What changed in this filing

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Item 1A. Risk Factors

2023-04-14 compared with 2022-03-31 · 141 added, 139 removed, 207 unchanged (57% of the section changed)

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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.

The Company has international operations with sales outside the U.S.

representing a 27% of the Company’s total net sales.

Further, the Company’s global supply chain is large, complex and a majority of the Company’s supplier facilities, are located outside the U.S.

As a result, the Company’s operations and performance depend significantly on global and regional economic conditions.

Adverse macroeconomic conditions, including inflation, slower growth or recession, new or increased tariffs and other barriers to trade, changes to fiscal and monetary policy, tighter credit, higher interest rates, high unemployment and currency fluctuations may materially and adversely affect demand for the Company’s products and services.

In addition, spending may be materially and adversely affected in response to financial market volatility, negative financial news, conditions in the real estate and mortgage markets, declines in income or asset values, energy shortages and cost increases, labor and healthcare costs and other economic factors.

In addition, uncertainty about, or a decline in, global or regional economic conditions may have a significant impact on the Company’s suppliers, contract manufacturers, logistics providers, distributors, and other channel partners.

Potential effects include financial instability;

inability to obtain credit to finance operations and purchases of the Company’s products;

and insolvency.

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.

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.

The Company sells products internationally and sources a significant amount of materials from suppliers outside of the U.S.

Accordingly, the Company is subject to the political, economic and other risks that are inherent in operating a multinational company, including risks related to the following:

• general economic conditions;

• the imposition of tariffs and other import or export barriers, which could potentially disrupt the Company’s existing supply chains and impose additional costs on the Company’s business;

• trade and technology protection measures;

• compliance with regulations governing import and export activities;

• import and export duties and restrictions;

• currency fluctuations and exchange restrictions;

• transportation delays and interruptions;

• potentially adverse income tax consequences;

• political and economic instability;

• terrorist activities;

• acts of war, including the events currently underway in Ukraine, which could lead to volatility in commodity availability and pricing, access to current or new markets, and general overall market volatility and weakness, among other factors;

• labor unrest;

• natural disasters;

• public health concerns including the potential negative impacts to suppliers, customers or the Company’s business.

Any of these factors could have a material adverse effect on the Company’s business and results of operations.

Also, the Company is subject to, and may become subject to, various state, federal and international laws and regulations governing its business, environmental, labor, trade and tax practices.

These laws and regulations, particularly those applicable to the Company’s international operations, are or may be complex, extensive and subject to change.

The Company needs to ensure that it and its OEM customers and suppliers timely comply with such laws and regulations, which may result in increased operating costs.

Other legislation has been, and may in the future be, enacted in other locations in which the Company manufactures or sells its products.

If the Company or its component suppliers fail to timely comply with applicable legislation, its customers may refuse to purchase its products, or it may face increased operating costs as a result of taxes, fines or penalties.

In connection with complying with such environmental laws and regulations as well as with industry environmental initiatives, the standards of business conduct required by some of its customers and its commitment to sound corporate citizenship in all aspects of its business, the Company could incur substantial compliance and operating costs and be subject to disruptions to its operations and logistics.

In addition, if the Company were found to be in violation of these laws or noncompliant with these initiatives or standards of conduct, it could be subject to governmental fines, liability to its customers and damage to its reputation and corporate brand, any of which could cause its financial condition or results of operations to suffer.

Lastly, the Company’s overseas sales are subject to numerous stringent U.S.

and foreign laws, including the Foreign Corrupt Practices Act (“FCPA”) and comparable foreign laws and regulations, which prohibit improper payments or offers of payments to foreign governments and their officials and political parties by U.S.

and other business entities for the purpose of obtaining or retaining business.

the Company, including class action lawsuits and enforcement actions from the SEC, the United States Attorney’s Office for the Northern District of Illinois (“USAO”) and overseas regulators.

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

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.

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.

