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What changed in POWER SOLUTIONS INTERNATIONAL, INC.'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of POWER SOLUTIONS INTERNATIONAL, INC.'s 2023 and 2024 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 2024 report.

+247 added−281 removedSource: 10-K (2025-03-24) vs 10-K (2024-03-14)

Top changes in POWER SOLUTIONS INTERNATIONAL, INC.'s 2024 10-K

247 paragraphs added · 281 removed · 206 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

57 edited+8 added−14 removed46 unchanged
Biggest changeThe 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. 7 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.
Biggest changeThe 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 in several markets such as the power generation market for microgrids, oil and gas applications, 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.
Research, Development and Engineering The Company’s research, development and engineering programs are focused on new product development, enhancements to current products, in addition to performance and quality improvements across its product lines.
Research, Development and Engineering The Company’s research, development and engineering programs are focused on new product development and enhancements to current products, in addition to performance and quality improvements across its product lines.
Through this process, customers are able to streamline their supply base by consolidating procurement and assembly efforts down to a single part number product supplied by the Company. The Company delivers this assembly to its customers production lines ready to install into the customers’ product.
Through this process, customers are able to streamline their supply base by consolidating procurement and assembly efforts down to a single part number product supplied by the Company. The Company delivers this assembly to its customers’ production lines ready to install into the customers’ product.
Notwithstanding significant competition, the Company believes that the following factors provide it with a differentiated value proposition that allows the Company to compete effectively: • fuel-agnostic strategy; • demonstrated expertise in on- and off-road applications; • ability to leverage Weichai’s strengths and capabilities; • completeness and comprehensiveness of engines and power systems; • expansive product integrations, including electronics, controls, fuel systems and transmissions; • commonality of technology platform spanning all product lines; • emissions regulation compliance and certification; • breadth and depth of advanced engineering disciplines; • industry-leading product and application engineering; • competitive pricing/cost; • ability to tailor power systems to specific customer needs; • performance and quality; • speed to market; and • customer support and service.
Notwithstanding significant competition, the Company believes that the following factors provide it with a differentiated value proposition that allows the Company to compete effectively: • fuel-agnostic strategy; • demonstrated expertise in off-road applications; • ability to leverage Weichai’s strengths and capabilities; • completeness and comprehensiveness of engines and power systems; • expansive product integrations, including electronics, controls, fuel systems and transmissions; • commonality of technology platform spanning all product lines; • emissions regulation compliance and certification; • breadth and depth of advanced engineering disciplines; • industry-leading product and application engineering; • competitive pricing/cost; • ability to tailor power systems to specific customer needs; • performance and quality; • speed to market; and • customer support and service.
Environmental Matters The Company’s reporting facilities follow the guidelines required for its federally enforceable state operating permits (FESOP) used with the Illinois Environmental Protection Agency (IEPA), and the Wisconsin Department of Natural Resources (WDNR) Type-B permit guidelines. This includes monitoring the emissions produced from these locations as part of the requirements within the states PSI operates.
Environmental Matters The Company’s reporting facilities follow the guidelines required for its federally enforceable state operating permits (FESOP) used with the Illinois Environmental Protection Agency (IEPA), and the Wisconsin Department of Natural Resources (WDNR) Type-B permit guidelines. This includes monitoring the emissions produced from these locations as part of the requirements within the states where PSI operates.
The Company staffs its engineering support activities associated with released product and component sourcing programs with dedicated internal engineering personnel. 9 Research, development and engineering expenditures include salaries, contractor fees, building costs, utilities, testing, information technology and administrative expenses and are expensed, net of contract reimbursements, when incurred.
The Company staffs its engineering support activities associated with released product and component sourcing programs with dedicated internal engineering personnel. Research, development and engineering expenditures include salaries, contractor fees, building costs, utilities, testing, information technology and administrative expenses and are expensed, net of contract reimbursements, when incurred.
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.
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. 12 Randall D. Lehner was appointed as the General Counsel on March 4, 2024. Mr.
By leveraging the deep industry experience of its engineering and new-product development teams, the Company is continuing to take steps to broaden the range of its power system product offerings, including engine classes, power ratings and the OEM and direct user market categories into which it supplies products.
By leveraging the 7 deep industry experience of its engineering and new-product development teams, the Company is continuing to take steps to broaden the range of its power system product offerings, including engine classes, power ratings and the OEM and direct user market categories into which it supplies products.
Exhaust emission regulations for engines used in off-highway industrial and power generation equipment vary based upon the use of the equipment into which the engine is incorporated (such as stationary power generation or mobile off-highway industrial equipment) and the type of fuel used to drive the power system.
Exhaust emission regulations for engines used in off-road industrial and power generation equipment vary based upon the use of the equipment into which the engine is incorporated (such as stationary power generation or mobile off-highway industrial equipment) and the type of fuel used to drive the power system.
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.
The Company 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.
The Company also designs and manufactures large, custom-engineered integrated electrical power generation systems for both standby and prime power applications. The Company’s comprehensive power systems are tested and validated to meet quality, safety, durability and global environmental standards and regulations.
The Company also designs and manufactures large, custom-engineered integrated electrical power generation systems for both standby and prime power applications. The Company’s comprehensive power systems are tested and validated to meet quality, safety, durability and environmental standards and regulations.
From time to time, the Company enters into agreements with its customers to fund a portion of the research, development and engineering costs of a particular project. These reimbursements are accounted for as a reduction of the related research, development and engineering expenditure.
From time to time, the Company enters into agreements with its customers to fund a portion of the research, development and engineering costs of a particular project. These reimbursements are accounted for as a reduction of the related research, 9 development and engineering expenditure.
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.
Lehner was a partner with Kelley Drye & Warren LLP, where his practice focused on commercial litigation, regulatory and internal investigations and government enforcement actions. Prior to Kelley 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.
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.
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 2024, approximate ly 76% of the engines sold run on either propane or natural gas.
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.
Lehner served as associate general counsel and deputy general counsel for Guaranteed Rate, LLC, a leading mortgage company, where he was a member of the legal leadership team with primary responsibility for litigation and risk management. Prior to this role, from 2015 through 2020, Mr.
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.
These heavy-duty engines provide a natural-gas-fueled power range from 500 kilowatt-electric (“kWe”) to 1.25 megawatt (“MW”), allowing the Company to serve a greater portion of the demand response, microgrid, combined heat and power, and oil and gas markets.
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 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. Due to increasing demand for new energy and latest market trends, the Company continues to offer battery packs for its industrial market.
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.
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 17 2025 . Name Age Executive Officer Since Present Position with the Company C.
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 $0.7 million of sales during the year ended December 31, 2023 .
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 $1.1 million of sales during the year ended December 31, 2024 .
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.
This ensures sustainability of the organization. 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 power systems are subject to compliance with regulatory standards imposed by the EPA, state regulatory agencies in the United States, including the CARB, and other regulatory agencies around the world, such as the MEE.
The Company’s power systems are subject to compliance with regulatory standards imposed by the EPA, state regulatory agencies in the United States, including CARB, and other regulatory agencies around the world.
In addition, there are field audit requirements, which require the removal of power systems from service at specified stages of their useful lives to perform confirmatory exhaust emissions testing and/or OBD system audits and testing. All of the Company’s emission-certified power systems meet existing exhaust emission standards of the EPA and CARB.
In addition, there are field audit requirements, which require the removal of power systems from service at specified stages of their useful lives to perform confirmatory exhaust emissions testing and/or on-board diagnostic (“OBD”) system audits and testing. All of the Company’s emission-certified power systems meet existing exhaust emission standards of the EPA and CARB.
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 sells engines and power systems, including both emission-certified compression ignition and spark-ignition 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.
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 14% of consolidated net sales in 2023.
Within several applications for which the Company provides solutions, it maintains supplier relationships with customers, which are often among the largest in that category. The Company’s largest customer represented 11% of consolidated net sales in 2024.
The Company’s products are primarily used by global original equipment manufacturers (“OEMs”) and end-user customers across a wide range of applications and equipment that includes standby and prime power generation, demand response, microgrid, combined heat and power, arbor equipment, material handling (including forklifts), agricultural and turf, construction, pumps and irrigation, compressors, utility vehicles, light- and medium-duty vocational trucks, and school and transit buses.
The Company’s products are primarily used by global original equipment manufacturers (“OEMs”) and end-user customers across a wide range of applications and equipment that includes standby and prime power generation, demand response, microgrid, combined heat and power, arbor equipment, material handling (including forklifts), agricultural and turf, construction, pumps and irrigation, compressors and utility vehicles.
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.
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. Sustained profitability The Company continues to improve profitability through the review of its customer and product portfolio.
(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.
(Dino) Xykis 65 2020 Chief Executive Officer Xun (Kenneth) Li 55 2022 Chief Financial Officer Randall D. Lehner 53 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.
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.
Xykis also served as the Company’s Chief Technical Officer from March 15, 2021 until July 9, 2024. 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.
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.
The Company has also been investing heavily in the expansion of its heavy-duty engine product line, which has historically provided better margins, 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”). Weichai is the beneficial owner of 51.1% of the outstanding Common Stock.
