POWER SOLUTIONS INTERNATIONAL, INC. 10-K

Item 9A. Controls and Procedures. Evaluation of Disclosure Controls and Procedures The term “disclosure controls and procedures” is defined in Rule 13a-15(e) of the Exchange Act, as “controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Act is recorded, processed, summarized and reported, within the time periods specified in the SEC rules and forms.” The Company’s disclosure controls and procedures are designed to ensure that material information relating to the Company and its consolidated subsidiaries is accumulated and communicated to its management, including its Interim Chief Executive Officer and its Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures. The Company’s management, with the participation of its Interim Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of its disclosure controls and procedures as of December 31, 2022. Based upon that evaluation, the Company’s Interim Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of December 31, 2022, to provide reasonable assurance that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the rules and forms of the Exchange Act, and that such information is accumulated and communicated to management, including our Interim Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the benefits of possible controls and procedures relative to their costs. Management’s Report on Internal Control over Financial Reporting Management is responsible for establishing and maintaining adequate internal control over financial reporting. As defined in Rules 13a-15(f) and 15d(f) under the Exchange Act, internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of the Company’s financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP. Because of its inherent limitations, the Company’s internal control over financial reporting may not prevent or detect all misstatements, including the possibility of human error, the circumvention or overriding of controls, or fraud. Effective internal control can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements. The Company had previously identified and reported material weaknesses in the Annual Report on Form 10-K for the fiscal year ended December 31, 2021. A material weakness is a control deficiency, or a combination of control deficiencies in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. 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 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. In April 2022, the SEC granted a further extension of time until March 31, 2023 to fully comply with the administrative order. Subsequent to the filing of this Form 10-K, the Company will submit documentation to the SEC for its review to assess the Company’s compliance with the administrative order. Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2022 based on the criteria established by the Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO Framework”). As a result of management’s review of the Company’s financial and accounting records and the other work completed by the management team and its advisers, management concluded that, as of December 31, 2022, the Company had remediated the material weaknesses relating to certain internal controls and that the Company’s internal control over financial reporting was operating effectively. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate. 70 Changes in Internal Control over Financial Reporting As previously disclosed under “Item 9A – Controls and Procedures” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021, management concluded that its internal control over financial reporting was not effective based on the material weaknesses identified. As of December 31, 2022, the Company has completed remediation of the following previously reported material weaknesses: (i) IT Skillset and Competency, (ii) Information Technology, and (iii) Warranty Reserves: IT Skillset and Competency: The Company determined the level of technical skills and control-related training in its information technology (“IT”) function was adequate to support the design and implementation of IT general controls (“ITGCs”). The IT function was reorganized under the leadership of a Chief Information Officer who reports to the Interim Chief Executive Officer. The Company has continued to experience turnover in its IT functions. As a result, the Company is continuing to build out the organizational structure and will continue to use contractors until full time employees are in place. Information Technology: • The Company has reconstructed its ITGC framework to focus on controls that mitigate key financial reporting risks. • The Company has designed and implemented controls over access, change management and IT operations to ensure that access rights are restricted to appropriate individuals, and that data integrity is maintained via effective change management controls over system updates and over the transfer of data between systems. • The Company enhanced procedures to validate the information produced