The Company is evaluating U.S.

government policy, which is subject to change in the current negotiating environment, pricing, its supply chain and its operational strategies to mitigate the impact of these tariffs;

however, there can be no assurances that any mitigation strategies employed will remain available under government policy or that the Company will be able to offset tariff-related costs or maintain competitive pricing of its products.

Further, the imposition of tariffs on imports from China and other countries have the potential to materially and adversely impact the Company’s sales, profitability and future product launches.

The Company also sells its products on a global basis;

and, therefore, its export sales could be impacted by the tariffs.

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

COVID-19 Pandemic

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

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

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

The ongoing COVID-19 pandemic has resulted in the implementation of significant governmental measures to control the spread of the virus, including quarantines, travel restrictions, business shutdowns and restrictions on the movement of people in the United States and abroad.

As discussed in Item 1.

Business , these factors have impacted and will continue to impact the Company’s operations, financial condition and demand for the Company’s goods and services.

Depending on the severity and longevity of the COVID-19 pandemic, the Company’s business, employees, customers, suppliers and stockholders may continue to experience significant negative impacts for future periods.

In addition, due to the nature with which the COVID-19 situation continues to evolve, there is significant uncertainty around its ultimate impact on public health, business operations and the overall economy;

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

In April 2020, the Company implemented contingency actions as a result of the expected significant negative impacts of these factors.

The Company’s temporary cost reduction measures included, among others, reduced hours of operations of the

Company’s production facilities;

reduced pay for salaried employees between 10% and 30%, depending on the employee’s position;

suspended the Company’s 401(k) plan match;

deferred spending on certain R&D programs;

and minimized discretionary expenses and consulting services.

The measures with regard to pay for salaried employees and the suspension of the Company’s 401 (k) plan match were in effect through December 31, 2020.

Any additional cost savings initiatives or other cash actions the Company undertakes in response to the COVID-19 pandemic may not achieve the intended results and may result in other adverse impacts, which could be material.

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

The Company cannot, at this time, predict the many potential impacts of the COVID-19 pandemic, but it could have a material adverse effect on the Company’s business, prospects, financial condition, cash flows, and results of operations.

The COVID-19 pandemic resulted in the implementation of significant governmental measures to control the spread of the virus, including quarantines, travel restrictions, business shutdowns and restrictions on the movement of people in the United States and abroad.

Further, the Company sources a significant amount of inventory from China, where the above mentioned governmental measures continue to be prominent.

These factors have impacted and may continue to impact the Company’s operations, financial condition and demand for the Company’s goods and services.

Due to the severity and longevity of the COVID-19 pandemic, the Company’s business, employees, customers, suppliers and stockholders may continue to experience significant negative impacts for future periods.

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

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

The Company cannot, at this time, predict the many potential future impacts of the COVID-19 pandemic, but it could have a material adverse effect on the Company’s business, prospects, financial condition, cash flows, and results of operations.

Liquidity and Indebtedness

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As of December 31, 2022 , the Company had $209.8 million of total borrowings outstanding under its debt arrangements with Standard Chartered Bank (“Standard Chartered”) and Weichai.

On March 25, 2022, the Company amended and restated its $130.0 million uncommitted senior secured revolving credit agreement with Standard Chartered (the “Second Amended and Restated Uncommitted Revolving Credit Agreement”), which extends the maturity date of loans outstanding under its previous credit facility to the earlier of March 24, 2023 or the demand of Standard Chartered.

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

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

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

In addition, Standard Chartered has the right to demand payment of any and all outstanding borrowings and other amounts outstanding at any point in time at its discretion.

In connection with this Second Amended and Restated Uncommitted Revolving Credit Agreement, on March 25, 2022, the Company also amended two of the three shareholder’s loan agreements with Weichai, to among other things, extend the maturities thereof.

The amended first shareholder’s loan agreement continues to provide the Company with a $130.0 million subordinated loan under which Weichai is obligated to advance funds solely for purposes of repaying outstanding borrowings under the $130.0 million Second Amended and Restated Uncommitted Revolving Credit Agreement if the Company is unable to pay such borrowings.

The amended second shareholder’s loan agreement continues to provide the Company with a $25.0 million subordinated loan at the discretion of Weichai.

