psix-20200930
POWER SOLUTIONS INTERNATIONAL, INC.0001137091--12-31Non-accelerated Filer10-Q2020-09-302020Q3falsefalse22,891,345YesfalsetrueYestruefalseP3MP1YP1YP1YP1Yus-gaap:OtherAssetsus-gaap:AccountsPayableAndAccruedLiabilitiesCurrentus-gaap:OtherLiabilitiesNoncurrentus-gaap:OtherAssetsus-gaap:DebtCurrentus-gaap:LongTermDebtNoncurrent00011370912020-01-012020-09-30xbrli:shares00011370912020-11-09iso4217:USD00011370912020-09-3000011370912019-12-31iso4217:USDxbrli:shares00011370912020-07-012020-09-3000011370912019-07-012019-09-3000011370912019-01-012019-09-300001137091us-gaap:CommonStockMember2020-06-300001137091us-gaap:AdditionalPaidInCapitalMember2020-06-300001137091us-gaap:RetainedEarningsMember2020-06-300001137091us-gaap:TreasuryStockMember2020-06-3000011370912020-06-300001137091us-gaap:RetainedEarningsMember2020-07-012020-09-300001137091us-gaap:AdditionalPaidInCapitalMember2020-07-012020-09-300001137091us-gaap:TreasuryStockMember2020-07-012020-09-300001137091us-gaap:CommonStockMember2020-09-300001137091us-gaap:AdditionalPaidInCapitalMember2020-09-300001137091us-gaap:RetainedEarningsMember2020-09-300001137091us-gaap:TreasuryStockMember2020-09-300001137091us-gaap:CommonStockMember2019-06-300001137091us-gaap:AdditionalPaidInCapitalMember2019-06-300001137091us-gaap:RetainedEarningsMember2019-06-300001137091us-gaap:TreasuryStockMember2019-06-3000011370912019-06-300001137091us-gaap:RetainedEarningsMember2019-07-012019-09-300001137091us-gaap:AdditionalPaidInCapitalMember2019-07-012019-09-300001137091us-gaap:TreasuryStockMember2019-07-012019-09-300001137091us-gaap:CommonStockMember2019-09-300001137091us-gaap:AdditionalPaidInCapitalMember2019-09-300001137091us-gaap:RetainedEarningsMember2019-09-300001137091us-gaap:TreasuryStockMember2019-09-3000011370912019-09-300001137091us-gaap:CommonStockMember2019-12-310001137091us-gaap:AdditionalPaidInCapitalMember2019-12-310001137091us-gaap:RetainedEarningsMember2019-12-310001137091us-gaap:TreasuryStockMember2019-12-310001137091us-gaap:RetainedEarningsMember2020-01-012020-09-300001137091us-gaap:AdditionalPaidInCapitalMember2020-01-012020-09-300001137091us-gaap:TreasuryStockMember2020-01-012020-09-300001137091us-gaap:CommonStockMember2018-12-310001137091us-gaap:AdditionalPaidInCapitalMember2018-12-310001137091us-gaap:RetainedEarningsMember2018-12-310001137091us-gaap:TreasuryStockMember2018-12-3100011370912018-12-310001137091us-gaap:RetainedEarningsMember2019-01-012019-09-300001137091us-gaap:AdditionalPaidInCapitalMember2019-01-012019-09-300001137091us-gaap:TreasuryStockMember2019-01-012019-09-300001137091us-gaap:CommonStockMember2019-01-012019-09-30psix:board_member0001137091psix:StandardCharteredBankCreditAgreementMemberus-gaap:RevolvingCreditFacilityMember2020-04-300001137091psix:StandardCharteredBankCreditAgreementMemberus-gaap:RevolvingCreditFacilityMember2020-04-012020-04-30xbrli:purepsix:segment0001137091srt:ScenarioPreviouslyReportedMember2019-12-310001137091srt:RestatementAdjustmentMemberpsix:TreasuryStockNotRelievedAtAppropriateSharePriceMember2019-12-310001137091us-gaap:AdditionalPaidInCapitalMembersrt:ScenarioPreviouslyReportedMember2018-12-310001137091srt:RestatementAdjustmentMemberus-gaap:AdditionalPaidInCapitalMemberpsix:TreasuryStockNotRelievedAtAppropriateSharePriceMember2018-12-310001137091srt:ScenarioPreviouslyReportedMemberus-gaap:TreasuryStockMember2018-12-310001137091srt:RestatementAdjustmentMemberus-gaap:TreasuryStockMemberpsix:TreasuryStockNotRelievedAtAppropriateSharePriceMember2018-12-310001137091us-gaap:AdditionalPaidInCapitalMembersrt:ScenarioPreviouslyReportedMember2019-01-012019-12-310001137091srt:RestatementAdjustmentMemberus-gaap:AdditionalPaidInCapitalMemberpsix:TreasuryStockNotRelievedAtAppropriateSharePriceMember2019-01-012019-12-310001137091us-gaap:AdditionalPaidInCapitalMember2019-01-012019-12-310001137091srt:ScenarioPreviouslyReportedMemberus-gaap:TreasuryStockMember2019-01-012019-12-310001137091srt:RestatementAdjustmentMemberus-gaap:TreasuryStockMemberpsix:TreasuryStockNotRelievedAtAppropriateSharePriceMember2019-01-012019-12-310001137091us-gaap:TreasuryStockMember2019-01-012019-12-310001137091us-gaap:AdditionalPaidInCapitalMembersrt:ScenarioPreviouslyReportedMember2019-12-310001137091srt:RestatementAdjustmentMemberus-gaap:AdditionalPaidInCapitalMemberpsix:TreasuryStockNotRelievedAtAppropriateSharePriceMember2019-12-310001137091srt:ScenarioPreviouslyReportedMemberus-gaap:TreasuryStockMember2019-12-310001137091srt:RestatementAdjustmentMemberus-gaap:TreasuryStockMemberpsix:TreasuryStockNotRelievedAtAppropriateSharePriceMember2019-12-310001137091us-gaap:AdditionalPaidInCapitalMembersrt:ScenarioPreviouslyReportedMember2020-03-310001137091srt:RestatementAdjustmentMemberus-gaap:AdditionalPaidInCapitalMemberpsix:TreasuryStockNotRelievedAtAppropriateSharePriceMember2020-03-310001137091us-gaap:AdditionalPaidInCapitalMember2020-03-310001137091srt:ScenarioPreviouslyReportedMemberus-gaap:TreasuryStockMember2020-03-310001137091srt:RestatementAdjustmentMemberus-gaap:TreasuryStockMemberpsix:TreasuryStockNotRelievedAtAppropriateSharePriceMember2020-03-310001137091us-gaap:TreasuryStockMember2020-03-310001137091us-gaap:AdditionalPaidInCapitalMembersrt:ScenarioPreviouslyReportedMember2020-06-300001137091srt:RestatementAdjustmentMemberus-gaap:AdditionalPaidInCapitalMemberpsix:TreasuryStockNotRelievedAtAppropriateSharePriceMember2020-06-300001137091srt:ScenarioPreviouslyReportedMemberus-gaap:TreasuryStockMember2020-06-300001137091srt:RestatementAdjustmentMemberus-gaap:TreasuryStockMemberpsix:TreasuryStockNotRelievedAtAppropriateSharePriceMember2020-06-300001137091us-gaap:AdditionalPaidInCapitalMembersrt:ScenarioPreviouslyReportedMember2019-06-300001137091srt:RestatementAdjustmentMemberus-gaap:AdditionalPaidInCapitalMemberpsix:TreasuryStockNotRelievedAtAppropriateSharePriceMember2019-06-300001137091srt:ScenarioPreviouslyReportedMemberus-gaap:TreasuryStockMember2019-06-300001137091srt:RestatementAdjustmentMemberus-gaap:TreasuryStockMemberpsix:TreasuryStockNotRelievedAtAppropriateSharePriceMember2019-06-300001137091us-gaap:AdditionalPaidInCapitalMembersrt:ScenarioPreviouslyReportedMember2019-07-012019-09-300001137091srt:RestatementAdjustmentMemberus-gaap:AdditionalPaidInCapitalMemberpsix:TreasuryStockNotRelievedAtAppropriateSharePriceMember2019-07-012019-09-300001137091srt:ScenarioPreviouslyReportedMemberus-gaap:TreasuryStockMember2019-07-012019-09-300001137091srt:RestatementAdjustmentMemberus-gaap:TreasuryStockMemberpsix:TreasuryStockNotRelievedAtAppropriateSharePriceMember2019-07-012019-09-300001137091us-gaap:AdditionalPaidInCapitalMembersrt:ScenarioPreviouslyReportedMember2019-09-300001137091srt:RestatementAdjustmentMemberus-gaap:AdditionalPaidInCapitalMemberpsix:TreasuryStockNotRelievedAtAppropriateSharePriceMember2019-09-300001137091srt:ScenarioPreviouslyReportedMemberus-gaap:TreasuryStockMember2019-09-300001137091srt:RestatementAdjustmentMemberus-gaap:TreasuryStockMemberpsix:TreasuryStockNotRelievedAtAppropriateSharePriceMember2019-09-300001137091us-gaap:AdditionalPaidInCapitalMembersrt:ScenarioPreviouslyReportedMember2019-01-012019-09-300001137091srt:RestatementAdjustmentMemberus-gaap:AdditionalPaidInCapitalMemberpsix:TreasuryStockNotRelievedAtAppropriateSharePriceMember2019-01-012019-09-300001137091srt:ScenarioPreviouslyReportedMemberus-gaap:TreasuryStockMember2019-01-012019-09-300001137091srt:RestatementAdjustmentMemberus-gaap:TreasuryStockMemberpsix:TreasuryStockNotRelievedAtAppropriateSharePriceMember2019-01-012019-09-300001137091psix:CustomerCMemberus-gaap:RevenueFromContractWithCustomerMemberus-gaap:CustomerConcentrationRiskMember2020-07-012020-09-300001137091psix:CustomerCMemberus-gaap:RevenueFromContractWithCustomerMemberus-gaap:CustomerConcentrationRiskMember2019-07-012019-09-300001137091psix:CustomerCMemberus-gaap:RevenueFromContractWithCustomerMemberus-gaap:CustomerConcentrationRiskMember2020-01-012020-09-300001137091psix:CustomerCMemberus-gaap:RevenueFromContractWithCustomerMemberus-gaap:CustomerConcentrationRiskMember2019-01-012019-09-300001137091psix:CustomerAMemberus-gaap:RevenueFromContractWithCustomerMemberus-gaap:CustomerConcentrationRiskMember2020-07-012020-09-300001137091psix:CustomerAMemberus-gaap:RevenueFromContractWithCustomerMemberus-gaap:CustomerConcentrationRiskMember2019-07-012019-09-300001137091psix:CustomerAMemberus-gaap:RevenueFromContractWithCustomerMemberus-gaap:CustomerConcentrationRiskMember2020-01-012020-09-300001137091psix:CustomerAMemberus-gaap:RevenueFromContractWithCustomerMemberus-gaap:CustomerConcentrationRiskMember2019-01-012019-09-300001137091psix:CustomerBMemberus-gaap:RevenueFromContractWithCustomerMemberus-gaap:CustomerConcentrationRiskMember2020-07-012020-09-300001137091psix:CustomerBMemberus-gaap:RevenueFromContractWithCustomerMemberus-gaap:CustomerConcentrationRiskMember2020-01-012020-09-300001137091us-gaap:RevenueFromContractWithCustomerMemberus-gaap:CustomerConcentrationRiskMemberpsix:CustomerDMember2019-07-012019-09-300001137091us-gaap:RevenueFromContractWithCustomerMemberus-gaap:CustomerConcentrationRiskMemberpsix:CustomerEMember2019-07-012019-09-300001137091us-gaap:AccountsReceivableMemberpsix:CustomerCMemberus-gaap:CustomerConcentrationRiskMember2019-01-012019-12-310001137091us-gaap:AccountsReceivableMemberpsix:CustomerAMemberus-gaap:CustomerConcentrationRiskMember