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.
The DART was 3.96 in 2024, meaning that for every 100 employees, 0.039 individuals experienced an incident that resulted in days away from work or restricted work tasks.
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.
The Company sets annual targets for its Total Recordable Incident Rate (“TRIR”) and Days Away, Restricted or Transferred (“DART”) and regularly reviews these metri cs. For 2024, the Company achieved an overall TRIR of 4.418, meaning that for every 100 employees, 0.40 employees incurred an injury that resulted in recordable medical treatment.
Also, the engines can handle mission critical customer operations in the health care, data center, hospitality and transportation industries. In addition to dedicating significant R&D resources within the power systems end market, the Company has also strategically invested in expanding its management, sales and operations staff to support these efforts. The Company’s heavy-duty engines have historically provided better margins.
In addition to dedicating significant R&D resources within the power systems end market, the Company has also strategically invested in expanding its management, sales and operations staff to support these efforts. The Company’s heavy-duty engines have historically provided better margins.
The Company’s talent management and succession planning process includes the identification of key positions based on current and future business strategies, the identification of potential successors, and a plan for talent development. The Company focuses on attracting and retaining the best employees by providing market competitive pay and benefits. This ensures sustainability of the organization.
Turnover for salaried employees in 2024 was approximately 9.5%.The Company’s talent management and succession planning process includes the identification of key 10 positions based on current and future business strategies, the identification of potential successors, and a plan for talent development. The Company focuses on attracting and retaining the best employees by providing market competitive pay and benefits.
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.
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.
Competition Each of the Company’s end markets have a variety of competitors, including engine manufacturers, independent suppliers and distributors of engines, fuel systems and component providers, manufacturers of power generation equipment, engine packagers and integrators, and the in-house operations of certain OEMs, some of which have longer operating histories, strong brand recognition and significantly greater financial and marketing resources.
The largest customer changes from time to time as a result of various factors, including prevailing market conditions, customers’ strategies and inventory of the Company’s power systems. 8 Competition Each of the Company’s end markets have a variety of competitors, including engine manufacturers, independent suppliers and distributors of engines, fuel systems and component providers, manufacturers of power generation equipment, engine packagers and integrators, and the in-house operations of certain OEMs, some of which have longer operating histories, strong brand recognition and significantly greater financial and marketing resources.
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.
Lehner is an accomplished legal advisor who has more than 25 years of legal experience in the areas of corporate and board governance, dispute resolution, regulatory compliance, internal controls and strategy, among others. Most recently, from May 2020 to February 2024, Mr.
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% .
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.
The Company provides highly engineered, comprehensive solutions designed to meet specific customer application requirements and technical specifications, including those imposed by environmental regulatory bodies, including the U.S.
As of January 1, 2024, the Company no longer sells emissions-certified engines into the on-road market. The Company provides highly engineered, comprehensive solutions designed to meet specific customer application requirements and technical specifications, including those imposed by environmental regulatory bodies, including the U.S.
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 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.
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 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.
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.
None of the members of the Company’s workforce are represented by a union or covered by a collective bargaining agreement. Company values include focusing on developing and maintaining a world class workforce through personal accountability, teamwork, customer service and innovation. The Company monitors and manages attrition.
Customers The Company’s customers primarily include global OEMs and direct end-users across a wide range of applications that demand high product quality, best-in-class engineering support and on-time delivery.
With a significant portion of the selling prices of the Company’s power systems coming from value-added components, this is a large, continuing growth opportunity for its aftermarket business. Customers The Company’s customers primarily include global OEMs and direct end-users across a wide range of applications that demand high product quality, best-in-class engineering support and on-time delivery.
(“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.
(“SPY”), Chongqing Duchengrongfeng Mechanic Manufacture Co., Ltd (“CDM”) and Weichai. The Company also sources other power system components and coordinates design efforts with third-party suppliers for some of its key components.
Environmental Protection Agency (“EPA”), the California Air Resources Board (“CARB”) and the People’s Republic of China’s Ministry of Ecology and Environment (“MEE,” formerly the Ministry of Environmental Protection), as well as regulatory bodies within the European Union (“EU”). The Company’s products include both sourced and internally designed and manufactured engines that are engineered and integrated with associated components.
Environmental Protection Agency (“EPA”), the California Air Resources Board (“CARB”) and regulatory bodies within the European Union (“EU”). The Company’s products include both sourced and internally designed and manufactured engines that are engineered and integrated with associated components. These comprehensive power systems are tested and validated to meet quality, safety, durability and environmental standards and regulations.
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 Company is party to a nonexclusive supply agreement with HD Hyundai, under which it purchases and distributes specified HD Hyundai engines within a territory consisting of the United States, Canada and Mexico with no minimum product purchase commitments.
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.
Supplier Relationships In addition to producing its own engines, the Company has established relationships with its suppliers for certain engines that are integrated into the Company’s comprehensive power systems, the most significant of which are HD Hyundai Infracore Co., LTD (“HD Hyundai”), a subsidiary of HD Hyundai, Shenyang Packson Technology Co., LTD.
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.
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, 2024, the Company’s workforce consisted of approximately 700 full-time employees.
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.
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 initial and ongoing certification requirements vary by power system application and market segment.
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.
Beginning in 2024, 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.
This direct interface incorporates the corporate internal technical sales representatives. The Company complements its direct OEM relationships with a localized, independent sales and product support organization. This localized sales and support organization provides the necessary knowledge of local customs and requirements while also delivering immediate sales assistance and customer support.
Sales and Marketing The Company employs a direct sales and marketing approach to maintain maximum interface with and service support for its OEM customers. This direct interface incorporates the corporate internal technical sales representatives. The Company complements its direct OEM relationships with a localized, independent sales and product support organization.
In addition to sales, Baudouin will manage service, support, warranty claims, and technical requests. The Company believes that this agreement will continue to offer enhanced global growth opportunities, particularly in Europe. Sales and Marketing The Company employs a direct sales and marketing approach to maintain maximum interface with and service support for its OEM customers.
Beginning January 2024, this agreement automatically extends for additional one-year terms unless notice is given by one of the parties. In addition to sales, Baudouin will manage service, support, warranty claims, and technical requests. The Company believes that this agreement will continue to offer enhanced global growth opportunities, particularly in Europe.
These comprehensive power systems are tested and validated to meet quality, safety, durability and global environmental standards and regulations. Through advanced research and development (“R&D”) and engineering capabilities, the Company is able to provide its customers with highly optimized, efficient, durable and emissions-compliant products that enhance their competitive position.
Through advanced research and development (“R&D”) and engineering capabilities, the Company is able to provide its customers with highly optimized, efficient, durable and emissions-compliant products that enhance their competitive position. The Company’s business is diversified across end markets and applications and also includes extensive aftermarket and service parts programs.
These regulations generally serve to restrict exhaust emissions, with a primary focus on oxides of nitrogen, hydrocarbons and carbon monoxide.
For products sold into the U.S. market, both EPA and CARB have imposed specific regulations on engines used in off-road equipment. These regulations generally serve to restrict exhaust emissions, with a primary focus on oxides of nitrogen, hydrocarbons and carbon monoxide.
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.
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. This program is a multi-year effort and will entail a strategic assessment of certain 6 areas in which profitability does not meet established thresholds.
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.
Although as of January 1, 2024, the Company no longer sells engines into the on-road market, because its engines are still sold into the off-road market, the Company must ensure certification to the specific regulations within the applicable statutory segment.
The Company has invested in and is focused on capturing aftermarket sales of the value-added components that are included in its power systems. With a significant portion of the selling prices of the Company’s power systems coming from value-added components, this is a large, continuing growth opportunity for its aftermarket business.
This localized sales and support organization provides the necessary knowledge of local customs and requirements while also delivering immediate sales assistance and customer support. The Company has invested in and is focused on capturing aftermarket sales of the value-added components that are included in its power systems.
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.
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.
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The Company’s business is diversified across end markets and applications and also includes extensive aftermarket and service parts programs.
Added
Additionally, in 2019, the EPA granted emergency standby certification for certain diesel engines sold by the Company, which are largely designed for emergency use in critical infrastructure applications. Also, the engines can handle mission critical customer operations in the health care, data center, hospitality and transportation industries.
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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.
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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.
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Additionally, in 2019, the Company received EPA emergency standby certification for its 20L, 40L and 53L diesel engines, which provide a power range of 550 kWe to 1.65 MW. These diesel engines are largely designed for power systems market applications including emergency power, wastewater treatment, and oil and gas exploration and production.
Added
The Company’s net research, development and engineering expenditures for 2024 and 2023 were $20.1 million and $19.5 million, respectively.
Removed
The largest customer changes from time to time as a result of various factors, including prevailing market conditions, customers’ strategies and inventory of the Company’s power systems.
Added
In November 2023, the Company entered into a supply agreement with CDM, for the exclusive purchase and distribution of engines in North and South America, in the industrial and power system markets. The Company entered into this supply agreement to source certain engines previously supplied by Shenyang Aerospace Mitsubishi Motors Engine Manufacturing Co., Ltd.
Removed
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.