The maturity of the amended first shareholder’s loan agreement was extended to April 24, 2023 and the maturity of the amended second shareholder’s loan agreement was extended to May 20, 2023.

The Company is also party to a third shareholder’s loan agreement with Weichai, which was entered into on December 10, 2021, and matures on November 30, 2022.

The third shareholders loan agreement provides the Company with access to up to $50.0 million of credit at the discretion of Weichai.

All of the shareholder loan agreements with Weichai are subject to customary events of default and covenants.

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 Second Amended and Restated Uncommitted Revolving Credit Agreement.

Due to the above maturity dates of existing debt, which range from November 30, 2022 to May 20, 2023, the Company will need to extend and amend or refinance these loans on or before the expiration dates.

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 various debt agreements, and extending and amending, refinancing or repaying the indebtedness outstanding under the Company’s debt agreements.

There can be no assurance that it will be able to complete a financing on acceptable terms or repay this outstanding indebtedness, when required or if at all.

Further, since certain of the Company’s loans are uncommitted or at the discretion of the lender, there can be no assurance that any available credit will be extended.

If the Company does not have sufficient liquidity to fund its business activities, 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 connection with this Third Amended and Restated Uncommitted Revolving Credit Agreement, on March 24, 2023, the Company also amended three of the four shareholder’s loan agreements with Weichai, to among other things, extend the maturities thereof.

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

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

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

The maturity of the first Amended Shareholder's Loan Agreement was extended to April 24, 2024 , and the maturity of the fourth Amended Shareholder's Loan Agreement was extended to March 31, 2024.

The third Shareholder's Loan Agreement (the "third Shareholder's Loan Agreement") was amended on November 29, 2022 and extends the maturity to November 30, 2023.

The third amended Shareholder's Loan Agreement (the “third amended Shareholder’s Loan Agreement”) continues to provide the Company with access to up to $50.0 million of credit at the discretion of Weichai.

All of the amended shareholder loan agreements with Weichai are subject to customary events of default and covenants.

The 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 Third Amended and Restated Uncommitted Revolving 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.

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.

There can be no assurance that the Company’s management will be able to successfully complete an extension and amendment of its existing debt agreements or obtain new financing on acceptable terms, when required or if at all.

These consolidated financial statements do not include any adjustments that might result from the outcome of the Company’s efforts to address these issues.

Furthermore, if the Company cannot raise capital on acceptable terms, it may not, among other things, be able to do the following:

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• respond to competitive pressures or unanticipated working capital requirements.

Additionally, as discussed above, the global economy continues to be impacted by the COVID-19 pandemic.

The potential for continued disruptions, economic uncertainty, and unfavorable oil and gas market dynamics may continue to have a material adverse impact on the results of operations, financial position and liquidity of the Company.

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

The Company’s 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 consolidated financial statements included herein have been prepared assuming that the Company will continue as a going concern and contemplating the realization of assets and the satisfaction of liabilities and commitments in the normal course of business.

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

The Company has a significant amount of indebtedness and is highly leveraged.

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The failure or the inability to meet such obligations under existing debt or any new debt could materially and adversely affect the Company’s business and financial condition.

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

The Company’s indebtedness and the cash flow needed to satisfy its debt obligations and the covenants contained in current and potential future debt agreements could have important consequences, including the following:

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• making the Company more vulnerable in the event of a downturn in its business.

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

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

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.

If the maturity of the indebtedness is accelerated, the Company may not have sufficient cash resources, or have the ability to obtain financing through alternative resources, to satisfy its debt and other obligations, and the Company may not be able to continue as a going concern.

Litigation and Internal Control Remediation

The Company has identified material weaknesses in its internal control over financial reporting that have not been fully remediated.

If its remediation measures are insufficient to address the material weaknesses, or if the Company otherwise fails to establish and maintain an effective system of internal control over financial reporting, it may not be able to accurately report financial results, timely file periodic reports, maintain its reporting status or prevent fraud.