2020-01-012020-09-300001137091us-gaap:AccountsReceivableMemberpsix:CustomerBMemberus-gaap:CustomerConcentrationRiskMember2020-01-012020-09-300001137091us-gaap:SupplierConcentrationRiskMemberus-gaap:CostOfGoodsTotalMemberpsix:SupplierAMember2020-07-012020-09-300001137091us-gaap:SupplierConcentrationRiskMemberus-gaap:CostOfGoodsTotalMemberpsix:SupplierAMember2019-07-012019-09-300001137091us-gaap:SupplierConcentrationRiskMemberus-gaap:CostOfGoodsTotalMemberpsix:SupplierAMember2020-01-012020-09-300001137091us-gaap:SupplierConcentrationRiskMemberus-gaap:CostOfGoodsTotalMemberpsix:SupplierAMember2019-01-012019-09-300001137091psix:SupplierBMemberus-gaap:SupplierConcentrationRiskMemberus-gaap:CostOfGoodsTotalMember2019-07-012019-09-300001137091psix:SupplierBMemberus-gaap:SupplierConcentrationRiskMemberus-gaap:CostOfGoodsTotalMember2019-01-012019-09-300001137091psix:EnergyEndMarketMember2020-07-012020-09-300001137091psix:EnergyEndMarketMember2019-07-012019-09-300001137091psix:EnergyEndMarketMember2020-01-012020-09-300001137091psix:EnergyEndMarketMember2019-01-012019-09-300001137091psix:IndustrialEndMarketMember2020-07-012020-09-300001137091psix:IndustrialEndMarketMember2019-07-012019-09-300001137091psix:IndustrialEndMarketMember2020-01-012020-09-300001137091psix:IndustrialEndMarketMember2019-01-012019-09-300001137091psix:TransportationEndMarketMember2020-07-012020-09-300001137091psix:TransportationEndMarketMember2019-07-012019-09-300001137091psix:TransportationEndMarketMember2020-01-012020-09-300001137091psix:TransportationEndMarketMember2019-01-012019-09-300001137091srt:NorthAmericaMember2020-07-012020-09-300001137091srt:NorthAmericaMember2019-07-012019-09-300001137091srt:NorthAmericaMember2020-01-012020-09-300001137091srt:NorthAmericaMember2019-01-012019-09-300001137091psix:PacificRimMember2020-07-012020-09-300001137091psix:PacificRimMember2019-07-012019-09-300001137091psix:PacificRimMember2020-01-012020-09-300001137091psix:PacificRimMember2019-01-012019-09-300001137091srt:EuropeMember2020-07-012020-09-300001137091srt:EuropeMember2019-07-012019-09-300001137091srt:EuropeMember2020-01-012020-09-300001137091srt:EuropeMember2019-01-012019-09-300001137091psix:OtherGeographicalAreasMember2020-07-012020-09-300001137091psix:OtherGeographicalAreasMember2019-07-012019-09-300001137091psix:OtherGeographicalAreasMember2020-01-012020-09-300001137091psix:OtherGeographicalAreasMember2019-01-012019-09-3000011370912020-10-012020-09-3000011370912021-01-012020-09-3000011370912022-01-012020-09-3000011370912023-01-012020-09-3000011370912024-01-012020-09-3000011370912025-01-012020-09-300001137091psix:SharePurchaseAgreementWeichaiTransactionMember2018-09-012018-09-300001137091psix:SharePurchaseAgreementWeichaiTransactionMember2018-10-010001137091psix:SharePurchaseAgreementWeichaiTransactionMember2018-10-012018-10-010001137091psix:SharePurchaseAgreementSecondAmendedAndRestatedWarrantMemberus-gaap:SeriesBPreferredStockMember2019-04-232019-04-230001137091psix:SharePurchaseAgreementWeichaiTransactionMember2019-04-232019-04-230001137091psix:SharePurchaseAgreementWeichaiTransactionMember2019-01-012019-09-3000011370912017-03-202017-03-200001137091us-gaap:MachineryAndEquipmentMember2020-09-300001137091us-gaap:MachineryAndEquipmentMember2019-12-310001137091us-gaap:TransportationEquipmentMember2020-09-300001137091us-gaap:TransportationEquipmentMember2019-12-310001137091us-gaap:ConstructionInProgressMember2020-09-300001137091us-gaap:ConstructionInProgressMember2019-12-310001137091us-gaap:CustomerRelationshipsMember2020-09-300001137091us-gaap:DevelopedTechnologyRightsMember2020-09-300001137091us-gaap:TrademarksAndTradeNamesMember2020-09-300001137091us-gaap:CustomerRelationshipsMember2019-12-310001137091us-gaap:DevelopedTechnologyRightsMember2019-12-310001137091us-gaap:TrademarksAndTradeNamesMember2019-12-310001137091us-gaap:RevolvingCreditFacilityMember2020-09-300001137091us-gaap:RevolvingCreditFacilityMember2019-12-310001137091us-gaap:SeniorNotesMember2020-09-300001137091us-gaap:SeniorNotesMember2019-12-310001137091psix:StandardCharteredBankCreditAgreementMemberus-gaap:RevolvingCreditFacilityMemberus-gaap:LondonInterbankOfferedRateLIBORMember2020-04-022020-04-020001137091psix:StandardCharteredBankCreditAgreementMemberus-gaap:RevolvingCreditFacilityMember2020-04-022020-04-020001137091psix:WellsFargoCreditAgreementMemberus-gaap:RevolvingCreditFacilityMember2020-04-022020-04-020001137091us-gaap:SeniorNotesMemberpsix:FivePointFiveZeroPercentSeniorNotesMember2020-04-022020-04-020001137091psix:StandardCharteredBankCreditAgreementMemberus-gaap:RevolvingCreditFacilityMember2020-04-020001137091psix:StandardCharteredBankCreditAgreementMemberus-gaap:RevolvingCreditFacilityMember2020-04-292020-04-290001137091us-gaap:CostOfSalesMember2020-07-012020-09-300001137091us-gaap:CostOfSalesMember2020-01-012020-09-300001137091psix:ResearchDevelopmentAndEngineeringExpenseMember2020-07-012020-09-300001137091psix:ResearchDevelopmentAndEngineeringExpenseMember2020-01-012020-09-300001137091us-gaap:SellingGeneralAndAdministrativeExpensesMember2020-07-012020-09-300001137091us-gaap:SellingGeneralAndAdministrativeExpensesMember2020-01-012020-09-300001137091us-gaap:InterestExpenseMember2020-07-012020-09-300001137091us-gaap:InterestExpenseMember2020-01-012020-09-300001137091us-gaap:CostOfSalesMember2019-07-012019-09-300001137091us-gaap:CostOfSalesMember2019-01-012019-09-300001137091psix:ResearchDevelopmentAndEngineeringExpenseMember2019-07-012019-09-300001137091psix:ResearchDevelopmentAndEngineeringExpenseMember2019-01-012019-09-300001137091us-gaap:SellingGeneralAndAdministrativeExpensesMember2019-07-012019-09-300001137091us-gaap:SellingGeneralAndAdministrativeExpensesMember2019-01-012019-09-300001137091us-gaap:InterestExpenseMember2019-07-012019-09-300001137091us-gaap:InterestExpenseMember2019-01-012019-09-300001137091us-gaap:FairValueMeasurementsRecurringMemberus-gaap:RevolvingCreditFacilityMember2020-09-300001137091us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:RevolvingCreditFacilityMember2020-09-300001137091us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:RevolvingCreditFacilityMember2020-09-300001137091us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Memberus-gaap:RevolvingCreditFacilityMember2020-09-300001137091us-gaap:FairValueMeasurementsRecurringMemberus-gaap:RevolvingCreditFacilityMember2019-12-310001137091us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:RevolvingCreditFacilityMember2019-12-310001137091us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:RevolvingCreditFacilityMember2019-12-310001137091us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Memberus-gaap:RevolvingCreditFacilityMember2019-12-310001137091us-gaap:SeniorNotesMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:SeniorNotesMember2019-12-310001137091us-gaap:FairValueInputsLevel1Memberus-gaap:SeniorNotesMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:SeniorNotesMember2019-12-310001137091us-gaap:SeniorNotesMemberus-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:SeniorNotesMember2019-12-310001137091us-gaap:SeniorNotesMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Memberus-gaap:SeniorNotesMember2019-12-310001137091us-gaap:WarrantMember2018-12-310001137091us-gaap:WarrantMember2019-01-012019-09-300001137091us-gaap:WarrantMember2019-09-300001137091us-gaap:SubsequentEventMemberpsix:SecuritiesAndExchangeCommissionAndUnitedStatesAttorneysOfficeForTheNorthernDistrictOfIllinoisInvestigationsMember2020-10-012020-10-310001137091psix:SecuritiesAndExchangeCommissionAndUnitedStatesAttorneysOfficeForTheNorthernDistrictOfIllinoisInvestigationsMember2019-03-310001137091us-gaap:SettledLitigationMemberpsix:Dorvitv.WinemasterMember2019-04-300001137091psix:JeromeTreadwellv.TheCompanyMember2018-10-012018-10-310001137091psix:DonWilkinsV.TheCompanyMember2017-04-012017-04-300001137091psix:DonWilkinsV.TheCompanyMemberus-gaap:RestrictedStockMember2017-04-012017-04-300001137091psix:DonWilkinsV.TheCompanyMemberus-gaap:SettledLitigationMembersrt:ChiefExecutiveOfficerMember2020-05-012020-05-310001137091psix:DonWilkinsV.TheCompanyMemberus-gaap:SettledLitigationMember2020-05-012020-05-310001137091psix:MastPowertrainV.TheCompanyMember2020-02-012020-02-290001137091psix:MastPowertrainV.TheCompanyMember2020-03-012020-09-30psix:letter_of_credit0001137091us-gaap:CommonStockMember2020-01-012020-09-300001137091us-gaap:StockAppreciationRightsSARSMember2020-01-012020-09-300001137091us-gaap:RestrictedStockMember2019-01-012019-09-300001137091us-gaap:RestrictedStockMember2020-01-012020-09-300001137091us-gaap:RestrictedStockMember2019-07-012019-09-300001137091us-gaap:RestrictedStockMember2020-07-012020-09-300001137091us-gaap:StockAppreciationRightsSARSMember2019-01-012019-09-300001137091us-gaap:StockAppreciationRightsSARSMember2020-07-012020-09-300001137091us-gaap:StockAppreciationRightsSARSMember2019-07-012019-09-300001137091psix:DoosanPSILLCMemberus-gaap:CorporateJointVentureMember2015-01-012015-12-310001137091psix:DoosanPSILLCMemberus-gaap:CorporateJointVentureMember2015-12-310001137091srt:MaximumMemberus-gaap:CorporateJointVentureMember2020-07-012020-09-300001137091us-gaap:CorporateJointVentureMember2020-01-012020-09-300001137091us-gaap:CorporateJointVentureMember2019-07-012019-09-300001137091us-gaap:CorporateJointVentureMember2019-01-012019-09-30