Added
(“SAME”), whose ability to supply product was suspended because of the intensified enforcement and expansion of the UFLPA near the end of 2023. Beginning December 2024, the supply agreement automatically extends for additional one-year terms unless a notice of termination is provided by either party six months prior to scheduled expiration.
Removed
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.
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In November 2023, the Company also entered into a supply agreement with SPY, for the exclusive purchase and distribution of engines in North and South America, in the industrial and power system markets.
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Similarly, on-road regulations from the EPA and CARB focus on the same exhaust constituents as well as sophisticated requirements to meet on-board diagnostic (“OBD”) system regulations. Emissions of GHGs such as carbon dioxide, methane and nitrogen dioxide are also regulated, with more stringent requirements which started in 2021.
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The Company entered into this supply agreement to source certain engines previously supplied by SAME, whose ability to supply product was suspended because of the intensified enforcement and expansion of the UFLPA near the end of 2023.
Removed
In 2014, the EPA and CARB certified the Company’s new engine as a Model Year 2015 product for liquid propane gas (“LPG”) and compressed natural gas (“CNG”) fuels, and in 2015 the Company launched its first propane-fueled engine for on-road applications.
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Beginning December 2024, the supply agreement automatically extends for additional one-year terms unless a notice of termination is provided by either party six months prior to scheduled expiration. 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.
Removed
To assist the adoption of alternative-fueled vehicles in the marketplace, the EPA and CARB granted alternative-fueled engines an exemption from OBD regulations until 2018 (CARB) /2019 (EPA). Gasoline engines are not exempt from OBD regulations, therefore, in 2017, the Company achieved full OBD certification for its 2018 and beyond gasoline 6.0L and 8.8L products.
Removed
The knowledge gained from this gasoline OBD development was applied to the Company’s alternative-fueled engines for 2019 after all OBD exemptions ended as of December 31, 2018. In 2016, the EPA launched new Phase 1 GHG emission regulations. New EPA Phase 2 GHG emission regulations began January 1, 2021.
Removed
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). Starting in 2020, as a result of the Weichai ownership change in April 2019, those products no longer qualified for the exemption and had to meet Phase 1 GHG standards.
Removed
In order to address the impact of the transition of its emission regulation requirements in 2020 and 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.
Removed
The Company ended the program to outsource and sell the certified 6.0L engines effective December 31, 2021. The Company is utilizing averaging, banking, and trading compliance provisions for compliance with the EPA Phase 2 GHG emission regulations. The initial and ongoing certification requirements vary by power system application and market segment.
Removed
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.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

80 edited+13 added−22 removed69 unchanged
Biggest changeThe prices of some of the key components of the Company’s power systems are subject to fluctuation due to market forces, including changes in the costs of raw materials incorporated into these components. Such price increases occur from time to time due to spot shortages of commodities, increases in labor costs or longer-term shortages due to market forces.
Biggest changeFinancial Condition, Results of Operations, and Cash Flows The Company is subject to price increases in some of the key components in its power systems. The prices of some of the key components of the Company’s power systems are subject to fluctuation due to market forces, including changes in the costs of raw materials incorporated into these components.
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 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.
In the future, the Company may be subject to infringement claims that may result in litigation. Successful infringement claims against the Company could result in substantial monetary liability, require the Company to enter into royalty or licensing arrangements, or otherwise materially disrupt the conduct of the Company’s business.
In the future, the Company may be subject to infringement claims that result in litigation. Successful infringement claims against the Company could result in substantial monetary liability, require the Company to enter into royalty or licensing arrangements, or otherwise materially disrupt the conduct of 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.
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; 19 • 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 carrying value of deferred tax assets, which are predominantly in the United Sates, is dependent on our ability to generate future taxable income in the United States. We are also subject to ongoing tax audits globally. These audits can involve complex issues, which may require an extended period of time to resolve and can be highly judgmental.
The carrying value of deferred tax assets, which are predominantly in the United Sates, is dependent on our ability to generate future taxable income in the United States. We are also subject to ongoing tax audits. These audits can involve complex issues, which may require an extended period of time to resolve and can be highly judgmental.
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.
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.
Similar limitations also apply to certain U.S. federal tax credits. 22 Unanticipated changes in our effective tax rate, the adoption of new tax legislation or exposure to additional income tax liabilities could adversely affect our profitability. We are subject to income taxes in the United States jurisdictions.
Similar limitations also apply to certain U.S. federal tax credits. Unanticipated changes in our effective tax rate, the adoption of new tax legislation or exposure to additional income tax liabilities could adversely affect our profitability. We are subject to income taxes in the United States jurisdictions.
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.
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.
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.
There can be no assurance that 13 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.
The Company does not own any material patents and relies on a combination of trademark and trade secret laws, along with confidentiality agreements, contractual provisions and licensing arrangements, to establish and protect its intellectual property rights.
The Company does not own any material patents and relies on a combination of trademark and trade 21 secret laws, along with confidentiality agreements, contractual provisions and licensing arrangements, to establish and protect its intellectual property rights.
In addition, the laws of some foreign countries may not protect the Company’s proprietary rights as fully or in the same manner as the laws of the United States. The unauthorized use of the Company’s intellectual property rights and proprietary technology by others could materially harm its business.
In addition, the laws of some foreign countries may not protect the Company’s proprietary rights as fully or in the same manner as the laws of the United States. The unauthorized use of the Company’s intellectual property rights and proprietary technology by others could materially harm the Company’s business.
While the Company incurs significant research and development costs to ensure that its products comply with emission standards and meet certification requirements in the regions in which its products are sold, the Company cannot provide assurance that its products will continue to meet those standards.
While the Company incurs significant research and development costs to ensure that its products 15 comply with emission standards and meet certification requirements in the regions in which its products are sold, the Company cannot provide assurance that its products will continue to meet those standards.
Supply Chain The Company is dependent on third-party suppliers, and the partial or complete loss of one of these key suppliers, or the failure to find replacement suppliers or manufacturers in a timely manner, could result in supply shortages.
Supply Chain The Company is dependent on certain key third-party suppliers, and the partial or complete loss of one of these key suppliers, or the failure to find replacement suppliers or manufacturers in a timely manner, could result in supply shortages.
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.
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, forced labor, 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.
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.
The existence of any material weakness in our internal controls 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.
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.
The Company has international operations with sales outside the U.S. representing 13% of the Company’s total net sales. Further, the Company’s global supply chain is large and 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.
Litigation Limitations of the Company’s Directors’ and Officers’ liability insurance and potential indemnification obligations will have a material adverse effect on the Company’s financial condition, results of operations and cash flows. Under its bylaws and certain indemnification agreements, the Company has obligations to indemnify current and former officers and directors and certain current and former employees.
Limitations of the Company’s Directors’ and Officers’ liability insurance and potential indemnification obligations will have a material adverse effect on the Company’s financial condition, results of operations and cash flows. Under its bylaws and certain indemnification agreements, the Company has obligations to indemnify current and former officers and directors.
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.
Violations of these laws, which are complex 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.
Any future failure by the Company to comply with the financial covenants set forth under the Company’s debt agreements, if not cured or waived, could result in the acceleration of debt maturities or prevent the Company from accessing availability.
Any future failure by the Company to comply with the financial covenants set forth under the Company’s debt agreements, if not cured or waived, could result in the acceleration of debt maturities or prevent the Company from accessing availability of funds under the SLA.
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.
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 because of warranty claims in excess of its current expectations.
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 existence of any material weakness or significant deficiencies would require management to devote significant time and incur significant expense to remediate, and management may not be able to remediate in a timely manner.
In order to provide the Company with a more permanent source of liquidity, management plans to seek an extension and amendment and/or replacement of its existing debt agreements or seek additional liquidity from its current or other lenders before the maturity dates in 2024.
To provide the Company with a more permanent source of liquidity, management plans to seek an extension and amendment and/or replacement of its existing debt agreements or seek additional liquidity from its current or other lenders before the maturity dates in 2025.
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.
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. 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 fines or penalties.
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 because of fines or penalties.
The prices of various fuel alternatives are subject to fluctuation, based upon many factors, including global supply and demand, changes in resource base, pipeline transportation capacity for natural gas, refining capacity for crude oil, and government excise and fuel tax policies.
The prices of various fuel alternatives are subject to fluctuation, based upon many factors, including, but not limited to, global supply and demand, changes in resource base, pipeline transportation capacity for natural gas, refining capacity for crude oil, and government tariff excise, and fuel tax policies.
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.
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 and other requirements under the Revolving 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 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 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 new Revolving Credit Agreement and the new SLA, in the future, and extending and amending, refinancing or repaying the indebtedness outstanding under the Company’s existing debt arrangements.
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.
Expenses that may occur in the future and/or liabilities not covered by the Company’s directors and officers liability insurance policy, 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 resources.
The Company may incur liabilities for warranty claims as a result of defective products or components, including claims arising from defective products or components provided by its suppliers that are integrated into its power systems.
The Company may incur liabilities for warranty claims because of defective products or components, including claims arising from defective products or components provided by its suppliers that are integrated into its power systems.
Much of the technology incorporated into the components that the Company sources from a limited number of suppliers is technologically sophisticated, and the Company does not believe that its competitors have access to some of this sophisticated technology.