by the entity and end user computing. • The Company continues to adjust its Enterprise Resource Planning (“ERP”) System to work towards further improvement and automation of ITGC’s as well as other business process application controls. Warranty Reserves: To reduce the risk of untimely warranty claims processing, the Company implemented improvements to centrally receive and monitor incoming claims including transitioning many customers to the use of the warranty claims submission portal. The Company also implemented additional controls during the year to provide additional assurance around completeness and accuracy of the warranty data used in the calculation of the warranty reserve. The Company believes the measures described above have remediated the control deficiencies that led to the previously-identified material weaknesses and have strengthened its internal control over financial reporting. While the Company has remediated its material weaknesses, it remains committed to maintaining its internal control processes and will continue to monitor and review its financial reporting controls and procedures. Other than the remediation of the material weaknesses and the remediation efforts described above, there have been no further changes in the Company’s internal control over financial reporting during the fourth quarter of 2022 that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting. Item 9B. Other Information. None. Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections. Not applicable. 71 PART III Item 10. Directors, Executive Officers and Corporate Governance. The information required by this item is incorporated by reference herein from the 2023 Proxy Statement to be filed with the SEC no later than 120 days after December 31, 2022. If the Proxy Statement is not filed with the SEC by such time, such information will be included in an amendment to this Annual Report by such time. See also Information about the Company’s Executive Officers in Part I of this Annual Report on Form 10-K. The Company has adopted a code of business conduct and ethics that is applicable to its directors, officers and employees and is available on its website under the "Governance Documents/Committee Charters" tab within the "Governance" subsection of the "Investors" section of its website at https://investors.psiengines.com/committee-chartersgovernance-documents. The Company intends to include on its website any amendments to, or waivers from, a provision of the code of ethics that applies to its principal executive officer, principal financial officer or controller that relates to any element of the code of ethics definition contained in Item 406(b) of Regulation S-K. Item 11. Executive Compensation. The information required by this item is incorporated by reference herein from the 2023 Proxy Statement to be filed with the SEC no later than 120 days after December 31, 2022. If the Proxy Statement is not filed with the SEC by such time, such information will be included in an amendment to this Annual Report by such time. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. The information required by this item is incorporated by reference herein from the 2023 Proxy Statement to be filed with the SEC no later than 120 days after December 31, 2022. If the Proxy Statement is not filed with the SEC by such time, such information will be included in an amendment to this Annual Report by such time. Item 13. Certain Relationships and Related Transactions, and Director Independence. The information required by this item is incorporated by reference herein from the 2023 Proxy Statement to be filed with the SEC no later than 120 days after December 31, 2022. If the Proxy Statement is not filed with the SEC by such time, such information will be included in an amendment to this Annual Report by such time. Item 14. Principal Accounting Fees and Services. The information required by this item is incorporated by reference herein from the 2023 Proxy Statement to be filed with the SEC no later than 120 days after December 31, 2022. If the Proxy Statement is not filed with the SEC by such time, such information will be included in an amendment to this Annual Report by such time. 72 PART IV Item 15. Exhibits, Financial Statement Schedules. The following Financial Statements are filed as a part of this report: Page Report of Independent Registered Public Accounting Firm 38 Consolidated Balance Sheets as of December 31, 2022 and 2021 40 Consolidated Statements of Operations for 2022 and 2021 41 Consolidated Statements of Stockholders’ Equity (Deficit) for 2022 and 2021 42 Consolidated Statements of Cash Flows for 2022 and 2021 43 Notes to Consolidated Financial Statements 44 All other schedules for which provision is made in the applicable accounting regulations of the SEC are not required under the related instructions or are inapplicable and, therefore, have been omitted. EXHIBIT INDEX The following documents listed below that have been previously filed with the SEC (1934 Act File No. 