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
https://cdn.kscope.io/44a74dc53aa3301db2068b94d840fdee-psix-20200930_g1.jpg
FORM 10-Q
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2020    
or
¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________to________
Commission file number 001-35944
POWER SOLUTIONS INTERNATIONAL, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware33-0963637
(State or Other Jurisdiction of Incorporation or Organization)(I.R.S. Employer Identification No.)
201 Mittel Drive, Wood Dale, IL60191
(Address of Principal Executive Offices)(Zip Code)
(630) 350-9400
(Registrant’s Telephone Number, Including Area Code)
Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each ClassTrading Symbol(s)Name of Each Exchange on Which Registered
None______
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, par value $0.001 per share
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    YES  x     NO   ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    YES  x     NO   ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer
¨
Accelerated filer
¨
Non-accelerated filer
x
Smaller reporting companyx
Emerging growth company¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  YES ¨   NO x
As of November 9, 2020, there were 22,891,345 outstanding shares of the Common Stock of the registrant.
1


TABLE OF CONTENTS
Page
PART I – FINANCIAL INFORMATION
Forward-Looking Statements
Item 1.Financial Statements
Consolidated Balance Sheets as of September 30, 2020 (Unaudited) and December 31, 2019
Consolidated Statements of Operations for the three and nine months ended September 30, 2020 and 2019 (Unaudited)
Consolidated Statements of Stockholders’ Equity for the three and nine months ended September 30, 2020 and 2019 (Unaudited)
Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 and 2019 (Unaudited)
Notes to Consolidated Financial Statements (Unaudited)
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.Quantitative and Qualitative Disclosures About Market Risk
Item 4.Controls and Procedures
PART II – OTHER INFORMATION
Item 1.Legal Proceedings
Item 1A.Risk Factors
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
Item 3.Defaults Upon Senior Securities
Item 4.Mine Safety Disclosures
Item 5.Other Information
Item 6.Exhibits
Signatures