Much of the technology incorporated into the components that the Company sources from a limited number of suppliers is technologically sophisticated, and the Company does not believe that its competitors have access to some of this sophisticated technology in the components they are able to source.
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.
Various factors, such as capital allocation strategies, oil pricing, rig counts, shifts in energy sources, and governments policies, among others, could lead oil and gas producers to curtail or limit capital expenditures. In addition, oil and gas producers may cease or suspend production at well sites that have or are likely to become unprofitable.
The amounts ultimately paid upon resolution of current and future tax audits could be materially different from the amounts previously included in our income tax provision and, therefore, could have a material impact on our income tax provision.
The amounts ultimately paid upon resolution of current and future tax audits could be materially different from the amounts previously included in our income tax provision and, therefore, could have a material impact on our income tax provision. Item 1B. Unresolved Staff Comments. None.
The purchasers of the Company’s power systems are OEMs that manufacture a wide range of applications and equipment that include standby and prime power generation, demand response, microgrid, combined heat and power, utility power, arbor equipment, material handling (including forklifts), agricultural and turf, construction, pumps and irrigation, compressors, utility vehicles, light- and medium-duty vocational trucks, and school and transit buses.
The purchasers of the Company’s power systems are OEMs that manufacture a wide range of applications and equipment that include standby and prime power generation, demand response, microgrid, combined heat and power, utility power, arbor equipment, material handling (including forklifts), agricultural and turf, construction, pumps and irrigation, compressors, and utility vehicles.
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 Company estimates that as much as approximately $105.5 million and $72.1 million of its 2024 and 2023 net sales, respectively, were attributable to the sale of products used within the oil and gas industry.
The introduction of new products, including new engines that the Company develops, and the continued expansion of products in the power systems and transportation markets may not succeed or achieve widespread acceptance.
The introduction of new products, including new engines that the Company develops, and the continued expansion of products may not succeed or achieve widespread acceptance.
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 materials or component s.
If the Company’s competitors were to gain access to these suppliers’ technology or if the Company’s relationships with these suppliers were to change adversely, the Company’s business could be harmed. 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 materials or component s.
With Weichai being the majority owner of the Company’s outstanding shares of its Common Stock, Weichai will be able to exercise control over matters requiring stockholders’ approval, including the election of the Directors, amendment of the Company’s Charter and approval of significant corporate transactions.
With Weichai being the majority owner of the Company’s outstanding shares of its Common Stock, Weichai is able to exercise control over matters requiring stockholders’ approval, including, among other matters, the election of the Directors, amendment of the Company’s Certificate of Incorporation and approval of significant corporate transactions.
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.
Liquidity and Indebtedness The Company’s management has concluded as of the filing of this 2024 Annual Report that, due to uncertainty surrounding the Company’s ability to extend or refinance its current debt agreements, substantial doubt exists as to its ability to continue as a going concern.
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.
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. Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud.
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.
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 controls over our financial reporting and accounting processes in the future.
This control could have the effect of delaying or preventing a change of control of the Company or changes in management and will make the approval of certain transactions impractical without the support of Weichai. The continued delisting of its Common Stock could have a material adverse effect on the Company.
This control could have the effect of delaying or preventing 18 a change of control of the Company or changes in management and will make the approval of certain transactions impractical without the support of Weichai.
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 .
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, 2024, the Company’s total debt obligations, including indebtedness under the Revolving Credit Agreement and SLA was $120.2 million .
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.
The Company’s new Revolving Credit Agreement places limitations on its ability to make acquisitions and restricts its ability to incur additional indebtedness, while the SLA places limitations or restrictions on the Company’s usage of borrowed funds.
A downturn in the economic environment may also lead to increased credit and collectability risk on the Company’s trade receivables; the failure of financial institutions; limitations on the Company’s ability to issue new debt; reduced liquidity; and declines in the fair value of the Company’s financial instruments.
A downturn in the economic environment may also lead to increased credit and collectability risk on the Company’s trade receivables; the failure of financial institutions (including those that the Company currently, or could potentially, transact with or those that currently, or could in the future, provide services to the Company); limitations on the Company’s ability to issue new debt; reduced liquidity; and declines in the fair value of the Company’s financial instruments.
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.
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.
If the industrial OEM market generally, or more specifically any of the OEM categories that represent a significant portion of the Company’s business or in which it anticipates significant growth opportunities for its power systems, fails to develop or develops more slowly than the Company anticipates, its business could be materially adversely affected.
If the industrial OEM market generally, or more specifically any of the OEM categories that represent a significant portion of the Company’s business or in which it anticipates significant growth opportunities for its power systems, fails to develop or develops more slowly than the Company anticipates, its business could be materially adversely affected. 16 Lastly, the Company also faces competition from other forms of power systems, including electrification and fuel cells, which could limit its ability to grow in the future.
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.
The Company could incur restructuring and impairment charges as it continuously evaluates its portfolio of assets and identifies opportunities to restructure its business to optimize its cost structure. 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.
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.
We may incur fines or penalties, damage to our reputation or suffer 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, forced labor, or other laws.
As of March 7, 2024, Weichai beneficially owned 51.2% of the Company’s outstanding shares of Common Stock. Additionally, Gary S. Winemaster, the Company’s founder, former Chairman of the Board of Directors (the “Board”), former Chief Executive Officer, and President and nonexecutive Chief Strategy Officer, beneficially owned approximately 14.4% of the Company’s outstanding shares of Common Stock, and Kenneth J.
Winemaster, the Company’s founder, former Chairman of the Board of Directors (the “Board”), former Chief Executive Officer, President and nonexecutive Chief Strategy Officer, beneficially owned approximately 14.4% of the Company’s outstanding shares of Common Stock.
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.
The Company has NOL carryforwards with which to offset its future taxable income for U.S. federal income tax reporting purposes. 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.
The price differential among various fuel alternatives can impact OEMs and their decisions on which, if any, power systems they purchase from the Company.
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 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.
Failure to ensure that the Company has the depth and breadth of management and personnel with the necessary skill set and experience could impede its ability to deliver growth objectives and execute its operational strategy.
The Company’s success depends on its ability to attract, retain and motivate a highly qualified workforce and high functioning management team. Failure to ensure that the Company has the depth and breadth of management and personnel with the necessary skill set and experience could impede its ability to deliver growth objectives and execute its operational strategy.
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.
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.
Despite the Company’s efforts to protect its intellectual property rights, existing laws afford only limited protection, and the Company’s actions may be inadequate to protect its rights or to prevent others from claiming violations of their proprietary rights.
Despite the Company’s efforts to protect its intellectual property rights, existing laws may afford only limited protection, and the Company’s actions may be inadequate to protect its intellectual property rights or to successfully defend itself against claims from others that the Company has violated their intellectual property rights.
Growth 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 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.
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.
As of December 31, 2024, the Company had $120.0 million of total borrowings outstanding under its debt agreements. 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.
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.
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.
Several of the Company’s products are sourced internationally, including from China, where the U.S. has imposed tariffs on specified products imported from China. These tariffs have an impact on the Company’s material costs and have the potential to have an even greater impact, depending on the outcome of future trade negotiations and policies.
These tariffs have an impact on the Company’s material costs and have the potential to have an even greater impact, depending on the outcome of future trade negotiations and policies.
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.
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 Company continuously seeks to maintain a robust program of information security and controls, but the impact of a material information technology event could have a material adverse effect on its reputation and results of operations. Item 1B. Unresolved Staff Comments. None.
The Company continuously seeks to maintain a robust program of information security and controls, but the impact of a material information technology event could have a material adverse effect on its reputation and results of operations. General Risk Factors Adverse global and regional economic conditions may materially and adversely affect the Company’s business, results of operations and financial condition.
If new products that the Company expends significant resources to develop or acquire are not successful, or such products do not achieve the required production volume and scale, its business could be adversely affected. The Company’s strategy includes production of in-house developed and manufactured engines used by OEM customers, including large transportation OEMs.
If new products that the Company expends significant resources to develop or acquire are not successful or do not obtain, or retain, required certifications, or such products do not achieve the required production volume and scale, its business could be adversely affected. 17 The Company’s OEM customers may not continue to outsource their power system needs.
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.
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.
Significant adverse changes to the Com pany’s business environment and future cash flows could cause the recognition of impairment charges, which could be material, in future periods. The Company is subject to price increases in some of the key components in its power systems.
Significant adverse changes to the Com pany’s business environment and future cash flows could cause the recognition of material impairment charges in future periods. The Company currently faces, and will continue to face, significant competition.
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.
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.
In particular, the prices of certain precious metals, such as palladium and rhodium, used in emissions-control systems fluctuate frequently and often significantly. Substantial increases in the prices of raw materials used in components that the Company sources from suppliers may result in increased prices charged by suppliers.
Substantial increases in the prices of raw materials used in components that the Company sources from suppliers may result in increased prices charged by suppliers.
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.
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.
Statute compliance disruptions could continue in the future and could result in further delay of importing raw materials needed to fulfil future orders while the Company works to comply with requests in regards to the UFLPA.With the ongoing enforcement and expansion of the UFLPA, the Company has increased the vetting of new and existing vendors with links to the applicable areas to mitigate the likelihood of future disruption of imports.
