SPRUCE POWER HOLDING CORP 10-K

Item 9A. Controls and Procedures. Conclusions Regarding the Effectiveness of Disclosure Controls and Procedures We maintain disclosure controls and procedures (as defined in paragraph (e) of Rules 13a-15 and 15d-15 under the Exchange Act) designed to ensure that the information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified under the rules and forms of the SEC. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that such information is accumulated and communicated to our management, including our Chief Executive Officer (our principal executive officer) and our Chief Financial Officer (our principal financial officer), as appropriate to allow timely decisions regarding required disclosures. As required by paragraph (b) of Rules 13a-15 and 15d-15 under the Exchange Act, our Chief Executive Officer and our Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2021. Management excluded its wholly-owned subsidiary, World Energy Efficiency Services, LLC from its assessment of internal control over financial reporting as of December 31, 2021 because this entity was acquired by the Company in purchase business combination during 2021. Based on this evaluation, including the presence of material weaknesses as discussed below, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were not effective at the reasonable assurance level as of December 31, 2021. Notwithstanding the identified material weaknesses, management believes that the consolidated financial statements included in this Annual Report on Form 10-K present fairly, in all material respects, our financial position, results of operations, and cash flows as of and for the periods present in accordance with U.S. GAAP. In designing and evaluating our disclosure controls and procedures, management recognizes that any disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs. Material Weaknesses in Internal Control over Financial Reporting A material weakness is a deficiency or combination of deficiencies in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of its financial statements would not be prevented or detected on a timely basis. These deficiencies could result in misstatements to our financial statements that would be material and would not be prevented or detected on a timely basis. In the course of preparing the financial statements for the year ended December 31, 2021, we identified separate material weaknesses in internal control over financial reporting, which relates to the ineffective design and implementation of Information Technology General Controls (“ITGC”) combined with the lack of properly designed management review controls to compensate for these deficiencies. The Company’s ITGC deficiencies included improperly designed controls pertaining to user access rights and segregation of duties over systems that are critical to the Company’s system of financial reporting. The Company’s management review controls include the review and approval of journal entries, account reconciliations, accounting estimates, and other technical accounting matters. The Company did not maintain sufficient evidence of certain of these review control activities. The ITGC deficiencies, combined with a lack of properly designed and implemented management review controls to compensate for these deficiencies, represent material weaknesses in the Company’s internal control over financial reporting as there is a reasonable possibility that a material misstatement with respect to the Company’s significant accounts and disclosures will not be prevented or detected on a timely basis. 46 Remediation Plan Our management is in the process of developing a remediation plan. As of December 31, 2020, we had identified material weaknesses in internal control over financial reporting that related to the accounting for equity instruments, insufficient technical accounting resources and lack of segregation of duties. During 2021, we took steps to remediate these weaknesses through, among other things, (1) the hiring of a Chief Financial Officer; (2) the hiring of a Certified Public Accountant as the controller who had experience with public company reporting and technical accounting; (3) the hiring of a Senior Director of SOX Compliance with experience in internal control environments and design; (4) hiring third party professionals to perform a comprehensive assessment of the Company’s internal controls, including design and gap assessments; and (5) the hiring of additional finance personnel to enable processes with appropriate segregation of duties. The material weaknesses will not be considered remediated until management designs and implements effective controls that operate for a sufficient period of time and management has concluded, through testing, that these controls are effective. Our management will monitor the effectiveness of our remediation plans and will make changes management determines to be appropriate. While we believe that these