FORWARD-LOOKING STATEMENTS
Certain statements contained in this Quarterly Report on Form 10-Q for the three and nine months ended September 30, 2020 (the “Quarterly Report”) that are not historical facts are intended to constitute “forward-looking statements” entitled to the safe-harbor provisions of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements may involve risks and uncertainties. These statements often include words such as “anticipate,” “believe,” “budgeted,” “contemplate,” “estimate,” “expect,” “forecast,” “guidance,” “may,” “outlook,” “plan,” “projection,” “should,” “target,” “will,” “would” or similar expressions, but these words are not the exclusive means for identifying such statements. These forward-looking statements include statements regarding Power Solutions International, Inc.’s, a Delaware corporation (“Power Solutions,” “PSI” or the “Company”), projected sales, potential profitability and liquidity, strategic initiatives, future business strategies, warranty mitigation efforts and market opportunities, improvements in its business, remediation of internal controls, improvement of product margins, and product market conditions and trends. These statements are not guarantees of performance or results, and they involve risks, uncertainties and assumptions. Although the Company believes that these forward-looking statements are based on reasonable assumptions, there are many factors that could affect the Company’s results of operations and liquidity and could cause actual results, performance or achievements to differ materially from those expressed in, or implied by, the Company’s forward-looking statements.
The Company cautions that the risks, uncertainties and other factors that could cause its actual results to differ materially from those expressed in, or implied by, the forward-looking statements include, without limitation, the factors discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, and from time to time in the Company’s subsequent filings with the United States Securities and Exchange Commission (the “SEC”); management’s ability to successfully implement the Audit Committee’s remedial recommendations; the timing of completion of steps to address, and the inability to address and remedy, material weaknesses; the identification of additional material weaknesses or significant deficiencies; variances in non-recurring expenses; risks relating to the substantial costs and diversion of personnel’s attention and resources deployed to address the internal control matters; the ability of the Company to accurately forecast sales, and the extent to which sales result in recorded revenue; changes in customer demand for the Company’s products; volatility in oil and gas prices; the impact of U.S. tariffs on imports from China on the Company’s supply chain; the Company’s obligations to indemnify past and present directors and officers and certain current and former employees with respect to the investigations conducted by the SEC and the criminal division of the United States Attorney’s Office for the Northern District of Illinois (the “USAO”), which will be funded by the Company with its existing cash resources due to the exhaustion of its historical primary directors’ and officers’ insurance coverage; any delays and challenges in recruiting key employees consistent with the Company’s plans; risks related to complying with the terms and conditions of the settlements with the SEC and USAO; the Company’s ability to continue as a going concern; the Company’s ability to raise additional capital when needed and its liquidity; uncertainties around the Company’s ability to meet funding conditions under its financing arrangements and access to capital thereunder; the impact the recent outbreak of a new strain of coronavirus (“COVID-19 outbreak”) could have on the Company’s business and financial results; any negative impacts from delisting of the Company’s common stock par value $0.001 (the “Common Stock”) from the NASDAQ Stock Market (“NASDAQ”) and any delays and challenges in obtaining a re-listing on a stock exchange.
The Company’s forward-looking statements are presented as of the date hereof. Except as required by law, the Company expressly disclaims any intention or obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise.
AVAILABLE INFORMATION
The Company is subject to the reporting and information requirements of the Exchange Act, and as a result, it is obligated to file annual, quarterly and current reports, proxy statements and other information with the SEC. The Company makes these filings available free of charge on its website (http://www.psiengines.com) as soon as reasonably practicable after it electronically files them with, or furnishes them to, the SEC. Information on the Company’s website does not constitute part of this Quarterly Report on Form 10-Q. In addition, the SEC maintains a website (http://www.sec.gov) that contains the annual, quarterly and current reports, proxy and information statements, and other information the Company electronically files with, or furnishes to, the SEC.

3


PART I – FINANCIAL INFORMATION
Item 1.    Financial Statements.
POWER SOLUTIONS INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(in thousands, except par values)As of September 30, 2020As of December 31, 2019
ASSETS
Current assets:
Cash and cash equivalents$26,727 $3 
Restricted cash3,299  
Accounts receivable, net of allowances of $3,058 and $3,561 as of September 30, 2020 and December 31, 2019, respectively
52,379 104,515 
Income tax receivable3,716 1,055 
Inventories, net128,827 108,839 
Prepaid expenses and other current assets15,030 8,110 
Total current assets229,978 222,522 
Property, plant and equipment, net21,116 23,194 
Intangible assets, net11,082 13,372 
Goodwill29,835 29,835 
Other noncurrent assets22,042 24,749 
TOTAL ASSETS$314,053 $313,672 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$45,237 $75,835 
Current maturities of long-term debt288 195 
Revolving line of credit130,000 39,527 
Other accrued liabilities83,049 66,030 
Total current liabilities258,574 181,587 
Deferred income taxes839 1,105 
Long-term debt, net of current maturities754 55,657 
Noncurrent contract liabilities10,009 17,998 
Other noncurrent liabilities34,841 28,828 
TOTAL LIABILITIES$305,017 $285,175 
STOCKHOLDERS’ EQUITY
Preferred stock – $0.001 par value. Shares authorized: 5,000. No shares issued and outstanding at all dates.
$ $ 
Common stock – $0.001 par value; 50,000 shares authorized; 23,117 and 23,117 shares issued; 22,886 and 22,857 shares outstanding at September 30, 2020 and December 31, 2019, respectively
23 23 
Additional paid-in capital157,138 156,727 
Accumulated deficit(146,832)(126,912)
Treasury stock, at cost, 231 and 260 shares at September 30, 2020 and December 31, 2019, respectively
(1,293)(1,341)
TOTAL STOCKHOLDERS’ EQUITY9,036 28,497 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY$314,053 $313,672 
See Notes to Consolidated Financial Statements
4


POWER SOLUTIONS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands, except per share amounts)For the Three Months Ended September 30,For the Nine Months Ended September 30,
2020201920202019
Net sales$114,450 $138,512 $312,603 $392,983 
Cost of sales96,281 111,640 272,943 322,793 
Gross profit18,169 26,872 39,660 70,190 
Operating expenses:
Research, development and engineering expenses6,555 6,366 19,121 18,695 
Selling, general and administrative expenses11,964 11,461 38,434 41,476 
Amortization of intangible assets763 910 2,290 2,729 
Total operating expenses19,282 18,737 59,845 62,900 
Operating (loss) income(1,113)8,135 (20,185)7,290 
Other expense:
Interest expense1,510 1,921 4,211 6,156 
Loss from change in value of warrants   1,352 
Loss on extinguishment of debt  497  
Other income, net(947)(25)(1,202)(526)
Total other expense563 1,896 3,506 6,982 
(Loss) income before income taxes(1,676)6,239 (23,691)308 
Income tax (benefit) expense(210)483 (3,771)136 
Net (loss) income$(1,466)$5,756 $(19,920)$172 
Weighted-average common shares outstanding:
Basic22,881 22,849 22,866 21,064 
Diluted22,881 22,876 22,866 21,088 
(Loss) earnings per common share:
Basic$(0.06)$0.25 $(0.87)$0.01 
Diluted$(0.06)$0.25 $(0.87)$0.01 
See Notes to Consolidated Financial Statements
5


POWER SOLUTIONS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(UNAUDITED)
(in thousands)For the Three Months Ended
Common StockAdditional Paid-in CapitalAccumulated DeficitTreasury StockTotal Stockholders’ Equity
Balance at June 30, 2020$23 $157,052 $(145,366)$(1,354)$10,355 
Net loss— — (1,466)— (1,466)
Stock-based compensation expense— 94 — 71 165 
Common stock issued for stock-based awards, net— (8)— (10)(18)
Balance at September 30, 2020$23 $157,138 $(146,832)$(1,293)$9,036 
Balance at June 30, 2019$23 $158,530 $(140,744)$(3,418)$14,391 
Net income— — 5,756 — 5,756 
Stock-based compensation expense— 173 — — 173 
Common stock issued for stock-based awards, net— (2,123)— 2,080 (43)
Balance at September 30, 2019$23 $156,580 $(134,988)$(1,338)$20,277 

(in thousands)For the Nine Months Ended
Common StockAdditional Paid-in CapitalAccumulated DeficitTreasury StockTotal Stockholders’ Equity
Balance at December 31, 2019$23 $156,727 $(126,912)$(1,341)$28,497 
Net loss— — (19,920)— (19,920)
Stock-based compensation expense— 411 — 71 482 
Common stock issued for stock-based awards, net— — — (23)(23)
Balance at September 30, 2020$23 $157,138 $(146,832)$(1,293)$9,036 
Balance at December 31, 2018$19 $119,724 $(135,160)$(3,161)$(18,578)
Net income— — 172 — 172 
Stock-based compensation expense— 1,101 — — 1,101 
Common stock issued for stock-based awards, net— (2,309)— 1,823 (486)
Exercise of Weichai Warrant4 38,064 — — 38,068 
Balance at September 30, 2019$23 $156,580 $(134,988)$(1,338)$20,277 
See Notes to Consolidated Financial Statements
6