Additionally, with the ongoing enforcement and expansion of the UFLPA, the Company has increased the vetting of new and existing vendors with links to the applicable areas to mitigate the likelihood of future disruption of imports.
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.
There is no assurance that material weaknesses or significant deficiencies in internal controls will not be identified in the future or that we 20 will be successful in adequately remediating any such material weaknesses or significant deficiencies. We may in the future discover areas of our internal controls that need improvement.
New developments in power system technology may negatively affect the development or sale of some or all of the Company’s power systems or make them noncompetitive or obsolete.
The market for the Company’s products and related services is highly competitive, subject to rapid change and sensitive to new-product and service introductions and changes in technical requirements. New developments in power system technology may negatively affect the development or sale of some or all of the Company’s power systems or make them noncompetitive or obsolete.
Human Capital The loss of key members of management or failure to attract and retain other highly qualified personnel could, in the future, affect the Company’s business results. The Company’s success depends on its ability to attract, retain and motivate a highly-skilled and diverse management team and workforce.
Any number of these factors could have an adverse impact on the Company’s business. Human Capital The failure to attract, retain and motivate a highly qualified workforce and high functioning management team could, in the future, affect the Company’s business results.
The Company utilizes a global supply chain to source products, including engines, components and materials, which may subject it to tariffs, including U.S. tariffs imposed on imports from China. The Company also sells its products on a global basis, and therefore its export sales could be impacted by tariffs.
The Company also sells its products on a global basis, and therefore its export sales could be impacted by tariffs. Several of the Company’s products are sourced internationally, including from China, where the U.S. has imposed tariffs on specified products imported from China.
NOLs and Future Tax Payments The Company’s inability to generate sufficient taxable income in the future may limit the Company’s ability to use net operating loss (“NOL”) carryforwards to reduce future tax payments. The Company has NOL carryforwards with which to offset its future taxable income for U.S. federal income tax reporting purposes.
T he Company directors’ and officers’ liability insurance policy renews annually and expires in July 2025 . The Company’s inability to generate sufficient taxable income in the future may limit the Company’s ability to use net operating loss (“NOL”) carryforwards to reduce future tax payments.
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.
On 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. In July 2023, the Company began experiencing delays in the imports of raw materials directly related to the UFLPA.
New risks may emerge at any time, and the Company cannot predict those risks or estimate the extent to which they may affect its results of operations. Macroeconomic and Geopolitical Factors Adverse global and regional economic conditions may materially and adversely affect the Company’s business, results of operations and financial condition.
New risks may emerge at any time, and the Company cannot predict those risks or estimate the extent to which they may affect its results of operations. Geopolitical Factors The Company utilizes a global supply chain to source products, including engines, components and materials, which may subject it to tariffs, including U.S. tariffs imposed on imports from China.
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).
There are no assurances that the Company will have adequate financial or technical resources in the future to maintain compliance with government emissions standards.
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 consolidated financial statements included herein have been prepared assuming the Company will continue as a going concern. In August 2024, the Company refinanced its debt through a new Uncommitted Revolving Credit Agreement (the “Revolving Credit Agreement”), with Standard Chartered Bank (“ Standard Chartered ”) and two other lenders.
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.
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. U.S. government has indicated its intent to adopt a new approach to trade policy and in some cases to renegotiate, or potentially terminate, certain existing bilateral or multi-lateral trade agreements.
Lastly, the Company also faces competition from other forms of power systems, including electrification and fuel cells, for example, which could limit its ability to grow in the future. The Company may be impacted by volatility of oil and gas prices and/or fuel price differentials.
The Company may be impacted by volatility of oil and gas prices and/or fuel price differentials.
Future changes to the regulations and/or failure of the Company to comply with the regulations could have a material adverse effect on the Company’s results of operations.
Any material reduction in sales may have a material adverse effect on the Company’s results of operations.
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.
Near the end of 2023, the importing of certain forklift products was suspended because of the intensified enforcement and expansion of the UFLPA and continued through the third quarter of 2024. In 2024, t he Company re-sourced these products from CDM and SPY in place of SAME while maintaining the Company’s high-quality standards.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

13 edited+3 added−3 removed5 unchanged
Biggest changeThe Company obtains a Report on Controls at a Service Organization Relevant to User Entities’ Internal Control over Financial Reporting, Type 2 Report (“SOC-1 Report”) that reports on the fairness of the presentation of the service provider’s description of the service organization’s system and the suitability of the design and operating effectiveness of the controls to achieve the related control objectives throughout a specified period.
Biggest changeFor each third-party service provider that would directly impact the Company’s financial reporting, the Company obtains a System and Organization Controls (SOC) 1, Type 2 Report (“SOC 1 Report”) to evaluate that service provider’s internal controls and help the Company assess the risk of obtaining services from that services provider.
During 2023, the Company completed a detailed assessment to identify all technology and cyber tools currently in place and assessed its information technology personnel’s cybersecurity capabilities and skill sets. During 2023, the Company focused on formalizing cybersecurity procedures and defining standards for risk identification and communication activities.
In 2023, the Company completed a detailed assessment to identify all technology and cyber tools currently in place and assessed its information technology personnel’s cybersecurity capabilities and skill sets. In 2023, the Company focused on formalizing cybersecurity procedures and defining standards for risk identification and communication activities.
The Company utilizes the National Institute of Standards and Technology guidance in all cybersecurity policies and procedures. Annual training for employees is required as well as ad hoc trainings for specific topics or events as deemed appropriate throughout the year.
The Company utilizes the National Institute of Standards and Technology guidance in all cybersecurity policies and procedures. Annual training for 22 employees is required as well as ad hoc trainings for specific topics or events as deemed appropriate throughout the year.
The Company’s Vice President of Information Technology is required to have the following qualifications: 24 • Asset Security; • Security Architecture and Engineering; • Communication and Network Security; • Identity and Access Management; • Security Assessment and Testing; • Security Operations; and • Software Development Security.
The Company’s Vice President of Information Technology is required to have the following qualifications: • Asset Security; • Security Architecture and Engineering; • Communication and Network Security; • Identity and Access Management; • Security Assessment and Testing; • Security Operations; and • Software Development Security.
In 2023, we did not identify any cybersecurity threats that have materially affected or are reasonably likely to materially affect our business strategy, results of operations, or financial condition. However, despite our efforts, we cannot eliminate all risks from cybersecurity threats, or provide assurances that we have not experienced undetected cybersecurity incidents.
In 2024, we did not identify any cybersecurity threats that have materially affected or are reasonably likely to materially affect our business strategy, results of operations, or financial condition. However, despite our efforts, we cannot eliminate all risks from cybersecurity threats or provide assurances that we have not experienced undetected cybersecurity incidents.
Risk Management Strategy The Company’s cybersecurity risk management function is lead by the Vice President of Information Technology, who evaluates processes and activities within the Company’s information technology infrastructure and automated systems.
Risk Management Strategy The Company’s cybersecurity risk management function is led by the Vice President of Information Technology, who evaluates processes and activities within the Company’s information technology infrastructure and automated systems.
Below are the risk management activities regularly performed: • Cybersecurity, as described above; • Financial control risk assessment which is a formal part of the annual internal control program; • Management’s risk assessment associated with the budgeting and strategic planning process; • Annual update of risk factors in the Company’s Form 10-K by key executives; • Legal risk assessment associated with our response to the Department of Justice proceeding, and • A broader fraud risk assessment (also performed as part of the internal control program ).
Below are the risk management activities regularly performed: • Cybersecurity, as described above; • Financial control risk assessment which is a formal part of the annual internal control program; • Management’s risk assessment associated with the budgeting and strategic planning process; • Annual update of risk factors in the Company’s Form 10-K by key executives, and • A broader fraud risk assessment (also performed as part of the internal control program ).
The below summarizes the role and the frequency in which the Audit Committee oversees and monitors cybersecurity risks: • At least annually the Vice President of Technology presents compliance activities related to cybersecurity to the Audit Committee which includes those activities related to compliance with the cybersecurity disclosure regulations; • Any material breaches would be disclosed to the Audit Committee either in regularly scheduled meetings or in calls with the Chair of the Audit Committee if the communication is urgent; • Periodically, the Vice President of Information Technology provides updates to the Audit Committee on internal controls surrounding information technology (including cybersecurity); • The Chair of the Audit Committee provides regular updates during the Audit Committee meeting activities which includes cybersecurity; and • The Vice President of Information Technology presents updates on the cybersecurity program to the Company’s Board annually.
The following summarizes the role and frequency in which the Audit Committee oversees and monitors cybersecurity risks: • At least annually the Vice President of Information Technology presents compliance activities related to cybersecurity to the Audit Committee which includes those activities related to compliance with the cybersecurity disclosure regulations; • Material breaches, if any are, disclosed to the Audit Committee either in regularly scheduled meetings or, if urgent in calls with the Chair of the Audit Committee; • Periodically, the Vice President of Information Technology provides updates to the Audit Committee on internal controls surrounding information technology (including cybersecurity); • The Chair of the Audit Committee provides regular updates during Audit Committee meetings which includes cybersecurity; and 23 • The Vice President of Information Technology presents updates on the cybersecurity program to the Company’s Board annually.