efforts will improve our internal controls over financial reporting, the implementation of these measures is ongoing and will require validation and testing of the design and operating effectiveness of internal controls over a sustained period of financial reporting cycles. We believe we are making progress toward achieving the effectiveness of our internal controls and disclosure controls. The actions that we are taking are subject to ongoing management review, as well as audit committee oversight. We will not be able to conclude whether the steps we are taking will fully remediate these material weaknesses in our internal control over financial reporting until we have completed our remediation efforts and subsequent evaluation of their effectiveness. We will continue to assess the effectiveness of our internal control over financial reporting and take steps to remediate the known material weaknesses expeditiously. REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL CONTROL OVER FINANCIAL REPORTING To the Shareholders and Board of Directors of XL Fleet Corp. and Subsidiaries Adverse Opinion on Internal Control over Financial Reporting We have audited XL Fleet Corp. and Subsidiaries’ (the "Company") internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, because of the effect of the material weaknesses described in the following paragraph on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. A material weakness is a control deficiency, or combination of 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. The following material weaknesses have been identified and included in “Management's Annual Report on Internal Control Over Financial Reporting”: The Company has not established an effective control environment due to the ineffective design and implementation of Information Technology General Controls (“ITGC”) and management review controls. The Company’s ITGC deficiencies included improperly designed controls pertaining to user access rights and segregation of duties over systems that are critical to the Company’s system of financial reporting. The Company’s management review controls include the review and approval of journal entries, account reconciliations, accounting estimates, and other technical accounting matters. The Company did not maintain sufficient evidence of these review control activities. The ITGC deficiencies, combined with a lack of properly designed management review controls to compensate for these deficiencies, represent a material weakness in the Company’s internal control over financial reporting as there is a reasonable possibility that a material misstatement with respect to the Company’s significant accounts and disclosures will not be prevented or detected on a timely basis. 47 These material weaknesses were considered in determining the nature, timing and extent of audit tests applied in our audit of the fiscal 2021 consolidated financial statements, and this report does not affect our report dated March 1, 2022 on those financial statements. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets as of December 31, 2021 and 2020and the related consolidated statements of operations, shareholders’ equity (deficit), and cash flows for each of the three years in the period ended December 31, 2022 of the Company and our report dated March 1, 2022 expressed an unqualified opinion on those financial statements. Explanatory Paragraph – Excluded Subsidiary As described in “Management Annual Report on Internal Control Over Financial Reporting,” management has excluded its wholly owned subsidiary, World Energy Efficiency Services, LLC, from its assessment of internal control over financial reporting as of December 31, 2021 because this entity was acquired by the Company in purchase business combinations during 2021. We have also excluded World Energy Efficiency Services, LLC from our audit of internal control over financial reporting. This subsidiary’s total assets and total revenues represent approximately 1% and 82%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2021. Basis for Opinion The Company's management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying "Management Annual Report on Internal Control Over Financial Reporting." Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control over Financial Reporting A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements. Because of the 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 degree of compliance with the policies or procedures may deteriorate. Marcum llp Melville, NY March 1, 2022 Changes in Internal Control over Financial Reporting As discussed above, we are implementing certain measures to remediate the material weakness identified in the design and operation of our internal control over financial reporting. Other than those measures, there have been no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended December 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Inherent Limitations on Effectiveness of Controls Internal control over financial reporting cannot provide absolute assurance of achieving their objectives. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgement and breakdowns resulting from human failures. Due to their inherent limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. It is possible to design safeguards to reduce, but not eliminate, this risk. Management is responsible for establishing and maintaining adequate internal control over financial reporting for our company. Because of its inherent limitations, internal control over financial reporting may not prevent or detect all misstatements or fraud. Any control system, no matter how well designed and operated, is based upon certain assumptions and can provide only reasonable, not absolute, assurance that its objectives will be met. Item 9B. Other Information. None. 48 PART III Item 10. Directors, Executive Officers, and Corporate Governance. The information required by this Item will be set forth in the section headed “Directors, Executive Officers and Corporate Governance” in our Proxy Statement and is incorporated in this report by reference. We have adopted a code of ethics for directors, officers (including our principal executive officer) and employees, known as Our Corporate Code of Conduct and Ethics and Whistleblower Policy. A copy of Our Corporate Code of Conduct and Ethics and Whistleblower Policy is available on our website at www.xlfleet.com under the Governance, Documents and Charters section of our Investors page. We will promptly disclose on our website (i) the nature of any amendment to the policy that applies to our principal executive officer or persons performing similar functions and (ii) the nature of any waiver, including an implicit waiver, from a provision of the policy that is granted to one of these specified individuals, the name of such person who is granted the waiver and the date of the waiver. Item 11. Executive Compensation. The information required by this Item will be set forth in the section headed “ Executive Compensation ” in our Proxy Statement and is incorporated in this report by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters. The information required by this Item will be set forth in the section headed “ Security Ownership of Certain Beneficial Owners and Management ” in our Proxy Statement and is incorporated in this report by reference. Information regarding our equity compensation plans will be set forth in the section headed “ Executive Compensation ” in our Proxy Statement and is incorporated in this report by reference. Item 13. Certain Relationships and Related Transactions, and Director Independence. The information required by this Item will be set forth in the section headed “ Certain Relationships and Related Person Transactions ” in our Proxy Statement and is incorporated in this report by reference. Item 14. Principal Accounting Fees and Services. The information required by this Item will be set forth in the section headed “— Ratification of Selection of Independent Registered Public Accounting Firm ” in our Proxy Statement and is incorporated in this report by reference. 49 PART IV Item 15. Exhibits, Financial Statement Schedules. (a) Documents filed as part of this report. 1. The following financial statements of XL Fleet Corp. and Report of Marcum LLP, Independent Registered Public Accounting Firm, are included in this report: Page No. Report of Independent Registered Public Accounting Firm F-2 Consolidated Balance Sheets as of December 31, 2021 and 2020 F-3 Consolidated Statements of Operations for the Years Ended December 31, 2021, 2020 and 2019 F-4 Consolidated Statement of Changes in Stockholders’ Equity (Deficit) for the Years Ended December 31, 2021, 2020 and 2019 F-5 Consolidated Statements of Cash Flows for the Years Ended December 31, 2021, 2020 and 2019 F-6 Notes to Consolidated Financial Statements F-7 2. List of financial statement schedules: All schedules have been omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. 3. List of Exhibits required by Item 601 of Regulation S-K. See part (b) below. (b) Exhibits. Exhibit No. Description Included Form Filing Date 2.1*+ Agreement and Plan of Reorganization, dated as of September 17, 2020, by and among Pivotal Investment Corporation II, PIC II Merger Sub Corp. and XL Hybrids, Inc. By Reference S-4/A December 4, 2020 3.1 Second Amended and Restated Certificate of Incorporation. By Reference 8-K December 23, 2020 3.2 Amended and Restated Bylaws. By Reference 8-K December 23, 2020 4.1 Specimen Common Stock Certificate. By Reference 8-K December 23, 2020 4.2 Specimen Warrant Certificate. By Reference 8-K December 23, 2020 4.3 Warrant Agreement, dated as of July 11, 2019, between Continental Stock Transfer & Trust Company and the Registrant. By Reference 8-K July 16, 2019 4.4 Warrant Agreement, dated as of September 29, 2017, between XL Hybrids, Inc. and MOTIV Partners LLC. By Reference 10-K March 31, 