POWER SOLUTIONS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)For the Nine Months Ended September 30,
20202019
Cash (used in) provided by operating activities
Net (loss) income$(19,920)$172 
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Amortization of intangible assets2,290 2,729 
Depreciation3,922 3,875 
Change in value of warrants 1,352 
Stock-based compensation expense482 1,101 
Amortization of financing fees1,102 545 
Deferred income taxes(265)(30)
Loss on extinguishment of debt497  
Other adjustments, net(260)193 
Changes in operating assets and liabilities:
Accounts receivable, net52,083 9,213 
Inventory, net(20,842)(9,613)
Prepaid expenses and other assets(5,362)6,897 
Accounts payable(30,482)379 
Accrued expenses16,572 6,262 
Other noncurrent liabilities(2,100)(3,953)
Net cash (used in) provided by operating activities(2,283)19,122 
Cash used in investing activities
Capital expenditures(1,991)(2,048)
Proceeds from corporate-owned life insurance930  
Other investing activities, net7 13 
Net cash used in investing activities(1,054)(2,035)
Cash provided by (used in) financing activities
Repayments of long-term debt and lease liabilities(55,200)(136)
Proceeds from revolving line of credit180,298 394,631 
Repayments of revolving line of credit(89,826)(412,488)
Payments of deferred financing costs(1,970)(375)
Proceeds from Weichai Warrant exercise

 1,616 
Other financing activities, net58 (388)
Net cash provided by (used in) financing activities33,360 (17,140)
Net increase (decrease) in cash, cash equivalents, and restricted cash30,023 (53)
Cash, cash equivalents, and restricted cash at beginning of the period3 54 
Cash, cash equivalents, and restricted cash at end of the period$30,026 $1 
(in thousands)As of September 30,
20202019
Reconciliation of cash, cash equivalents, and restricted cash to the Consolidated Balance Sheets
Cash and cash equivalents$26,727 $1 
Restricted cash3,299  
Total cash, cash equivalents, and restricted cash$30,026 $1 
See Notes to Consolidated Financial Statements
7


POWER SOLUTIONS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1.    Summary of Significant Accounting Policies and Other Information
Nature of Business Operations
Power Solutions International, Inc. (“Power Solutions,” “PSI” or “the Company”), a Delaware corporation, is a global producer and distributor of a broad range of high-performance, certified, low-emission power systems, including alternative-fueled power systems for original equipment manufacturers (“OEMs”) of off-highway industrial equipment and certain on-road vehicles and large custom-engineered integrated electrical power generation systems.
The Company’s customers include large, industry-leading and multinational organizations. The Company’s products and services are sold predominantly to customers throughout North America as well as to customers located throughout the Pacific Rim and Europe. The Company’s power systems are highly engineered, comprehensive systems which, through the Company’s technologically sophisticated development and manufacturing processes, including its in-house design, prototyping, testing and engineering capabilities and its analysis and determination of the specific components to be integrated into a given power system (driven in large part by emission standards and cost considerations), allow the Company to provide its customers with power systems customized to meet specific OEM application requirements, other technical customers’ specifications, and requirements imposed by environmental regulatory bodies.
The Company’s power system configurations range from a basic engine integrated with appropriate fuel system components to completely packaged power systems that include any combination of cooling systems, electronic systems, air intake systems, fuel systems, housings, power takeoff systems, exhaust systems, hydraulic systems, enclosures, brackets, hoses, tubes and other assembled componentry. The Company also designs and manufactures large, custom-engineered integrated electrical power generation systems for both standby and prime power applications. The Company purchases engines from third-party suppliers and produces internally designed engines, all of which are then integrated into its power systems.
Of the other components that the Company integrates into its power systems, a substantial portion consist of internally designed components and components for which it coordinates significant design efforts with third-party suppliers, with the remainder consisting largely of parts that are sourced off-the-shelf from third-party suppliers. Some of the key components (including purchased engines) embody proprietary intellectual property of the Company’s suppliers. As a result of its design and manufacturing capabilities, the Company is able to provide its customers with a power system that can be incorporated into a customer’s specified application. In addition to the certified products described above, the Company sells diesel, gasoline and non-certified power systems and aftermarket components.
Stock Ownership and Control
Weichai America Corp., a wholly-owned subsidiary of Weichai Power Co., Ltd. (HK2338, SZ000338) (herein collectively referred to as “Weichai”), currently owns a majority of the outstanding shares of the Company’s Common Stock. As a result, Weichai is able to exercise control over Company matters including those requiring stockholders’ approval, including the election of the directors, amendments to the Company’s Charter and approval of significant corporate transactions. This control could have the effect of delaying or preventing a change of control of the Company and could deter or prevent actions that may be favored by other stockholders.
Weichai currently has three representatives on the Company’s Board of Directors (the “Board”). Under the Investor Rights Agreement (the “Rights Agreement”) between Weichai and the Company, since Weichai became the majority owner of the Company’s outstanding shares of Common Stock, the Company became required to appoint to the Board an additional individual designated by Weichai, or such additional number of individuals so that Weichai designees constitute the majority of the directors serving on the Board. As of the date of this filing, Weichai has nominated an additional representative to stand for election to the Board at the Company’s upcoming Annual Meeting of Stockholders on December 15, 2020. According to the Rights Agreement, during any period when the Company is a “controlled company” within the meaning of the NASDAQ Stock Market (“NASDAQ”) Listing Rules, it will take such measures as to avail itself of the “controlled company” exemptions available under Rule 5615 of the NASDAQ Listing Rules of Rules 5605(b), (d) and (e).
Going Concern Considerations
In April 2020, the Company closed on its new senior secured revolving credit facility pursuant to that certain credit agreement, dated as of March 27, 2020, between the Company and Standard Chartered Bank (“Standard Chartered”), as administrative agent (the “Credit Agreement”). The Credit Agreement, which allows the Company to borrow up to $130.0 million, matures on March 26, 2021 with an optional 60-day extension, subject to certain conditions and payment of a 0.25% extension fee. See Note 6. Debt for further information regarding the terms and conditions of the Credit Agreement.
8


The Credit Agreement includes financial covenants which were effective for the Company beginning with the six months ended June 30, 2020. The financial covenants include an interest coverage ratio and a minimum threshold for earnings before interest, taxes, depreciation and amortization (“EBITDA”) as further defined in the Credit Agreement. For the six months ended June 30, 2020 and the nine months ended September 30, 2020, the Company did not meet the defined minimum EBITDA requirement. A breach of the financial covenants under the Credit Agreement constitutes an event of default and, if not cured or waived, could result in the obligations under the Credit Agreement being accelerated. Accordingly, the Company is currently in discussions with Standard Chartered to seek appropriate waivers and amendments to cure its financial covenant breach and amend its financial covenants.
Significant uncertainties exist about the Company’s ability to refinance, extend, or repay its outstanding indebtedness, maintain sufficient liquidity to fund its business activities, obtain a waiver or satisfactory amendment in connection with the financial covenant breach, and maintain compliance with the covenants and other requirements under the Credit Agreement in the future. Based on the Company’s current forecasts, without additional financing, the Company anticipates that it will not have sufficient cash and cash equivalents to repay the Credit Agreement by March 26, 2021. Management plans to seek an extension and/or replacement of the Credit Agreement or additional liquidity from its current or other lenders before March 26, 2021. There can be no assurance that the Company’s management will be able to obtain waivers or satisfactory amendments to its financial covenants or successfully complete an extension of the Credit Agreement or obtain new financing on acceptable terms when required or if at all. The consolidated financial statements included in this Quarterly Report 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:
continue to expand the Company’s research and product investments and sales and marketing organization;
continue to fund and expand operations both organically and through acquisitions; and
respond to competitive pressures or unanticipated working capital requirements.
Additionally, as discussed further below, in January 2020, the World Health Organization (“WHO”) announced a global health emergency because of a new strain of coronavirus (the “COVID-19 outbreak”) and the risks to the international community as the virus spreads globally. In March 2020, the WHO classified the COVID-19 outbreak as a global pandemic (the “COVID-19 pandemic”), based on the rapid increase in exposure globally. The potential impact of future disruptions to the Company, continued economic uncertainty, and continued depressed crude oil prices and low rig count levels may 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, or repay its outstanding indebtedness, maintain sufficient liquidity to fund its business activities, obtain a cure or waiver of its financial covenant breach, and maintain compliance with the covenants and other requirements under the Credit Agreement 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, obtaining a cure or waiver in connection with the financial covenant breach, maintaining compliance with the covenants and other requirements under the Credit Agreement in the future, and extending, refinancing or repaying the indebtedness outstanding under the Credit Agreement.
Recent COVID-19 Outbreak and Oil and Gas Market Price Volatility
As a result of the COVID-19 pandemic, the global economy has experienced substantial turmoil including impacts from the world financial markets which have experienced a period of significant volatility and overall declines. In addition, due to unprecedented decreases in demand, an oil price war, and economic uncertainty resulting from the COVID-19 pandemic, crude oil prices have declined considerably as compared to prices at the end of 2019. A significant portion of the Company’s sales and profitability is derived from the sale of products that are used within the oil and gas industry. While the Company has yet to experience significant supply chain interruptions or material cancellations of orders, the Company has seen a decline in orders and lower volumes compared to the prior year. The potential impact of future disruptions, continued economic uncertainty, and continued depressed crude oil prices and low rig count levels may have a significant adverse impact on the timing of delivery of customer orders and the levels of future customer orders. Accordingly, these adverse impacts may significantly impact the Company’s future results of operations, financial position, and liquidity.
The Company performs its annual goodwill impairment test as of October 1, or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. The
9