Below is the basic framework used in the Company’s risk management strategy: • Identify - set of procedures to identify assets to be protected, including computatio n, data, and integrity; • Protect - set of procedures to effectively engage and monitor adequate safeguards of critical infrastructure services; • Detect - set of activities, tools, and procedures to timely identify anomalies through continuous monitoring; • Respond - set of activities to effectively respond to and contain detected and confirmed cybersecurity events, and • Recover - set of activities and procedures to ensure any assets impaired because of a cybersecurity event are restored to use within the stated recovery point/time objectives. 23 The Company has taken steps to gain insights into how cybersecurity risk management functions have been integrated into its overall risk management systems and process.
Below is the basic framework used in the Company’s risk management strategy: • Identify - set of procedures to identify assets to be protected, including computatio n, data, and integrity; • Protect - set of procedures to effectively engage and monitor adequate safeguards of critical infrastructure services; • Detect - set of activities, tools, and procedures to timely identify anomalies through continuous monitoring; • Respond - set of activities to effectively respond to and contain detected and confirmed cybersecurity events, and • Recover - set of activities and procedures to ensure any assets impaired because of a cybersecurity event are restored to use within the stated recovery point/time objectives.
Governance The Audit Committee of the Board (the “Audit Committee”) has been designated as the board committee with oversight responsibility of cybersecurity as delegated in the Audit Committee charter.
Governance and Process for Assessing, Identifying and Managing Material Risks from Cybersecurity Threats The Audit Committee of the Board (the “Audit Committee”) has been designated as the board committee with oversight responsibility of cybersecurity as delegated in the Audit Committee charter.
The Company engaged a third party who conducted its phishing and penetration tests in 2023. The Company is in the process of implementing new processes, procedures, and tools as a result of the observations from these tests and expects all actions to be implemented during 2024.
The Company engaged a third party to conduct phishing and penetration tests in 2024. The Company continues to evolve its processes, procedures, and tools as a result of the observations from these tests. The Vice President of Information Technology oversees the population of third-party service providers connected to any of the Company’s networks.
All cybersecurity events are communicated to the Corporate Controller and Internal Audit Vice President for disclosure considerations. Material and severe occurrences are escalated to the Chief Executive Officer and Chief Financial Officer for further review, discussion and remediation. The Vice President of Information Technology is responsible for managing overall cybersecurity and cyber risks, including infrastructure, development, and cybersecurity.
The Vice President of Information Technology is responsible for managing overall cybersecurity and cyber risks, including infrastructure, development, and cybersecurity.
The SOC-1 Report is reviewed by Internal Audit. The Company limits access to information based on the nature of the services performed by third party service providers which provides a significant level of risk management before third-party access to data.
The SOC-1 Report is reviewed by members of the Company’s management and the Internal Audit group. The Company also limits access to information granted to any third-party service provider to only the information necessary for them to perform their services to the Company.
Removed
The Vice President of Information Technology oversees the population of third-party service providers connected to any of the Company’s networks.
Added
The Company has taken steps to gain insights into how cybersecurity risk management functions have been integrated into its overall risk management systems and process.
Removed
Management is informed about and monitors the prevention, detection, mitigation, and remediation of cybersecurity threats by the Vice President of Information Technology. The Company’s information technology landscape is not large or complex and it has a limited data footprint which allows the Vice President of Information Technology to be directly responsible and stay aware of all incidents.
Added
The Company’s Vice President of Information Technology is the central contact point to receive (i) alerts regarding potential cybersecurity incidents and (ii) reports from the Company’s Information Technology personnel regarding potential cybersecurity incidents. All confirmed cybersecurity events are communicated by the Vice President of Information Technology to the Corporate Controller and Vice President of Internal Audit.
Removed
The Company has sufficient tools and processes in place to allow the Vice President of Information Technology to be effective as the central point person of monitoring and reporting incidents.
Added
Material confirmed cybersecurity events are further escalated to the Chief Executive Officer and Chief Financial Officer for further review, discussion and remediation.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeItem 2. Properties. The Company’s operations are located in 8 leased facilities in the United States, totaling approximately 1.0 million square feet of floor space. The Company’s corporate headquarters is located in Wood Dale, Illinois, a suburb of Chicago.
Biggest changeItem 2. Properties. The Company’s operations are located in 7 leased facilities in the United States, totaling approximately 1.0 million square feet of floor space. The Company is in the process of expanding the Wisconsin facility, which will results in an additional 0.1 million square feet. The Company’s corporate headquarters is located in Wood Dale, Illinois, a suburb of Chicago.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest change(“OTC Market”) on that date under “PSIX.” The OTCPink is a quotation system and not a national securities exchange, and many companies have experienced limited liquidity when traded through this quotation system. The quotations represent inter-dealer prices without adjustment for retail markups, markdowns or commissions, and may not necessarily represent actual transactions.
Biggest changeIt then traded on the OTC Pink marketplace (“OTCPink”), operated by OTC Markets Group, Inc. (“OTC Market”), under “PSIX” until December 26, 2024. The OTCPink is a quotation system and not a national securities exchange, and many companies have experienced limited liquidity when traded through this quotation system.
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
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 2024 and 2023, the Company did not repurchase any equity securities. Item 6. Reserved
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. The Company’s Common Stock traded on the NASDAQ under the symbol “PSIX” from May 28, 2013 through April 18, 2017.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. The Common Stock traded on Nasdaq under the symbol “PSIX” from May 28, 2013 through April 18, 2017. The Common Stock was suspended from trading and was subsequently delisted from Nasdaq effective at the open of business on April 19, 2017.
As 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.
Holders As of March 17 2025, there were approximately 43 holders of record of the Company’s Common Stock. Dividend Policy The Company has not paid any cash dividends on the Common Stock to date. The payment of dividends is currently restricted by the Credit Agreement.
Removed
The Company’s Common Stock was suspended from trading on NASDAQ effective at the open of business on April 19, 2017 (and subsequently delisted) and began trading on the OTC Pink marketplace (“OTCPink”), operated by OTC Markets Group, Inc.
Added
The quotations represent inter-dealer prices without adjustment for retail markups, markdowns or commissions, and may not necessarily represent actual transactions. The Company’s Common Stock uplisted on the Nasdaq under the symbol “PSIX” on December 26, 2024. As of March 17 2025, the sale price for the Company’s Common Stock, as reported by the Nasdaq , was $33.09 per share.

Item 7. Management's Discussion & Analysis

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

51 edited+16 added−35 removed24 unchanged
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.
Biggest changeWith the recent introduction of numerous natural gas and diesel engines, 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. 27 Results of Operations Results of operations for the year ended December 31, 2024 compared with the year ended December 31, 2023 : (in thousands, except per share amounts) For the Year Ended December 31, 2024 2023 Change % Change Net sales (from related parties $1,766 and $2,449 for the year ended December 31, 2024 and 2023, respectively) $ 475,967 $ 458,973 $ 16,994 4 % Cost of sales (from related parties $1,304 and $1,790 for the year ended December 31, 2024 and 2023, respectively) 335,430 353,109 (17,679) (5) % Gross profit 140,537 105,864 34,673 33 % Gross margin % 29.5 % 23.1 % 6.4 % Operating expenses: Research and development expenses 20,056 19,457 599 3 % Research and development expenses as a % of sales 4.2 % 4.2 % — % Selling, general and administrative expenses 37,378 40,386 (3,008) (7) % Selling, general and administrative expenses as a % of sales 7.9 % 8.8 % (0.9) % Amortization of intangible assets 1,459 1,746 (287) (16) % Total operating expenses 58,893 61,589 (2,696) (4) % Operating income 81,644 44,275 37,369 84 % Interest expense (from related parties $6,998 and $7,729 for the year ended December 31, 2024 and 2023, respectively) 11,443 17,069 (5,626) (33) % Income before income taxes 70,201 27,206 42,995 158 % Income tax expense 922 900 22 NM Net income $ 69,279 $ 26,306 $ 42,973 163 % Earnings per common share: Basic $ 3.01 $ 1.15 $ 1.86 162 % Diluted $ 3.01 $ 1.15 $ 1.86 162 % Non-GAAP Financial Measures: Adjusted net income * $ 64,675 $ 26,552 $ 38,123 144 % Adjusted income per share * $ 2.81 $ 1.17 $ 1.64 140 % EBITDA * $ 86,843 $ 49,875 $ 36,968 74 % Adjusted EBITDA * $ 82,239 $ 50,121 $ 32,118 64 % NM Not meaningful * See reconciliation of non-GAAP financial measures to GAAP results below Net Sales Net sales increased $17.0 million, or 4%, compared to 2023, as a result of sales increases of $100.6 million in the power systems end market, partly offset by decreases of $37.1 million and $46.6 million within the industrial and transportation end markets, 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. On March 22, 2023, the Collaboration Agreement was extended for an additional term of three years.
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 the 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.
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.
Non-GAAP Financial Measure Comparable GAAP Financial Measure Adjusted net income Net income Adjusted net income per share – diluted Net income per share – diluted EBITDA Net income Adjusted EBITDA Net income The Company believes that Adjusted net income, Adjusted net income per share – diluted, 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.
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 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 – diluted is a measure of the Company’s diluted earnings per common share adjusted for the impact of special items.
The Company provides highly engineered, comprehensive solutions designed to meet specific customer application requirements and technical specifications, including those imposed by environmental regulatory bodies, such as the EPA, the CARB and the MEE.
The Company provides highly engineered, comprehensive solutions designed to meet specific customer application requirements and technical specifications, including those imposed by environmental regulatory bodies, such as the EPA and the CARB.
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.
Adjusted net income, Adjusted net income per share – diluted, 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.
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.
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.
Among other things, the Collaboration Arrangement established a joint steering committee, permitted Weichai to second a limited number of technical, marketing, sales, procurement and finance personnel to work at the Company and established several collaborations related to stationary natural-gas applications and Weichai diesel engines.
Among other things, the Collaboration Arrangement established a joint steering committee, permitted Weichai to employ a limited number of technical, marketing, sales, procurement and finance personnel to work at the Company and established several collaborations related to stationary natural-gas applications and Weichai diesel engines.
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.
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 its credit facilities and shareholder’s loan agreements, and cash and cash equivalents on hand.
These assessments may be performed quantitatively or qualitatively. We have not made any changes in 2023 to our reporting unit or the accounting methodology we use to assess impairment loss on goodwill and indefinite-lived intangible assets.
These assessments may be performed quantitatively or qualitatively. We have not made any changes in 2024 to our reporting unit or the accounting methodology we use to assess impairment loss on goodwill and indefinite-lived intangible assets.
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.
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, 2024 and 2023, including discussions about management’s expectations for the Company’s business.
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.
GAAP, and non-GAAP financial amounts 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 Management’s Discussion and Analysis of Financial Condition and Results of Operations included in this report.
In 2023, management performed an assessment of the impairment of goodwill for our reporting unit and indefinite-lived intangible assets using a quantitative approach, which indicated that the fair values the reporting unit and indefinite-lived intangible assets were substantially in excess of their carrying values. Therefore, no indications of impairment were identified.
In 2024, management performed an assessment of the impairment of 32 goodwill for our reporting unit and indefinite-lived intangible assets using a quantitative approach, which indicated that the fair values the reporting unit and indefinite-lived intangible assets were substantially in excess of their carrying values. Therefore, no indications of impairment were identified.
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.
Additionally, the Company continues to experience ongoing tariff costs for its supply chain products and is trying to mitigate these impacts through price increases and other measures, such as seeking certain tariff exclusions, where possible.
They are not, however, intended as an alternative measure of operating results or cash flow from operations as determined in accordance with U.S. GAAP.
They are not, however, intended as alternative measures of operating results or cash flow from operations as determined in accordance with U.S. GAAP.
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.
Additionally, the Company continues to experience ongoing tariff costs for its supply chain products and is trying to mitigate these impacts through price increases and other measures, such as seeking certain tariff exclusions, where available.
Non-GAAP financial measures provide insight into selected financial information and should be evaluated in the context in which they are presented. These non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation from, or as a substitute for, financial information presented in compliance with U.S.
GAAP”) above, this report also includes non-GAAP (adjusted) financial measures. Non-GAAP financial measures provide insight into selected financial information and should be evaluated in the context in which they are presented. These non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation from, or as a substitute for, financial information presented in compliance with U.S.
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.
For the year ended December 31, 2024, warranty costs were $6.5 million, a decrease of $6.5 million compared to warranty costs of $13.0 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.
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.
Decreased industrial end market sales are primarily due to decreases in demand for products used within the material handling and arbor care markets, as well as the direct effects of enforcement of the UFLPA, which limited the Company’s ability to import certain raw materials.
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 .
Cash Flow from Investing Activities Net cash used in investing activities was $4.6 million for the year ended December 31, 2024 compared to cash used in investing activities of $5.0 million for year ended December 31, 2023, respectively . For the years ended December 31, 2024 and 2023, cash used in investing activities related to capital expenditures.
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.
Cash Flow from Financing Activities The Company used $25.9 million in cash from financing activities during the year ended December 31, 2024 compared to $66.8 million in cash used by financing activities during the year ended December 31, 2023.
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.
The remaining 11% of engines were dual fuel gasoline/propane, diesel and service engines. 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. The remaining 7% of engines were dual fuel gasoline/propane, diesel and service/base engines.
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.
N otwithstanding 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, ongoing geopolitical and macroeconomic uncertainties, especially with the latest tariff announcements and the possible impact on trade between the USA and the rest of the world, among other factors.
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.
Interest Expense Interest expense decreased $5.6 million to $11.4 million in 2024 from $17.1 million in 2023, largely due to reduced outstanding debt and lower overall effective interest rates. See Note 6. Debt , included in Item 8. Financial Statements and Supplementary Data for additional information.
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.
Financial Statements and Supplementary Data, Note 11. 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 11. Commitments and Contingencies , included in Item 8. Financial Statements and Supplementary Data . See Part I. Item 1A.
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.
The Company manages the business as a single reporting segment. 25 Net sales by geographic area and by end market for 2024 and 2023 are presented below: (in thousands) For the year ended December 31, 2024 For the Year Ended December 31, 2023 Geographic Area % of Total % of Total United States $ 419,706 88 % $ 378,886 83 % North America (outside of United States) 24,466 5 % 21,265 5 % Pacific Rim 24,652 5 % 39,822 8 % Europe 7,090 2 % 13,815 3 % Others 53 — % 5,185 1 % Total $ 475,967 100 % $ 458,973 100 % (in thousands) For the year ended December 31, 2024 For the Year Ended December 31, 2023 End Market % of Total % of Total Power Systems $ 325,749 68 % $ 225,106 49 % Industrial 123,268 26 % 160,334 35 % Transportation 26,950 6 % 73,533 16 % Total $ 475,967 100 % $ 458,973 100 % During 2024, the Company sold over 22,200 engines of which approximately 76% utilized propane or natural gas as their fuel source and 13% utilized gasoline.
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 .
Amounts include insurance recoveries related to a prior year incident and have no material impact on the Adjusted net income per share – diluted f or the year ended December 31, 2024 and 2023 . 30 Cash Flows Cash was impacted as follows: (in thousands) For the Year Ended December 31, 2024 2023 Change % Change Net cash provided by operating activities $ 62,390 $ 70,512 $ (8,122) (12) % Net cash used in investing activities (4,559) (5,020) 461 (9) % Net cash used in financing activities (25,934) (66,798) 40,864 (61) % Net increase (decrease) in cash, cash equivalents, and restricted cash $ 31,897 $ (1,306) $ 33,203 NM Capital expenditures $ (4,559) $ (5,036) $ 477 (9) % NM Not meaningful Cash Flow from Operating Activities Net cash provided by operations was $62.4 million in 2024 compared to net cash provided by operations of $70.5 million in 2023, a decrease of $8.1 million in cash provided by operating activities year-over-year .
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.
Adjusted EBITDA further excludes the effects of other non-cash charges and certain other items that do not reflect the ordinary earnings of the Company’s operations. 29 Adjusted net income, Adjusted net income per share – diluted, 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.
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.
The following table presents a reconciliation from Net income to Adjusted net income: (in thousands) For the Year Ended December 31, 2024 2023 Net income $ 69,279 $ 26,306 Stock-based compensation 1 89 151 Legal Settlements 2 (4,693) 195 Insurance proceeds 3 — (100) Adjusted net income $ 64,675 $ 26,552 The following table presents a reconciliation from Net income per share – diluted to Adjusted net income per share – diluted: For the Year Ended December 31, 2024 2023 Net income per share – diluted $ 3.01 $ 1.15 Stock-based compensation 1 — 0.01 Legal Settlements 2 (0.20) 0.01 Adjusted net income per share – diluted $ 2.81 $ 1.17 Diluted shares (in thousands) 23,018 22,973 The following table presents a reconciliation from Net income to EBITDA and Adjusted EBITDA: (in thousands) For the Year Ended December 31, 2024 2023 Net income $ 69,279 $ 26,306 Interest expense 11,443 17,069 Income tax expense 922 900 Depreciation 3,740 3,854 Amortization of intangible assets 1,459 1,746 EBITDA 86,843 49,875 Stock-based compensation 1 89 151 Legal Settlements 2 (4,693) 195 Insurance proceeds 3 — (100) Adjusted EBITDA $ 82,239 $ 50,121 1.
Total bad debt expense was less than $0.1 million in both 2023 and 2022. If circumstances change, for example, due to the occurrence of higher-than-expected defaults or a significant adverse change in a major customer’s ability to meet our financial obligations such as bankruptcies, estimates of the recoverability of receivable amounts due could be reduced.
If circumstances change, due to the occurrence of higher-than-expected defaults or a significant adverse change in a major customer’s ability to meet our financial obligations such as bankruptcies, estimates of the recoverability of receivable amounts due could be reduced. Refer to Note 2. Revenue of the notes to the consolidated financial statements for more information on the Company’s revenue recognition.