2021 4.5 Amendment to Warrant Agreement, dated as of December 15, 2020, between XL Hybrids, Inc. and MOTIV Partners LLC. By Reference 10-K March 31, 2021 4.6 Description of Registered Securities By Reference 10-K March 31, 2021 10.1† Supply Agreement, dated as of July 19, 2019, by and between XL Hybrids, Inc. and Parker-Hannifin Corporation. By Reference S-4/A November 10, 2020 10.2# XL Hybrids, Inc. 2010 Equity Incentive Plan, including form of stock option agreement and form of restricted stock agreement. By Reference S-4 October 2, 2020 10.3 Form of Subscription Agreement. By Reference 8-K September 18, 2020 10.4 Registration Rights Agreement. By Reference S-4 October 2, 2020 10.5 Lock-Up Agreement. By Reference S-4 October 2, 2020 10.6 Form of Letter Agreement from each of the Registrant’s initial shareholders, officers and directors. By Reference S-1 June 13, 2019 10.7 XL Fleet Corp. 2020 Equity Incentive Plan. By Reference 10-K March 31, 2021 10.8 XL Fleet Corp. 2020 Equity Incentive Plan Form of Stock Option Agreement. By Reference 8-K December 23, 2020 50 Exhibit No. Description Included Form Filing Date 10.9 XL Fleet Corp. 2020 Equity Incentive Plan Form of Restricted Stock Unit Agreement. By Reference 8-K December 23, 2020 10.10 Form of Indemnification Agreement between the Registrant and each officer and director. By Reference 8-K December 23, 2020 10.11 Executive Employment Agreement dated as of November 1, 2021, by and between XL Fleet Corp. and Eric Tech By Reference 8-K November 1, 2021 10.12 Employment Agreement for James Berklas, dated November 4, 2021 By Reference 8-K November 10, 2021 14 Amended and Restated Corporate Code of Conduct and Ethics and Whistleblower Policy. By Reference 8-K December 23, 2020 21 Subsidiaries of the Registrant. By Reference 8-K December 23, 2020 23.1* Consent of Marcum LLP, independent registered public accounting firm Herewith 31.1* Certification of Principal Executive Officer Pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities and Exchange Act of 1934, as amended, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Herewith 31.2* Certification of Principal Financial Officer Pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities and Exchange Act of 1934, as amended, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Herewith 32.1^* Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Herewith 32.2^* Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Herewith 101.INS* XBRL Instance Document Herewith 101.SCH* XBRL Taxonomy Extension Schema Document Herewith 101.CAL* XBRL Taxonomy Extension Calculation Linkbase Document Herewith 101.DEF* XBRL Taxonomy Extension Definition Linkbase Document Herewith 101.LAB* XBRL Taxonomy Extension Label Linkbase Document Herewith 101.PRE* XBRL Taxonomy Extension Presentation Linkbase Document Herewith 104 Cover Page Interactive Data File Herewith * Filed herewith *+ Schedule and exhibits to this exhibit omitted pursuant to Regulation S-K Item 601(b)(2). The Company agrees to furnish supplementally a copy of any omitted schedule or exhibit to the SEC upon request. † Certain confidential portions of this exhibit were omitted by means of marking such portions with asterisks because the identified confidential portions (i) are not material and (ii) would be competitively harmful if publicly disclosed. # Indicates management contract or compensatory plan or arrangement. ^ In accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release No. 34-47986, the certifications furnished in Exhibits 32.1 and 32.2 hereto are deemed to accompany this Annual Report on Form 10-K and will not be deemed “filed” for purposes of Section 18 of the Exchange Act or deemed to be incorporated by reference into any filing under the Exchange Act or the Securities Act of 1933 except to the extent that the registrant specifically incorporates it by reference. Item 16. Form 10-K Summary. Not applicable 51 SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized. XL FLEET CORP. Date: March 1, 2022 By: /s/ Eric Tech Name: Eric Tech Title: Chief Executive Officer (Principal Executive Officer) XL FLEET CORP. Date: March 1, 2022 By: /s/ Chris Goldner Name: Chris Goldner Title: Interim Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) Person Capacity Date /s/ Eric Tech Director and Chief Executive Officer March 1, 2022 Eric Tech (Principal Executive Officer) /s/ Chris Goldner Interim Chief Financial Officer March 1, 2022 Chris Goldner (Principal Financial Officer and Principal Accounting Officer) /s/ Thomas J. Hynes, III President and Director March 1, 2022 Thomas J. Hynes, III /s/ Debora M. Frodl Director and Chair of the Board March 1, 2022 Debora M. Frodl /s/ Kevin Griffin Director March 1, 2022 Kevin Griffin /s/ Christopher Hayes Director March 1, 2022 Christopher Hayes /s/ Jonathan J. Ledecky Director March 1, 2022 Jonathan J. Ledecky /s/ Niharika Ramdev Director March 1, 2022 Niharika Ramdev /s/ Sarah Sclarsic Director March 1, 2022 Sarah Sclarsic 52