001-35944) are incorporated herein by reference: Incorporated by Reference Herein Exhibit No. Exhibit Description Form Exhibit Filing Date File No. 2.1 † Agreement and Plan of Merger dated April 29, 2011, by and among Format, Inc., PSI Merger Sub, Inc. and The W Group, Inc. 8-K 2.1 05/05/2011 000-52213 2.2 Stock Purchase Agreement, dated as of April 1, 2014, by and among Power Solutions International, Inc., Carl L. Trent, Kenneth C. Trent and CKT Holdings, Inc. 8-K 10.1 04/02/2014 001-35944 3.1 Certificate of Incorporation of Power Solutions International, Inc., a Delaware corporation, originally filed with the Secretary of State of the State of Delaware on August 12, 2011. S-1/A 3.4 08/19/2011 333-174543 3.2 Amended and Restated Bylaws of Power Solutions International, Inc. 8-K 3.1 08/18/2015 001-35944 3.3 Form of Certificate of Designation of Series B Convertible Perpetual Preferred Stock of Power Solutions International, Inc. 8-K 3.1 03/27/2017 001-35944 3.4 Second Amended and Restated Bylaws of Power Solutions International, Inc., dated as of December 23, 2020. 8-K 3.1 12/31/2020 001-35944 4.1 Description of the registrant’s securities registered pursuant to Section 12 of the Securities Exchange Act of 1934. 10-K 4.11 05/04/2020 001-35944 10.1 †† Power Solutions International, Inc. 2012 Incentive Compensation Plan. 8-K 10.3 06/07/2012 000-52213 10.2 †† Amendment No. 1 to the Power Solutions International, Inc. 2012 Incentive Compensation Plan. DEF14A Appendix A 08/02/2013 001-35944 10.3 †† Form of Restricted Stock Agreement by and between Power Solutions International, Inc. and each eligible employee. 8-K 10.1 06/20/2013 001-35944 10.4 †† Form of Indemnification Agreement by and between Power Solutions International, Inc. and certain Indemnitees. 8-K 10.1 01/09/2014 001-35944 10.5 Amended and Restated Lease Agreement, dated as of April 1, 2014, by and between Professional Power Products, Inc. and 448 W. Madison LLC. 8-K 10.2 04/02/2014 001-35944 10.6 Lease Agreement, dated as of October 1, 2014, by and between Power Solutions International, Inc. and Hamilton Lakes Commerce Center #4 Limited Partnership. 8-K 10.2 10/01/2014 001-35944 10.7 Lease Agreement, dated as of December 1, 2017, by and between Power Solutions International, Inc. and James Campbell Company LLC. 10-K 10.26 05/16/2019 001-35944 10.8 First Lease Amendment, dated as of July 11, 2018, by and between Power Solutions International, Inc. and Centerpoint Properties Trust, in connection with that certain Industrial Building Lease dated as of March 13, 2012, with respect to that certain premises located at 101 Mittel Drive (formerly 801 EC Drive) in Wood Dale, Illinois. 8-K 10.1 07/18/2018 001-35944 73 Incorporated by Reference Herein Exhibit No. Exhibit Description Form Exhibit Filing Date File No. 10.9 Second Lease Amendment, dated as of July 11, 2018, by and between Power Solutions International, Inc. and CenterPoint Properties Trust, in connection with that certain Industrial Building Lease dated as of February 28, 2012, as further amended by that certain First Lease Amendment dated June 1, 2012, with respect to that certain premises located at 201 Mittel Drive, Wood Dale, Illinois. 8-K 10.2 07/18/2018 001-35944 10.10 ††† Addendum dated as of July 31, 2014, to Supply Agreement dated December 11, 2007, by and between Power Solutions International, Inc. and Doosan Infracore Co., Ltd., as amended. 8-K 10.1 08/06/2014 001-35944 10.11 Asset Purchase Agreement dated as of May 4, 2015 by and among Power Solutions International, Inc., Powertrain Integration Acquisition, LLC, as the Buyer, and Powertrain Integration, LLC and its principals, as the Seller. 8-K 10.1 05/06/2015 001-35944 10.12 Form of Investor Rights Agreement between Power Solutions International, Inc. and Weichai America Corp. 8-K 10.3 03/27/2017 001-35944 10.13 Shareholders Agreement by and among Power Solutions International, Inc., Weichai America Corp. and the Founding Stockholders, dated as of March 20, 2017. 8-K 10.4 03/27/2017 001-35944 10.14 ††† Strategic Collaboration Agreement between Weichai Power Co. Ltd. and Power Solutions International, Inc., dated March 20, 2017. 8-K 10.5 03/27/2017 001-35944 10.15 Securities Exchange Agreement, dated as of November 30, 2017, by and among Power Solutions International, Inc., and Weichai America Corp. 8-K 10.1 12/05/2017 001-35944 10.16 †† Employment Agreement, dated June 15, 2017, by and between Power Solutions International, Inc. and John P. Miller. 8-K/A 10.1 06/21/2017 001-35944 10.17 †† Employment Agreement, dated November 28, 2017, by and between Power Solutions International, Inc. and Kenneth Winemaster. 8-K 10.1 12/04/2017 001-35944 10.18 Amendment to the Power Solutions International, Inc. 2012 Incentive Compensation Plan (As Amended July 31, 2013). 10-K 10.40 05/16/2019 001-35944 10.19 Addendum #10, dated as of September 16, 2019, to Supply Agreement, dated as of December 11, 2007, by and between Power Solutions International, Inc. and Doosan Infracore Co., Ltd., as amended. 