Company considered the significant changes in the market due to the COVID-19 pandemic and the oil and gas market price volatility in performing its assessment of whether an interim impairment review was required for any reporting units and determined that a triggering event had occurred for both reporting units as of March 31, 2020. The Company considered both qualitative and quantitative factors in its assessment including the significant amount of headroom resulting from the prior fiscal year’s impairment test and potential changes in key assumptions, including discount rates, expected profitability and long-term growth rates, used in the last fiscal year’s impairment analysis that may have been impacted by the recent market conditions and economic events. Based on this interim assessment, the Company concluded that goodwill was not impaired as of March 31, 2020. It is reasonably possible that potential adverse impacts of the factors noted above could result in the recognition of material impairments of goodwill and other long-lived assets or other related charges in future periods as the extent and duration of the impact of the COVID-19 pandemic and resulting effect on the Company’s operations continues to evolve and remains uncertain.
The Company has initiated certain contingency actions as a result of the significant negative impacts of these factors. During the nine months ended September 30, 2020, the Company has taken actions to continue to improve its manufacturing operations which includes making reductions in its production facility workforce to align with current volume trends. In addition, the Company implemented various temporary cost reduction measures, including reduced pay for salaried employees, suspension of the 401(k) match program, and deferred spending on certain R&D programs, among others. The measures with regard to pay for employees and the Company’s 401(k) plan match will run through December 31, 2020. The Company plans to reinstate full pay for employees and 401(k) matching effective January 1, 2021. The Company continues to review operating expenses as part of the contingency planning process.
Basis of Presentation and Consolidation
The Company is filing this Form 10-Q for the three and nine months ended September 30, 2020, which contains unaudited consolidated financial statements as of and for the three and nine months ended September 30, 2020 and 2019.
The consolidated financial statements include the accounts of Power Solutions International, Inc. and its wholly-owned subsidiaries and majority-owned subsidiaries in which the Company exercises control. The foregoing financial information was prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) and rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) for interim financial reporting. All intercompany balances and transactions have been eliminated in consolidation.
Certain information and note disclosures normally included in the Company’s annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. The accompanying consolidated financial statements should be read in conjunction with, and have been prepared in accordance with accounting policies reflected in, the consolidated financial statements and related notes, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 (“the 2019 Annual Report”). The Company’s significant accounting policies are described in the aforementioned 2019 Annual Report. Included below are certain updates to those policies. The accompanying interim financial information is unaudited; however, the Company believes the financial information reflects all adjustments (consisting of items of a normal recurring nature) necessary for a fair presentation of financial position, results of operations and cash flows in conformity with U.S. GAAP. Operating results for interim periods are not necessarily indicative of annual operating results.
The Company operates as one business and geographic operating segment. Operating segments are defined as components of a business that can earn revenue and incur expenses for which discrete financial information is available that is evaluated on a regular basis by the chief operating decision maker (“CODM”). The Company’s CODM is its principal executive officer, who decides how to allocate resources and assess performance. A single management team reports to the CODM, who manages the entire business. The Company’s CODM reviews consolidated statements of operations to make decisions, allocate resources and assess performance, and the CODM does not evaluate the profit or loss from any separate geography or product line.
Immaterial Revision to Prior Period Financial Statements
During the third quarter of 2020, the Company determined that, in certain prior periods, treasury stock had not been relieved at the appropriate share prices when restricted shares were issued under the Company’s incentive compensation plan (refer to Item 8. Note 13. Stock-Based Compensation in the 2019 Annual Report for further discussion of the Company’s incentive compensation plan). The Company assessed the materiality of the issue considering both qualitative and quantitative factors and determined the adjustments were immaterial. The Company has decided to correct the prior year presentation to provide comparability to the 2020 financial statements. The adjustments had no impact on total assets, total liabilities or total stockholders’ equity, the Consolidated Statements of Operations, or the Consolidated Statements of Cash Flows.

10


Consolidated Balance Sheet
The effects of the adjustments on the line items within the Company’s Consolidated Balance Sheet at December 31, 2019 are as follows:
(in thousands)December 31, 2019
(As Previously Reported)
AdjustmentDecember 31, 2019
(As Revised)
Additional paid-in capital$165,527 $(8,800)$156,727 
Treasury stock$(10,141)$8,800 $(1,341)
Consolidated Statements of Stockholders’ Equity (unaudited)
The effects of the adjustments on the line items within the Company’s Consolidated Statement of Stockholders’ Equity for the year ended December 31, 2019 are as follows:
(in thousands)Additional Paid-in CapitalTreasury Stock
As previously reportedAdjustmentAs revisedAs previously reportedAdjustmentAs revised
Year ended December 31, 2019
Balance at December 31, 2018$126,412 $(6,688)$119,724 $(9,849)$6,688 $(3,161)
Stock-based compensation expense *
1,540 (2,112)(572)(292)2,112 1,820 
Balance at December 31, 2019$165,527 $(8,800)$156,727 $(10,141)$8,800 $(1,341)
*There was no impact to total stock-based compensation expense as a result of the adjustment.






















11


The effects of the adjustments on the line items within the Company’s Consolidated Statement of Stockholders’ Equity (unaudited) for the three month periods ended June 30, 2020, March 31, 2020, and September 30, 2019, the six month period ended June 30, 2020, and the nine month period ended September 30, 2019, respectively, are as follows:
(in thousands)Additional Paid-in CapitalTreasury Stock
As previously reportedAdjustmentAs revisedAs previously reportedAdjustmentAs revised
Three months ended June 30, 2020 (unaudited)
Balance at March 31, 2020$165,691 $(8,800)$156,891 $(10,149)$8,800 $(1,349)
Balance at June 30, 2020$165,852 $(8,800)$157,052 $(10,154)$8,800 $(1,354)
Three months ended March 31, 2020 (unaudited)
Balance at December 31, 2019$165,527 $(8,800)$156,727 $(10,141)$8,800 $(1,341)
Balance at March 31, 2020$165,691 $(8,800)$156,891 $(10,149)$8,800 $(1,349)
Three months ended September 30, 2019 (unaudited)
Balance at June 30, 2019$165,437 $(6,907)$158,530 $(10,325)$6,907 $(3,418)
Stock-based compensation expense *
(14)(1,893)(1,907)187 1,893 2,080 
Balance at September 30, 2019$165,380 $(8,800)$156,580 $(10,138)$8,800 $(1,338)
Six months ended June 30, 2020 (unaudited)
Balance at December 31, 2019$165,527 $(8,800)$156,727 $(10,141)$8,800 $(1,341)
Balance at June 30, 2020$165,852 $(8,800)$157,052 $(10,154)$8,800 $(1,354)
Nine months ended September 30, 2019 (unaudited)
Balance at December 31, 2018$126,412 $(6,688)$119,724 $(9,849)$6,688 $(3,161)
Stock-based compensation expense *
1,390 (2,112)(722)(289)2,112 1,823 
Balance at September 30, 2019$165,380 $(8,800)$156,580 $(10,138)$8,800 $(1,338)
*There was no impact to total stock-based compensation expense as a result of the adjustment.
Reclassifications
Certain amounts presented in the prior-period Consolidated Statements of Stockholders’ Equity have been reclassified between Stock-based compensation expense and Common stock issued for stock-based awards, net to conform to the current period financial statement presentation. These reclassifications had no effect on previously reported total stockholders’ equity, the Consolidated Balance Sheet, Consolidated Statements of Operations or Consolidated statements of Cash Flow.
Concentrations
The following table presents customers individually accounting for more than 10% of the Company’s net sales:
For the Three Months Ended September 30,For the Nine Months Ended September 30,
2020201920202019
Customer A17 %15 %10 %12 %
Customer B11 %11 %14 %15 %
Customer C11 %**11 %**
Customer D**11 %****
Customer E**11 %****
12