In connection with the Company’s assessment of the effectiveness of its internal control over financial reporting as of December 31, 2021, the Company concluded that there were material weaknesses in its internal control over financial reporting.

Controls and Procedures , included in Part II, for additional information regarding these matters.

The Company’s management may identify other material weaknesses in its internal control over financial reporting in the future.

The existence of internal control material weaknesses could harm its business, the market price of its Common Stock and its ability to retain the Company’s current, or obtain new, lenders, suppliers, key employees, alliance and strategic partners or require the implementation of certain undertakings with the SEC.

In addition, the existence of material weaknesses in the Company’s internal control over financial reporting may affect its ability to timely file periodic reports under the Exchange Act.

The inability to timely file periodic reports could result in the SEC revoking the registration of the Company’s Common Stock, which would negatively impact the Company’s ability to re-list its Common Stock on the NASDAQ Stock Market or any other stock exchange.

The Company has incurred significant costs in connection with the restatement of previously issued consolidated financial statements and its failure to timely file prior periodic reports and will continue to incur significant costs to remediate material weaknesses in internal control.

The Company has incurred significant expenses, including audit, legal, consulting and other professional fees, and lender and noteholder consent fees, related to the restatement of its previously issued consolidated financial statements and the ongoing remediation of material weaknesses in its internal control over financial reporting.

The Company anticipates that it will continue to incur certain of these expenses in the future.

The Company has taken a number of actions, including adding significant internal resources and implementing a number of additional procedures and controls, in order to strengthen its accounting function and reduce the risk of future material misstatements in its financial statements.

In addition, in September 2020, the Company settled the investigations by the SEC and USAO into the Company’s past revenue recognition practices.

As part of the settlement, among other undertakings, the Company committed to remediate the deficiencies in its internal control over financial reporting that constituted material weaknesses as identified in Part II, Item 9A.

Controls and Procedures by April 30, 2021.

On April 12, 2021 the SEC granted the Company’s request for an extension of time until March 31, 2022 in which to comply with the requirements of the administrative order to remediate the remaining material weaknesses.

Due to the progress achieved in remediating the material weaknesses as noted in Changes in Internal Control over Financial Reporting below, the Company formally requested an additional extension from the SEC to remediate the three remaining material weaknesses below.

To the extent that the Company’s request for an extension from the SEC, or other actions are not successful and completed in accordance with the provisions of the settlemen t with the SEC and USAO, the Company may be required to incur additional time and expense towards further remediation efforts and incremental substantive procedures, which could have a material adverse effect on its results of operations.

In addition, failure to comply with the provisions of the settlement agreements with the SEC and USAO could result in further actions by one or both governmental agencies which could have a material adverse effect on the Company’s results of operations.

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.

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

Such e xpenses could continue to have a material impact on the Company’s financial condition, results of operations and cash flows.

In June 2020, the Company entered into a new directors’ and officers’ liability insurance policy, which was renewed in June 2021.

With a verdict reached in the USAO trial matter involving former officers and employees in September 2021, coupled with a settlement reached in the SEC matter involving former officers and employees in June 2022, the Company’s potential future costs for indemnity obligations related to these matters should cease.

T he Company has approximately $8.8 million accrued for the reimbursement to Travelers Casualty and Surety Company of America (“Travelers”) related to the matter involving former officers and employees.

In June 2020, the Company entered into a new directors’ and officers’ liability insurance policy, which was renewed in June 2021, and again in June 2022.

The insurance policy includes standard exclusions including for any ongoing or pending litigation such as the disclosed investigations by the SEC and USAO.

Financial Condition, Results of Operations, and Cash Flows

The Company has experienced substantial net losses in recent fiscal years and may continue to experience net losses.

The Company generated a net loss in fiscal years 2021 and 2020 and has an accumulated deficit as of December 31, 2021.

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.

There is no assurance that material weaknesses or significant deficiencies in internal controls will not be identified in the future or that we will be successful in adequately remediating any such material weaknesses and significant deficiencies.

We may in the future discover areas of our internal controls that need improvement.

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.

