases in demand for products used within the material handling and arbor care market s as well as being directly affected by the enforcement of the UFLPA which limited the Company’s ability to import certain raw materials at the end of 2023.

Removed

Adjusted net income (loss), Adjusted earnings (loss) per share and Adjusted EBITDA are non-GAAP financial measures. For a reconciliation of each of these measures to the nearest applicable GAAP financial measure, as well as additional information ab out these non-GAAP measures, see the section entitled Non-GAAP Financial Measures in this Item 7.

Added

The decreased sales within the transportation end market were primarily attributable to lower sales in the school bus market as customer products have evolved and new compliance and regulatory requirements have changed engine product offerings .

Removed

The stock purchase warrant issued to Weichai was exercisable for any number of additional shares of Common Stock such that Weichai, upon exercise, would hold 51% of the Common Stock then outstanding on a fully dilutive basis, on terms and subject to adjustments as provided in the SPA.

Added

Research and Development Expenses R&D expenses in 2023 were $19.5 million, an increase of $0.6 million, or 3%, from 2022 levels as a result of the Company’s continued efforts to customize power systems to meet customers’ needs and meet emission and other certificate requirements.

Removed

On April 23, 2019, Weichai exercised the Weichai Warrant and increased its ownership to 51.5% of the Company’s outstanding Common Stock, as of such date.

Added

Income tax expense for the year ended December 31, 2023 is related primarily to the impact of amended state returns, adjustments to taxes payable, and deferred tax liability related to indefinite lived assets.

Removed

On March 22, 2023, the Collaboration Agreement was extended for an additional term of three years. The Company’s sales to Weichai were $0.6 million and $0.5 million during 2022 and 2021, respectively. The Company purchased $13.3 million and $12.4 million of inventory from Weichai during 2022 and 2021, respectively.

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What changed in POWER SOLUTIONS INTERNATIONAL, INC.'s 10-K — 2022 vs 2023

Top changes in POWER SOLUTIONS INTERNATIONAL, INC.'s 2023 10-K

Item 1. Business

Item 1A. Risk Factors

Item 2. Properties

Item 5. Market for Registrant's Common Equity

Item 7. Management's Discussion & Analysis

Other PSIX 10-K year-over-year comparisons