The following table presents customers individually accounting for more than 10% of the Company’s accounts receivable:
As of September 30, 2020As of December 31, 2019
Customer A**49 %
Customer B16 %**
Customer C18 %**
The following table presents suppliers individually accounting for more than 10% of the Company’s purchases:
For the Three Months Ended September 30,For the Nine Months Ended September 30,
2020201920202019
Supplier A38 %29 %25 %20 %
Supplier B**12 %**12 %
**Less than 10% of the total
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires that management make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Significant estimates and assumptions include the valuation of allowances for uncollectible receivables, inventory reserves, warranty reserves, stock-based compensation, evaluation of goodwill, other intangibles, plant and equipment for impairment, and determination of useful lives of long-lived assets. Actual results could materially differ from those estimates.
Research and Development
Research and development (“R&D”) expenses are expensed when incurred. R&D expenses consist primarily of wages, materials, testing and consulting related to the development of new engines, parts and applications. These costs were $6.2 million and $5.9 million for the three months ended September 30, 2020 and 2019, respectively. These costs were $18.2 million and $17.4 million for the nine months ended September 30, 2020 and 2019, respectively.
Restricted Cash
In April 2020, the Company entered into the Credit Agreement with Standard Chartered and extinguished the prior credit agreement with Wells Fargo Bank, N.A. (“Wells Fargo”) as discussed further in Note 6. Debt. While the revolving credit facility with Wells Fargo was extinguished, Wells Fargo continues to perform other services for the Company including issuing letters of credit. Wells Fargo required the Company to have cash collateral to support the letters of credit and other services provided. As discussed in Note 9. Commitments and Contingencies, the Company had outstanding letters of credit of $2.8 million and restricted cash of $3.3 million at September 30, 2020.
Inventories
The Company’s inventories consist primarily of engines and parts. Engines are valued at the lower of cost plus estimated freight-in or net realizable value. Parts are valued at the lower of cost or net realizable value. Net realizable value approximates replacement cost. Cost is principally determined using the first-in, first-out method and includes material, labor and manufacturing overhead. It is the Company’s policy to review inventories on a continuing basis for obsolete, excess and slow-moving items and to record valuation adjustments for such items in order to eliminate non-recoverable costs from inventory. Valuation adjustments are recorded in an inventory reserve account and reduce the cost basis of the inventory in the period in which the reduced valuation is determined. Inventory reserves are established based on quantities on hand, usage and sales history, customer orders, projected demand and utilization within a current or future power system. Specific analysis of individual items or groups of items is performed based on these same criteria, as well as on changes in market conditions or any other identified conditions.






13


Inventories consisted of the following:
(in thousands)

Inventories
As of September 30, 2020As of December 31, 2019
Raw materials$104,286 $90,677 
Work in process5,014 2,007 
Finished goods22,751 19,119 
Total inventories132,051 111,803 
Inventory allowance(3,224)(2,964)
Inventories, net$128,827 $108,839 
Activity in the Company’s inventory allowance was as follows:
(in thousands)For the Nine Months Ended September 30,
Inventory Allowance20202019
Balance at beginning of period$2,964 $5,730 
Charged to expense1,272 560 
Write-offs(1,012)(2,027)
Balance at end of period$3,224 $4,263 
Other Accrued Liabilities
Other accrued liabilities consisted of the following:
(in thousands)

Other Accrued Liabilities
As of September 30, 2020As of December 31, 2019
Accrued product warranty$16,210 $17,142 
Litigation reserves *
2,535 5,020 
Contract liabilities52,502 26,898 
Accrued compensation and benefits1,978 6,599 
Operating lease liabilities3,802 3,789 
Accrued interest expense917 1,087 
Other5,105 5,495 
Total$83,049 $66,030 
*As of September 30, 2020 litigation reserves primarily consisted of reserves related to the settlement of the SEC and USAO investigations that were resolved in September 2020 and other matters. As of December 31, 2019, litigation reserves primarily consisted of reserves related to the settlement of the SEC and USAO investigations and the Federal Derivative Litigation. The Company concluded that insurance recovery was probable related to $0.2 million and $1.9 million of the litigation reserves as of September 30, 2020 and December 31, 2019, respectively, and recognized full recovery of the reserved amounts in Prepaid expenses and other current assets. See Note 9. Commitments and Contingencies for additional information.
Warranty Costs
The Company offers a standard limited warranty on the workmanship of its products that in most cases covers defects for a defined period. Warranties for certified emission products are mandated by the U.S. Environmental Protection Agency (the “EPA”) and/or the California Air Resources Board (the “CARB”) and are longer than the Company’s standard warranty on certain emission related products. The Company’s products also carry limited warranties from suppliers. The Company’s warranties generally apply to engines fully manufactured by the Company and to the modifications the Company makes to supplier base products. Costs related to supplier warranty claims are generally borne by the supplier and passed through to the end customer.
Warranty estimates are based on historical experience and represent the projected cost associated with the product. A liability and related expense are recognized at the time products are sold. The Company adjusts estimates when it is determined that actual costs may differ from initial or previous estimates.




14


Accrued product warranty activities are presented below:
(in thousands)For the Nine Months Ended September 30,
Accrued Product Warranty20202019
Balance at beginning of period$25,501 $23,102 
Current year provision *
13,949 7,706 
Changes in estimates for preexisting warranties **
8,756 2,730 
Payments made during the period(15,357)(7,244)
Balance at end of period32,849 26,294 
Less: Current portion16,210 14,677 
Noncurrent accrued product warranty$16,639 $11,617 
*Warranty costs, net of supplier recoveries, were $18.2 million and $7.4 million for the nine months ended September 30, 2020 and 2019, respectively. Supplier recoveries were $4.6 million and $3.0 million for the nine months ended September 30, 2020 and 2019, respectively.
**Change in estimates for preexisting warranties reflect changes in the Company’s estimate of warranty costs for products sold in prior periods. Such adjustments typically occur when claims experience deviates from historical and expected trends. The Company’s warranty liability is generally affected by failure rates, repair costs and the timing of failures. Future events and circumstances related to these factors could materially change the estimates and require adjustments to the warranty liability. In addition, new product launches require a greater use of judgment in developing estimates until historical experience becomes available. The Company recorded a benefit for changes in estimates of preexisting warranties of $1.2 million, or $0.05 per diluted share, for the three months ended September 30, 2020, and charges of $8.8 million, or $0.38 per diluted share, for the nine months ended September 30, 2020. The Company recorded charges for changes in estimates of preexisting warranties of $2.7 million, or $0.13 per diluted share, for the nine months ended September 30, 2019.
Recently Issued Accounting Pronouncements Adopted
In August 2018, the FASB issued ASU 2018-15, Intangibles – Goodwill and Other – Internal Use Software: Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. This guidance requires the use of existing accounting guidance applicable to software developed for internal use to be applied to cloud computing service contracts’ implementation costs. The costs capitalized would be amortized over the life of the agreement, including renewal option periods likely to be used. The Company adopted the standard effective January 1, 2020 on a prospective basis. There was no impact on the Company’s financial statements including the related notes as a result of adopting the guidance.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement: Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement, which both reduces and expands selected disclosure requirements. The principal changes expected to impact the Company’s disclosure are requirements to disclose the range and weighted average of each of the significant unobservable items and the way the weighted average of a range is calculated for items in the “table of significant unobservable inputs.” The guidance also requires disclosure of changes in unrealized gains and losses in other comprehensive income and removes requirements regarding, among other items, disclosure of the valuation process for Level 3 measurements. The Company adopted the guidance on January 1, 2020. There was no impact on the Company’s financial statements including the related notes as a result of adopting the guidance.
In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other: Simplifying the Test for Goodwill Impairment, which eliminated the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge. Instead, entities will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value. The Company adopted the guidance on January 1, 2020 on a prospective basis. There was no impact on the Company’s financial statements including the related notes as a result of adopting the guidance.
Recently Issued Accounting Pronouncements Not Yet Adopted
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments, which applies primarily to the Company’s accounts receivable impairment loss allowances. The guidance provides a revised model whereby the current expected credit losses are used to compute impairment of financial instruments. The new model requires evaluation of historical experience and various current and expected factors, which may affect the estimated amount of losses and requires determination of whether the affected financial instruments should be grouped in units of account. The guidance, as originally issued, was effective for fiscal years beginning after December 15, 2019. In November 2019, the FASB issued ASU 2019-10, Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842) Effective Dates, which deferred the effective dates of these standards for certain entities. Based on the guidance, the effective date of ASU 2016-13 is deferred for the Company until fiscal year 2023. The Company currently plans to adopt the guidance on January 1, 2023 when it becomes effective. The Company is continuing to assess the impact of the standard on its financial statements.