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

The existence of any material weakness 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 Company has experienced substantial net losses in recent fiscal years.

The Company generated a net loss in fiscal year 2021 and has an accumulated deficit as of December 31, 2022.

The net loss experienced in 2021 was principally attributable to reduced gross profit as a result of higher material, tariff and freight costs (which were not fully recovered through pricing), significant warranty expenses (mostly related to certain engines sold into the transportation end market), and unfavorable product mix.

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Some of these costs could remain in future periods.

Continued losses could reduce cash available from operations to service or refinance the Company’s indebtedness as necessary, as well as limit the Company’s ability to finance future growth in its business and implement its strategies.

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

The Company continuously evaluates its portfolio of assets and its operational structure in an effort to identify opportunities to optimize its cost structure including as a result of its business needs, the COVID-19 pandemic and its high warranty costs.

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

These actions could result in restructuring and related charges, including but not limited to asset impairments and employee termination costs, any of which could be significant and could adversely affect the Company’s results of operations.

The Company has substantial amounts of long-lived assets, including goodwill and intangible assets, which are subject to periodic impairment analysis and review.

Identifying and assessing whether impairment indicators exist, or if events or changes in circumstances have occurred, including market conditions, operating results, competition and general economic conditions, including as a result of the COVID-19 pandemic, requires significant judgment.

Declines in profitability due to changes in volume, market pricing, cost or the business environment could result in charges that could have an adverse effect on the Company’s results of operations.

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.

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.

Such price increases, which were substantial in 2021, occur from time to time due to spot shortages of commodities, increases in labor costs or longer-term shortages due to market forces.

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.

In particular, the prices of certain precious metals, such as palladium and rhodium, used in emissions-control systems fluctuate frequently and often significantly.

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To the extent that its competitors do not suffer comparable component cost increases, the Company may have even greater difficulty passing along price increases, and the Company’s competitive position may be harmed.

As a result, increases in costs of key components may adversely affect the Company’s margins and otherwise adversely affect its results of operations, as was experienced during 2021.

As a result, increases in costs of key components may adversely affect the Company’s margins and otherwise adversely affect its results of operations.

Many of the Company’s power systems involve long and variable design and sales cycles.

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The Company may recognize additional expenses as a result of warranty claims in excess of its current expectations.

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

operations and on existing or future sales of its power systems and other products.

Even in the absence of any warranty claims, a product deficiency such as a manufacturing defect or a safety issue may necessitate a product recall, which could have a material adverse impact on the Company’s financial condition and results of operations and on existing or future sales.

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Starting in 2020, as a result of the Weichai ownership change in April 2019, those products no longer qualified for the exemption and must meet Phase 1 GHG standards.

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.

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

The Company ended the program to outsource and sell the certified 6.0L engines effective December 31, 2021.

New EPA Phase 2 GHG regulations began January 1, 2021.

The Company plans to meet Phase 2 GHG standards utilizing averaging, banking, and trading compliance provisions.

The Company is meeting Phase 2 GHG standards utilizing averaging, banking, and trading compliance provisions.

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.

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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.

The Company’s business could be harmed by adverse changes in its relationships with these suppliers, including through the management of the timing of payables, or 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 components.

Furthermore, the COVID-19 pandemic has resulted in work stoppages at certain suppliers that are part of the Company’s supply chain.

During 2021, the Company experienced delays in its supply chain due to temporary shortages of raw materials and container delays of overseas materials as bottlenecks occurred at ports in Asia and North America.

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 components.

Continuing into 2022, the Company experienced delays in its supply chain due to temporary shortages of raw materials and container delays of overseas materials as bottlenecks occurred at ports in Asia and North America.

This, in turn, has caused delivery delays to some of the Company’s customers.

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In addition, the exclusive agreements often include minimum purchase requirements.

to reach the minimum purchase requirements could result in financial penalties or the loss of exclusivity that could be material to the Company.

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.

Several of the Company’s products are sourced internationally, including from China, where the United States 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.