8-K 10.1 10/02/2019 001-35944 10.20 First Amendment to Strategic Collaboration Agreement, dated as of March 26, 2020, by and between the Company and Weichai Power. 8-K 10.1 04/01/2020 001-35944 10.21 Credit Agreement, dated as of March 27, 2020, between the Company and Standard Chartered Bank, as administrative agent. 8-K 10.1 04/06/2020 001-35944 10.22 †† Confidential Consulting Agreement 10-Q 10.1 05/04/2019 001-35944 10.23 First Amendment to Credit Agreement and Limited Waiver, dated as of December 28, 2020, among the Company, certain subsidiaries of the Company party thereto, the lenders party thereto and Standard Chartered Bank, as administrative agent. 8-K 10.1 12/31/2020 001-35944 10.24 Shareholder’s Loan Agreement, dated as of December 28, 2020, between the Company and Weichai America Corp. 8-K 10.2 12/31/2020 001-35944 10.25 Employment Agreement, dated as of February 15, 2021, between the Company and Lance Arnett 8-K 10.1 02/16/2021 001-35944 10.26 Separation Agreement and Release, dated as of February 15, 2021, between the Company and John P. Miller 8-K 10.2 02/16/2021 001-35944 10.27 Retirement Agreement and Release, dated as of December 14, 2021, between the Company and Kenneth Winemaster 8-K 10.1 12/17/2021 001-35944 10.28 Shareholder’s Loan Agreement, dated as of December 10, 2021, between the Company and Weichai America Corp. 8-K 10.1 12/16/2021 001-35944 10.29 Second Amended and Restated Uncommitted Revolving Credit Agreement, dated as of March 25, 2022, among the Company, certain subsidiaries of the Company party thereto, the lenders party thereto and Standard Chartered Bank, as administrative agent. 8-K 10.1 03/28/2022 001-35944 10.30 Second Amended and Restated Shareholder’s Loan Agreement, dated as of March 25, 2022, between the Company and Weichai America Corp. 8-K 10.2 03/28/2022 001-35944 10.31 First Amended and Restated Shareholder’s Loan Agreement, dated as of March 25, 2022, between the Company and Weichai America Corp. 8-K 10.3 03/28/2022 001-35944 10.32 Addendum # 11, dated as of July 1, 2022 to Supply Agreement, dated as of December 11, 2007, by and between Power Solutions International, Inc. and Doosan Infracore Co., Ltd., as amended. 8-K 10.4 07/25/2022 001-35944 74 Incorporated by Reference Herein Exhibit No. Exhibit Description Form Exhibit Filing Date File No. 10.33 Employment Agreement, effective as of August 29, 2022, by and between Kenneth Li and Power Solutions International, Inc. 8-K 10.1 08/29/2022 001-35944 10.34 Employment Agreement, effective as of September 16, 2022, between PSI and Sidong Shao 8-K 10.1 09/22/2022 001-35944 10.35 * †† Description of Long-Term Incentive Plan 10.36 First Amended and Restated Shareholder’s Loan Agreement, dated as of November 29, 2022, between the Company and Weichai America Corp. 8-K 10.1 12/02/2022 001-35944 21.1 * Subsidiaries of Power Solutions International, Inc. 23.1 * Consent of BDO USA, LLP 31.1 * Certification of Interim Chief Executive Officer, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 * Certification of Chief Financial Officer, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 ** Certification of Interim Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 ** Certification of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 101.INS * XBRL Instance Document. 101.SCH * XBRL Taxonomy Extension Schema Document. 101.CAL * XBRL Taxonomy Extension Calculation Linkbase Document. 101.LAB * XBRL Taxonomy Extension Labels Linkbase Document. 101.PRE * XBRL Taxonomy Extension Presentation Linkbase Document. 101.DEF * XBRL Taxonomy Definition Linkbase Document. * Filed with this Report. ** This exhibit shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that Section. Such exhibit shall not be deemed incorporated into any filing under the Securities Act of 1933, as amended, or the Exchange Act. † Exhibits and schedules omitted pursuant to Item 601(b)(2) of Regulation S-K. The registrant agrees to furnish a supplemental copy of an omitted exhibit or schedule to the SEC upon request. †† Management contract or compensatory plan or arrangement. ††† Confidential treatment has been requested with respect to certain portions of this exhibit. Omitted portions have been separately filed with the SEC. Item 16. Form 10-K Summary. None. 75 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 14th day of April, 2023. POWER SOLUTIONS INTERNATIONAL, INC. By: /s/ Xun Li Name: Xun Li Title: Chief Financial Officer (Principal Financial Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on the 14th day of April, 2023 . Signature Title /s/ Dino Xykis Interim Chief Executive Officer Dino Xykis (Principal Executive Officer) /s/ Xun Li Chief Financial Officer Xun Li (Principal Financial and Accounting Officer) /s/ Jiwen Zhang Chairman of the Board and Director Jiwen Zhang /s/ Shaojun Sun Director Shaojun Sun /s/ Lei Lei Director Lei Lei /s/ Gengsheng Zhang Director Gengsheng Zhang /s/ Kenneth W. Landini Director Kenneth W. Landini /s/ Frank P. Simpkins Director Frank P. Simpkins /s/ Hong He Director Hong He 76