15



Note 2.    Revenue
Disaggregation of Revenue
The following table summarizes net sales by end market:
(in thousands)For the Three Months Ended September 30,For the Nine Months Ended September 30,
End Market2020201920202019
Energy$33,813 $64,331 $113,546 $162,224 
Industrial29,843 37,020 97,437 142,267 
Transportation50,794 37,161 101,620 88,492 
Total$114,450 $138,512 $312,603 $392,983 
The following table summarizes net sales by geographic area:
(in thousands)For the Three Months Ended September 30,For the Nine Months Ended September 30,
Geographic Area2020201920202019
North America$104,840 $125,971 $281,339 $343,593 
Pacific Rim5,466 6,744 18,215 30,173 
Europe2,395 4,329 7,630 12,712 
Other1,749 1,468 5,419 6,505 
Total$114,450 $138,512 $312,603 $392,983 
Contract Balances
Most of the Company’s contracts are for a period of less than one year; however, certain long-term manufacturing and extended warranty contracts extend beyond one year. The timing of revenue recognition may differ from the time of invoicing to customers and these timing differences result in contract assets or contract liabilities on the Company’s Consolidated Balance Sheets. Contract assets include amounts related to the contractual right to consideration for completed performance when the right to consideration is conditional. The Company records contract liabilities when cash payments are received or due in advance of performance. Contract assets and contract liabilities are recognized at the contract level.
(in thousands)As of September 30, 2020As of December 31, 2019
Short-term contract assets (included in Prepaid expenses and other current assets)
$8,601 $694 
Short-term contract liabilities (included in Other accrued liabilities)
(52,502)(26,898)
Long-term contract liabilities (included in Noncurrent contract liabilities)
(10,009)(17,998)
Net contract liabilities$(53,910)$(44,202)
During the nine months ended September 30, 2020 and 2019, the Company recognized $18.4 million and $4.1 million, respectively, of revenue upon satisfaction of performance obligations related to amounts that were included in the net contract liabilities balance as of December 31, 2019 and 2018, respectively. The increase in the contract asset during the nine months ended September 30, 2020 is related to performance completed and revenue recognized under certain contracts for which the Company’s right to consideration is conditional at the end of the period. The increase in the contract liabilities during the nine months ended September 30, 2020 is primarily related to prepayments for certain engines by a customer under a long-term supply agreement.
Remaining Performance Obligations
For performance obligations that extend beyond one year, the Company had $62.1 million of remaining performance obligations as of September 30, 2020 which primarily relates to prepayments for certain engines by a customer under a long-term supply agreement. The Company expects to recognize revenue related to these remaining performance obligations of approximately $14.8 million in the remainder of 2020, $44.5 million in 2021, $0.7 million in 2022, $0.9 million in 2023, $0.8 million in 2024 and $0.4 million in 2025 and beyond.

16



Note 3.    Weichai Transactions
Weichai Warrant
In September 2018, Weichai’s stock purchase warrant (the “Weichai Warrant”) was amended under the terms of a second amended and restated warrant (“Amended and Restated Warrant”) to defer its exercise date to a 90-day period commencing April 1, 2019, to adjust the exercise price to a price per share of the Company’s Common Stock equal to the lesser of (i) 50% of the Volume-Weighted Average Price (“VWAP”) during the 20 consecutive trading day period preceding October 1, 2018 and (ii) 50% of the VWAP during the 20 consecutive trading day period preceding the date of exercise, subject to an adjustment that could reduce the exercise price by up to $15.0 million. In the event that the adjustment exceeded the exercise price, the excess would be due to the warrant holder.
The Weichai Warrant was a freestanding derivative financial instrument that was not indexed solely to the Company’s Common Stock due to the Weichai Warrant exercise terms. On April 23, 2019, Weichai exercised the Weichai Warrant resulting in the Company issuing 4,049,759 shares of the Company’s Common Stock and Weichai becoming the owner of 51.5% of the outstanding shares of the Company’s Common Stock, as of such date. The exercise proceeds for the warrants of $1.6 million were based on 50% of the VWAP during the 20 consecutive trading day period preceding April 23, 2019 and the $15.0 million reduction in the exercise price described above. Changes in value of the Weichai Warrant, including the impact of the exercise, resulted in a loss of $1.4 million reported in Loss from change in value of warrants in the Company’s Consolidated Statement of Operations for the nine months ended September 30, 2019.
Weichai Collaboration Arrangement and Related Party Transactions
The Company and Weichai executed a strategic collaboration agreement (the “Collaboration Agreement”) in March 2017, in order to achieve their respective strategic objectives and enhance the strategic cooperation alliance to share experiences, expertise and resources. Among other things, the Collaboration Agreement established a joint steering committee, permitted Weichai to second a limited number of certain technical, marketing, sales, procurement and finance personnel to work at the Company and established several collaborations, related to stationary natural-gas applications and Weichai diesel engines. The Collaboration Agreement provided for the steering committee to create various sub-committees with operating roles and otherwise governs the treatment of intellectual property of parties prior to the collaboration and the intellectual property developed during the collaboration. The Collaboration Agreement had a term of three years that was set to expire in March 2020. On March 26, 2020, the Collaboration Agreement was extended for an additional term of three years.
The Company evaluates whether an arrangement is a collaborative arrangement at its inception based on the facts and circumstances specific to the arrangement. The Company also reevaluates whether an arrangement qualifies or continues to qualify as a collaborative arrangement whenever there is a change in either the roles of the participants or the participants’ exposure to significant risks and rewards dependent on the ultimate commercial success of the endeavor. For those collaborative arrangements where it is determined that the Company is the principal participant, costs incurred, and revenue generated from third parties are recorded on a gross basis in the financial statements. For the three and nine months ended September 30, 2020 and 2019, the Company’s sales to Weichai were immaterial in all periods. Purchases of inventory from Weichai were $4.1 million and $16.3 million for the three and nine months ended September 30, 2020, respectively. Purchases of inventory from Weichai were $0.6 million and $1.5 million for the three and nine months ended September 30, 2019, respectively. As of September 30, 2020 and December 31, 2019, the Company had immaterial receivables from Weichai and outstanding payables to Weichai of $6.6 million and $5.9 million, respectively.
Note 4.    Property, Plant and Equipment
Property, plant and equipment by type were as follows:
(in thousands)As of September 30, 2020As of December 31, 2019
Property, Plant and Equipment
Leasehold improvements$6,820 $6,745 
Machinery and equipment42,857 41,243 
Construction in progress1,543 1,679 
Total property, plant and equipment, at cost51,220 49,667 
Accumulated depreciation(30,104)(26,473)
Property, plant and equipment, net$21,116 $23,194 
17


Note 5.    Goodwill and Other Intangibles
Goodwill
The carrying amount of goodwill at both September 30, 2020 and December 31, 2019 was $29.8 million. Accumulated impairment losses at both September 30, 2020 and December 31, 2019 were $11.6 million.
See Note 1. Summary of Significant Accounting Policies and Other Information for additional discussion of the Company’s impairment considerations related to the impacts of the COVID-19 pandemic and the oil and gas market price volatility.
Other Intangible Assets
Components of intangible assets are as follows:
(in thousands)As of September 30, 2020
Gross Carrying ValueAccumulated AmortizationNet Book Value
Customer relationships$34,940 $