The Company is evaluating U.S.

government policy, which is subject to change in the current negotiating environment, pricing, its supply chain and its operational strategies to mitigate the impact of these tariffs;

Further, the imposition of tariffs on imports from China and other countries has the potential to materially and adversely impact the Company’s sales, profitability and future product launches.

The Company also sells its products on a global basis;

and, therefore, its export sales could be impacted by the tariffs.

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

Growth and Profitability

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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.

Lastly, the Company also faces competition from other forms of power systems, including electric and fuel cells, for example, which could limit its ability to grow in the future.

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.

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As a result, sales of the Company’s products could be severely impacted during periods of a prolonged depression in energy prices, rig counts and capital expenditures which could have a material adverse effect on the Company’s results of operations.

The Company estimates that as much as approximately $25 million and $45 million of its 2021 and 2020 net sales, respectively, were attributable to the sale of products used within the oil and gas industry.

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

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

oil and gas industry.

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

The 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.

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Additionally, the stresses and demands on engines and power systems used for transportation applications could result in unexpected issues.

The discovery of any significant problems with these engines could result in recall campaigns, increased warranty costs, potential product liability claims, and reputational and brand risks.

The discovery of any significant problems with these engines could result in recall campaigns, additional warranty costs, potential product liability claims, and reputational and brand risks.

Sales of the Company’s internally developed engines could lead to significantly higher warranty costs to service these engines if they do not perform to expectations.

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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 uncompetitive or obsolete.

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.

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.

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The Company may not be able to incorporate such technologies into its product offerings, or it may be required to devote substantial resources to do so.

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 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.

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The Company is engaged in an industry that will be affected by future technological developments.

The Company’s success will depend upon its ability to develop and introduce, on a timely and cost-effective basis, new products, applications and

processes that keep pace with technological developments and address increasingly sophisticated customer requirements.

The Company’s success will depend upon its ability to develop and introduce, on a timely and cost-effective basis, new products, applications and processes that keep pace with technological developments and address increasingly sophisticated customer requirements.

The Company may not be successful in identifying, developing and marketing new products, applications and processes, and product or process enhancements.

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The Company’s success depends on its ability to attract, retain and motivate a highly-skilled and diverse management team and workforce.

During 2021, the Company has experienced significant leadership changes, including appointing a new Chief Executive Officer, a new Chief Financial Officer, and a new Chief Technical Officer.

Also, its Executive Vice President and Co-Founder retired from the Company.

During 2022 , the Company has experienced significant leadership changes, including appointing a new interim Chief Executive Officer and a new Chief Financial Officer.

Executive leadership transitions can be difficult to manage and could cause disruption to the Company’s business.

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Competition for qualified employees among companies that rely heavily upon engineering and technology is at times intense, and the loss of qualified employees could hinder the Company’s ability to conduct research activities successfully and develop marketable products.

As the Company continues to expand, it will need to promote or 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.

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.

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 of March 28, 2022, Weichai beneficially owned 51.2% of the Company’s outstanding shares of Common Stock.

As of April 10, 2023, 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, Chief Executive Officer, and President and nonexecutive Chief Strategy Officer, beneficially owned approximately 14.5% of the Company’s outstanding shares of Common Stock, and Kenneth J.

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

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

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

E ach of these stockholders, by virtue of

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

The interests of these stockholders may not coincide with the interests of other stockholders.

The concentration of ownership might also have the effect of delaying or preventing a change of control of the Company that other stockholders may view as beneficial.

With the exercise of the Weichai Warrant, Weichai alone owns a

majority of the outstanding shares of Common Stock and, therefore, it possesses voting control over the Company sufficient to prevent any change of control from occurring.

Weichai also maintains certain rights through its Investor Rights Agreement with the Company.

With the exercise of the Weichai Warrant, Weichai alone owns a majority of the outstanding shares of Common Stock and, therefore, it possesses voting control over the Company sufficient to prevent any change of control from occurring.

Weichai maintains certain rights through its Investor Rights Agreement with the Company.

Weichai entered into an Investor Rights Agreement (the “Rights Agreement”) with the Company upon execution of the SPA.