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.
The Company continues to record a full valuation allowance against deferred tax assets. See Note 12. 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.
Preparation of these financial statements requires the Company to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.
Risk Factors for further discussion of legal risks to the Company. Critical Accounting Estimates The Company’s consolidated financial statements are prepared in accordance with U.S. GAAP. Preparation of these financial statements requires the Company to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.
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 cash used by financing activities for the year ended December 31, 2024 was due to proceeds from the new Revolving Credit Agreement and payments made on the SLA and other debt. Cash used in 2023 was primarily attributable to repayment of existing debt during the year. Se e additional discussion below and in Note 6. Debt 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.
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. The Company is party to several legal contingencies. Se e Note 11. Commitments and Contingencies for further discussion of the Company’s indemnification obligations.
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.
Hyster-Yale Supply Arrangemen t : In 2023 , Hyster-Yale began using alternative suppliers for several high-volume engines that the Company provides, including the 2.0L and 2.4L engines, due in part to supply chain issues related to UFLPA enforcement. As a result, the Company experienced a decline in sales volumes to Hyster-Yale in 2024.
Without additional financing, the Company anticipates that it will not have sufficient cash and cash equivalents to repay the outstanding indebtedness under the Company’s existing debt arrangements as they become due.
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, which raises substantial doubt about the Company’s ability to continue as a going concern within one year from the date of filing.
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 Company’s sales to Weichai were $1.8 million and $1.7 million during 2024 and 2023, respectively. The Company purchased $21.5 million and $6.2 million of inventory from Weichai during 2024 and 2023, respectively. PSI is party to the SLA with Weichai. See Note 6. Debt , included in Item 8. Financial Statements and Supplementary Data , for additional information.
We regularly review the adequacy of our allowance for credit losses. The credit environment in which our customers operate has been relatively stable over the past few years and the Company collections are bolstered by a robust collections department. Historically, less than 1.0% of net sales ultimately prove to be uncollectible.
The credit environment in which our customers operate has been relatively stable over the past few years and the Company collections are bolstered by a robust collections department. Total bad debt expense was less than $0.1 million in both 2024 and 2023.
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.
The Company is committed to focusing on growth opportunities and investment while also optimizing its cost structure to enhance growth and profitability, ultimately delivering sustained value to our shareholders. 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.
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 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. At December 31, 2024, the Company had four outstanding letters of credit totaling $1.4 million. See Item 8.
EBITDA provides the Company with an understanding of earnings before the impact of investing and financing charges and income taxes. Adjusted EBITDA further excludes the effects of other non-cash and certain other items that do not reflect the ordinary earnings of the Company’s operations.
EBITDA provides the Company with an understanding of earnings before the impact of investing and financing charges and income taxes.
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.
Higher power systems end market sales were primarily due to increased demand for products across various applications, with the largest increases attributable to products used within the packaging market such as enclosures serving the fast-growing data center market, and oil and gas products.
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.
As of December 31, 2024 , the Company’s total outstanding debt obligations under the Revolving Credit Agreement , the SLA, finance leases and other debt, all of which are short-term requirements, were $120.2 million in the aggregate, and its cash and cash equivalents were $55.3 million. See Item 8. Financial Statements and Supplementary Data , Note 6.
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.
Income Tax Expense The Company recorded income tax expense of $0.9 million in both 2024 and 2023. The Company’s pretax income was $70.2 million in 2024, compared to pretax income of $27.2 million in 2023. The Company continues to utilize NOLs along with other tax credits to lower its effective tax rate.
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 .
The decreased sales within the transportation end market were primarily attributable to lower sales in the truck and school bus market from ceasing sales of emission-certified engines into this market, and new compliance and regulatory requirements that changed engine product offerings in this market. 28 Gross Profit Gross profit increased by $34.7 million, or 33%, to $140.5 million in 2024, compared to $105.9 million in 2023.
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.
In order to provide the Company with a more permanent source of liquidity, management plans to seek an extension and amendment and/or replacement of its existing debt agreements or seek additional liquidity from its current or other lenders before the maturity dates in 2025.
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.
Gross margin was 29.5% and 23.1% in 2024 and 2023, respe ctively. The increase in gross margin is primarily due to improved sales mix, pricing actions, higher operating efficiencies, and lower warranty costs primarily attributable to the Company’s sales shift away from certain transportation customers.
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 anticipates an increase in sales for 2025 compared to 2024, driven by expected growth in the power systems end market including products supporting data centers , while sales in the industrial and transportation end markets are projected to remain about flat.
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).
Legal Settlement Expenses Legal settlements included in the 2024 operating results, were a benefit of $4.7 million (see Note 11. Commitments and Contingencies , included in Part II. Item 8. Financial Statements and Supplementary Data , for additional information).
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.
Research and Development Expenses R&D expenses in 2024 and 2023 were $20.1 million and $19.5 million, respectively. The increase of $0.6 million, or 3%, was primarily related to the testing of new products. Selling, General and Administrative Expenses Selling, general and administrative (“SG&A”) decreased in 2024 by $3.0 million , or 7%, compared to 2023.
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.
Uses of funds include payments of principal on our debt facilities and shareholder’s loan agreements, capital expenditures, and working capital needs. While the Company has achieved profitability and generated positive cash flows from operating activities in 2024, uncertainties exist about the Company’s ability to refinance, extend, or repay its outstanding indebtedness.
Removed
Financial Statements and Supplementary Data , for additional information.
Added
Recent Trends and Business Outlook PSI’s growth in net revenue in 2024 was driven by power systems markets, including data center and oil and gas products, partially offset by lower sales from more mature, lower-margin markets such as transportation.
Removed
Incremental Financial Reporting, Internal Control Remediation, and Government Investigation and Other Legal Matter Expenses Incremental financial reporting, internal control remediation and government investigation and other legal matter expenses consist of professional services fees related to the Company’s efforts to restate prior period financial statements, prepare, audit and file delinquent financial statements, and remediate internal control material weaknesses as well as fees and reserves related to Company, SEC, and USAO investigations.
Added
This shift in markets reflects the 26 Company’s conscious strategic prioritization toward higher growth, higher-margin markets with less emphasis on more mature markets. The Company is focused on leading the business through a growth phase with a stronger balance sheet while strategically prioritizing products that demonstrate strong demand and higher gross margins.
Removed
Since August 2016, the Company has experienced a substantial and disruptive diversion of management resources to address various accounting, financial reporting and financial issues.
Added
Consistent with those goals, the Company is actively pursuing several initiatives to enhance and expand manufacturing capacity to meet the increasing demand from data center markets. Pivoting the focus to these markets is driving current net sales growth and profitability. Through expanded capacity and strategic partnerships, management expects this positive trend to continue.
Removed
During that time, the Company determined that it was necessary to restate financial results for 2014 and 2015 as well as the first quarter of 2016 and, since then, has also focused on becoming timely on all of its SEC financial reporting requirements, which was achieved with the filing of the Annual Report on Form 10-K for the year ended December 31, 2019.
Added
PSI’s business is impacted by the current macroeconomic and geopolitical environment, which has contributed to differing levels of recovery in the global economy.
Removed
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.
Added
For example, although the oil and gas market, in which the Company has historically operated, has experienced year over year growth from its historic lows, sales levels may not reach their previous higher levels because of rising crude oil prices and lower rig counts.
Removed
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.
Added
The Company has been actively navigating these challenges by balancing its investments, expenses, pricing and sales efforts in this market as well as others. In addition to prioritizing gross profit, the Company is committed to efficiently managing expenses, including streamlining operating expenses and prioritizing certain R&D investments in support of long-term growth objectives.
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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.
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The Company is strategically prioritizing the rapidly expanding data center sector, improving and increasing our manufacturing capacity and capabilities to meet our customers’ evolving demands for our products.
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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.
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The decrease is primarily due to a decrease in accrued legal settlements of $4.7 million, lower professional fees and the decrease in selling expenses associated with decreased sales in the transportation market.
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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.
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Amounts reflect non-cash stock-based compensation expense and have no material impact on the Adjusted net income per share – diluted for the year ended December 31, 2024 and 2023 . 2. Amounts include legal settlements f or the year ended December 31, 2024 and 2023 . 3.
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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.
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The decrease in cash provided by operating activities primarily resulted from a $44.5 million decrease of cash provided by working capital accounts, partially offset by an increase in earnings of $43.0 million.
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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.
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The decrease in cash generated from working capital was primarily related to, purchases of inventory and lower collections on accounts receivable for the year ended December 31, 2024 compared to December 31, 2023 .
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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.
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Debt, for additional information. The Company’s ability to continue as a going concern is dependent on extending and amending, refinancing or repaying the indebtedness outstanding under the Company’s existing debt arrangements.
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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.
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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. PSI’s business is impacted by the current macroeconomic and geopolitical environment, which has contributed to differing levels of recovery in the global economy.
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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.
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For example, although the oil and gas market, in which the Company has historically operated, has experienced year over year growth from its historic lows, sales levels may not reach previous higher levels 31 because of rising crude oil prices and lower rig counts.
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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.

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