The Rights Agreement provides Weichai with representation on the Company’s Board and management representation rights.

The Rights Agreement provides Weichai with majority representation on the Company’s Board and management representation rights.

Weichai currently has four representatives on the Board which constitutes the majority of the directors serving on the Board.

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The historical failure to timely file its periodic reports with the SEC resulted in the Company not being in compliance with NASDAQ Listing Rule 5250(c)(1), which requires listed companies to timely file all required periodic financial reports with the SEC, and triggered the delisting of the Company’s Common Stock.

The Company’s delisting and potential inability to remediate failures to comply with applicable NASDAQ rules to be relisted could have a material adverse effect on the Company by, among other things, reducing:

The Company’s delisting could have a material adverse effect on the Company by, among other things, reducing:

• the liquidity of its Common Stock;

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federal tax credits.

General Risk Factors

Cyber Risk Factors

The Company is exposed to, and may be adversely affected by, potential security breaches or other disruptions to its information technology systems and data security.

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

Information technology security threats, including security breaches, computer

malware and other cyber-attacks, are increasing in both frequency and sophistication and could create financial liability, subject the Company to legal or regulatory sanctions, or damage its reputation with customers, dealers, suppliers and other stakeholders.

Information technology security threats, including security breaches, computer malware and other cyber-attacks, are increasing in both frequency and sophistication and could create financial liability, subject the Company to legal or regulatory sanctions, or damage its reputation with customers, dealers, suppliers and other stakeholders.

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.

The Company is exposed to political, economic and other risks, in addition to various laws and regulations that arise from operating a multinational business.

The Company sells products internationally and sources a significant amount of materials from suppliers outside of the U.S.

Accordingly, the Company is subject to the political, economic and other risks that are inherent in operating a multinational company, including risks related to the following:

• general economic conditions;

• the imposition of tariffs and other import or export barriers, which could potentially disrupt the Company’s existing supply chains and impose additional costs on the Company’s business;

• trade and technology protection measures;

• compliance with regulations governing import and export activities;

• import and export duties and restrictions;

• currency fluctuations and exchange restrictions;

• transportation delays and interruptions;

• potentially adverse income tax consequences;

• political and economic instability;

• terrorist activities;

• labor unrest;

• natural disasters;

• public health concerns including the potential negative impacts to suppliers, customers or the Company’s business as a result of the COVID-19 pandemic.

Any of these factors could have a material adverse effect on the Company’s business and results of operations.

The COVID-19 pandemic negatively impacted the Company’s business in 2020 and 2021 and will likely have future impacts in 2022 and beyond.

Furthermore, the extent and duration of such impacts over the longer term remain uncertain and dependent on future developments that cannot be accurately predicted at this time, such as the severity and transmission rate of the coronavirus, the extent and effectiveness of containment actions taken, including mobility restrictions and work restrictions, and the impact of these and other factors on the Company’s customer base, suppliers, and general commercial activity.

Also, the Company is subject to, and may become subject to, various state, federal and international laws and regulations governing its business, environmental, labor, trade and tax practices.

These laws and regulations, particularly those applicable to the Company’s international operations, are or may be complex, extensive and subject to change.

The Company needs to ensure that it and its OEM customers and suppliers timely comply with such laws and regulations, which may result in increased operating costs.

Other legislation has been, and may in the future be, enacted in other locations in which the Company manufactures or sells its products.

Lastly, the Company’s overseas sales are subject to numerous stringent U.S.

and foreign laws, including the Foreign Corrupt Practices Act (“FCPA”) and comparable foreign laws and regulations, which prohibit improper payments or offers of payments

to foreign governments and their officials and political parties by U.S.

and other business entities for the purpose of obtaining or retaining business.

Safeguards that the Company implements to discourage these practices could prove to be ineffective, and violations of the FCPA and other laws may result in severe criminal or civil sanctions, or other liabilities or proceedings against the Company, including class action lawsuits and enforcement actions from the SEC, the USAO and overseas regulators.

Unresolved Staff Comments.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors