As filed with the Securities and Exchange Commission on August 25, 2021.

Registration No. 333-258238

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Amendment No. 2 to

FORM S-1

REGISTRATION STATEMENT

Under

the Securities Act of 1933

Qnergy Inc.

(Exact name of Registrant as specified in its charter)

300 West 12th Street

Ogden, UT 84404

(801) 752-0100

(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)

Dr. Ory Zik

Chief Executive Officer

Qnergy Inc.

300 West 12th Street

Ogden, UT 84404

(801) 752-0100

(Name, address, including zip code, and telephone number, including area code, of agent for service)

Copies to:

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [  ]

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [  ]

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [  ]

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [  ]

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.

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 to Section 7(a)(2)(B) of the Securities Act. [  ]

CALCULATION OF REGISTRATION FEE

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a) may determine.

The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and we are not soliciting offers to buy these securities in any jurisdiction where the offer or sale is not permitted.

Subject to Completion, dated August 25, 2021

4,342,160 SHARES

COMMON STOCK

This is an initial public offering of Qnergy Inc.’s shares of common stock.

We are offering to sell on a best efforts basis 4,342,160 shares of our common stock in this offering. We have engaged Poalim I.B.I. – Underwriting & Issuing Ltd., Orion Underwriting and Issuances Ltd., Epsilon Underwriting & Issuing Ltd., and Leumi Partners Underwriters Ltd to serve as distributors for the offering of shares of our common stock. We will conduct the offering of shares of our common stock through a uniform offering with the price of the shares of our common stock determined through a Tender Process (as described in “Plan of Distribution”). We expect to appoint Poalim I.B.I. – Underwriting & Issuing Ltd., to also act as our offering coordinator. Poalim I.B.I. – Underwriting & Issuing Ltd., Orion Underwriting and Issuances Ltd., Epsilon Underwriting & Issuing Ltd., and Leumi Partners Underwriters Ltd will not be under any obligation to purchase or sell any shares of our common stock. There is no minimum number of shares required to be sold in order for the offering to proceed.

Prior to this offering, there has been no public market for our common stock. It is currently estimated that the initial public offering price per share will be between $9.212 and $13.818.

We are offering all of the shares of our common stock under this prospectus to the public in Israel. We have applied to list our common stock on the Tel Aviv Stock Exchange (the “TASE”) under the symbol “QNRG.” Our common stock will not be listed on a national securities exchange in the United States.

The offering is a registered initial public offering solely in Israel by a U.S. domestic issuer, which will be marketed through Israeli distributors. The TASE Clearing House, the clearing entity for the offering, is not permitted under its rules to accept securities that are subject to transfer restrictions of the kind required under Rule 905 of Regulation S (“Regulation S”) under the Securities Act of 1933, as amended (the “Securities Act”). Consequently, we have decided, as an unlisted U.S. domestic issuer, to effect our initial public offering and public listing of our equity securities on the TASE in Israel by use of a full Form S-1 registration process under the Securities Act. By relying on this registration process instead of resorting to an unregistered Regulation S offering, we will be able to satisfy the listing requirements of the TASE while simultaneously complying fully with the Securities Act. Because the registered public offering that we are undertaking is targeted solely at non-U.S. investors in Israel, no U.S. underwriters or distributors will be involved in the offering.

Although the shares of our common stock offered by this prospectus are being registered under the Securities Act, no shares of common stock will be offered, sold or delivered within the United States or to U.S. persons (as defined in Regulation S), and no directed selling efforts (as defined in Regulation S) in the United States relating to us or the offering of the shares of our common stock by this prospectus will be made by the distributors. The shares of our common stock offered by this prospectus through the distributors will only be offered, sold and delivered to non-U.S. persons (as defined in Regulation S) in offshore transactions (as defined in Regulation S) outside the United States. Selling efforts by us, the distributors or anyone acting on behalf of us or any of the distributors will only be conducted in Israel and directed only to Israeli investors who are also non-U.S. persons (as defined in Regulation S).

The Israeli distributors for the offering are not subject to the requirements to which U.S. broker-dealers are subject under the Securities Exchange Act of 1934, as amended (i.e., not required to be registered as a U.S. broker-dealer or to act through an affiliate that is registered as a U.S. broker-dealer). As a result, the Israeli distributors will not be conducting any marketing activities, offers or sales in or into the United States or involving U.S. persons in connection with the offering. References to Regulation S in this prospectus relate solely to the use of the clear definitions and principles found in Regulation S to structure the necessary and appropriate restrictions on offering, solicitation and underwriting activities in or into the United States or with respect to U.S. persons.

We are an “emerging growth company” as defined under federal securities laws and, as such, will be subject to reduced public company reporting requirements. Investing in our common stock involves risks. See “Risk Factors” on page 19 to read about factors you should consider before buying shares of our common stock.

Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

Prospectus dated              , 2021

TABLE OF CONTENTS

We are responsible for the information contained in this prospectus and in any free writing prospectus filed with the Securities and Exchange Commission. Neither we nor the distributors have authorized anyone to provide you with additional information or information different from that contained in this prospectus or in any free writing prospectus filed with the Securities and Exchange Commission. We and the distributors are offering to sell, and seeking offers to buy, shares of our common stock only in jurisdictions where offers and sales are permitted. The information in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or any sale of shares of our common stock.

ABOUT THIS PROSPECTUS

Except where the context otherwise requires or where otherwise indicated throughout this registration statement, the terms “Qnergy,” “we,” “us,” “our,” “our company,” “Company” and “our business” refer to Qnergy Inc.

PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus. This summary does not contain all of the information you should consider before buying shares of our common stock in this offering. Therefore, you should read this entire prospectus carefully, including “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our consolidated financial statements and the related notes contained elsewhere in this prospectus. Unless the context requires otherwise, the words “we,” “us,” “our,” “our business,” “our company,” “Company” and “Qnergy” refer to Qnergy Inc.

QNERGY INC.

Overview

Our mission is to provide sustainable, clean and reliable power for applications that are not connected to the electric power grid or that need to ensure continuous energy supply in the event of grid disruption or vulnerability. To fulfill this mission, we have developed durable, cost-effective and efficient technological solutions. While our focus to date has been on serving the North American natural gas exploration, production and transport market, we intend to expand into other segments of the distributed energy generation market, including telecommunication, residential and small and medium-sized commercial distributed energy resources. We believe that climate change will be the determining factor in how energy is produced and consumed in the 21st century. In fulfilling our mission, we are helping our customers both mitigate greenhouse gas (GHG) emissions and become more resilient to the effects of climate change.

We operate in the stationary power sector providing primary and back-up power. Our products provide low-maintenance power solutions that work reliably with a broad range of heat sources. Our generators contain proprietary Free Piston Stirling Engines (FPSE). These engines are enclosed, frictionless external combustion systems that require no lubrication, oil-change or repair and are capable of delivering tens of thousands of hours of uninterrupted operation. Our lead product is our stand-alone power generator (the “PowerGen”). It is a power generator based on the FPSE technology. Some of our fielded systems have already passed the 30,000 hours mark without any engine maintenance. Qnergy offers generators of different sizes, ranging from approximately 0.5 kilowatt to 5.5 kilowatts of electric output. Our generators can be bundled together to create larger generation solutions. Our systems are designed to use any source of heat to provide power, including natural gas, propane, biogas and waste heat. However, the systems in the field currently use only natural gas and propane as sources of heat to provide power, while there is a feasibility proof for the use of biogas and waste heat and use of residual heat and hydrogen remains to be tested. Our design philosophy and breadth of technology aims to allow customers to choose the fuel source that best fit their needs.

Our engine technology is based on the FPSE, which allows us to provide reliable power which is also fuel-flexible. NASA has recognized the reliability of the FPSE technology, announcing in March 2020 that a free-piston Stirling power convertor accomplished about 14 years of maintenance-free operation in the Stirling Research Laboratory at NASA’s Glenn Research Center.¹ NASA has collaborated in the past on FPSE technology with Stirling Technology Company,² formerly a Washington corporation formed in 1985 and engaged in the research, development and commercialization of long-life, free-piston, Stirling machines, primarily through government contracts. During the year ended July 31, 2005, Stirling Technology Company changed its name to Infinia Corporation, and in November 2013, we acquired all the assets of Infinia Corporation. A recent testament to our reliability at active customer sites was obtained in February 2021 in Texas; our customers had full power allowing them to operate without disruption, while most of their peers experienced a state-wide outage.

In our fastest growing application, we leverage our reliable off-grid power to drive air compressors that help the natural gas industry eliminate methane emission from pneumatic devices, which emit the highly potent GHG. Our solution, Compressed Air Pneumatics (CAP3), allows customers to vent clean air instead of emitting methane. Each of these systems is capable of abating more than 500 tons of carbon dioxide (CO2) equivalent per year, which is equivalent to the average annual emissions caused by about 121 cars.

Our strategy has been to establish our company as a world-class supplier of reliable power generators, while keenly protecting our know-how and trade secrets. We have initially focused on a single beachhead market to demonstrate the performance of our PowerGen in a well-defined sector of oil and gas remote power. Now that we have reached this milestone, we are expanding to other markets.

¹ https://www.nasa.gov/feature/glenn/2020/stirling-convertor-sets-14-year-continuous-operation-milestone.

² https://spinoff.nasa.gov/spinoff2002/er_9.html.

Major and independent natural gas companies already rely on our products for their distributed power and decarbonization needs. In April 2020, the Oil and Gas Climate Initiative, through its investment arm OGCI Climate Investment Holdings LLP (“OGCI”), purchased $6 million of shares of our Series B preferred stock, as a result of which $4 million of our convertible loans were converted into shares of our Series B-1 preferred stock.

We believe that we are capturing only a small percentage of our largest customers’ total remote power and air-compression needs, which gives us a significant opportunity for expansion and growth within our existing customer base. Moreover, additional markets will unfold with the need to mitigate climate change and adapt to its severe effects. Our growth is also supported by external factors such as regulatory pressure to reduce methane emission in the oil and gas sector, the increasing price and declining reliability of grid power and the phasing-out of diesel generators.

Our production depends on our supplier’s ability to obtain raw materials, such as copper for magnetic coils and Inconel, stainless steel and carbon steel for various engine components. In addition, we are dependent on our supplier’s ability to obtain electronics components. We are currently experiencing shortages and price increases and are working with our suppliers to secure supply of raw materials and electronic components.

Qnergy is the only company that offers an FPSE-based power generator that produces greater than one kilowatt per unit; the PowerGen employs one of Qnergy’s FPSEs and is capable of delivering highly reliable, uninterrupted, 24/7 power, that is also significantly cleaner and more sustainable than conventional diesel generators. Customer requirements for our generators can be provided for prime power (typically nearly a 99% duty cycle, which is the ratio of time a load or circuit is on compared to the time the load or circuit is off ), Standby or Backup Power (typically less than a 20% duty cycle) and Combined Heat and Power (typically also a 99% duty cycle).

FPSE are closed cycle systems or heat engines that work using variations in internal pressure produced by a heat source to drive a power piston connected to reciprocating magnets (i.e., a linear alternator) for the conversion of kinetic energy into electricity. The heat source or ‘fuel’ is external to a sealed engine that contains a fixed amount of helium gas. The sealed engine construct leads to the high reliability and fuel flexibility. The fuel-agnostic nature of the technology means that we can supply power with various sources of heat including any mix of natural gas, propane and biogas that our customers prefer.

Our latest in-house innovation in hardware and software control is one of the factors that enabled the commercialization of our products. We continue to improve and expand our performance envelope in reliability, efficiency, cost effectiveness, fuel-tolerance and electronic control. Our FPSE engines uses proprietary flexures to suspend the moving displacer and piston. Consequently, both the reliability and life expectancy of the engine are high as there is little wear in the system.

We have innovated and evolved our technology over time. We have commercial generators that have already exceeded the 30,000 hours (~3.5 years) mark of continuous operation and continue to be fully functional, acquiring more hours without engine maintenance. We perform low-cost and light annual inspections to a number of ancillary pieces of support equipment to the engine; the engine itself, however, requires nearly zero service or maintenance. An Internal Combustion Engine requires an oil change every 300 to 1,000 hours (roughly eight times per year of continuous operation). In addition, we are constantly reviewing novel manufacturing technologies to reduce cost and improve performance.

As of December 31, 2019 and December 31, 2020, we had approximately 200 and 400 deployed systems, respectively. 2019 and 2020 sales were approximately $8.8 million and $8.6 million, respectively, while our cumulative losses for the same periods were approximately $34.3 million and $39.4 million, respectively. Our 2020 sales to the natural gas sector were similar to 2019, outperforming the sector that nearly stalled in 2020 due to COVID-19. As of June 30, 2021, we had approximately 450 deployed systems. Sales for the six month period ended June 30, 2021 were approximately $8.5 million, while cumulative losses for the same period were $42.1 million.

Industry Background

The effects of climate change increase the frequency and intensity of hazardous weather events such as storms, droughts, fires and extreme cold and hot temperature that impact the already strained electricity grid. The economic cost of these weather events is sizable. Worldwide, natural disasters produced global losses of $210 billion in 2020. The vulnerable central electricity supply calls for a distributed and reliable power source, while the need to reduce carbon intensity requires a flexible-fuel technology that has the ability to utilize renewable fuels. These two requirements fit the fundamental characteristics of PowerGen, making it a vital component in the energy transition.

Natural Gas as a ‘Bridge’ to a Decarbonized Economy

Natural gas plays a key role in any future global scenario. According to projections published in the U.S. Energy Information Administration’s (EIA) Annual Energy Outlook 2020, total dry natural gas production in the United States is likely to continue to increase until 2050.

Our natural gas business is divided into (1) traditional distributed power applications such as Cathodic Protection and Automation and (2) the relatively new but rapidly growing application of helping decarbonizing the natural gas supply chain by providing compressed air to power pneumatic devices. Our traditional distributed power business is growing as the demand for dry natural gas increases. In addition, operators find that relying on the electrical grid is becoming more expensive while the grid is becoming less reliable, which is driving operators to prefer distributed power solutions. Our decarbonization application is growing much faster than our traditional distributed power application. This trend is driven by the impact of supply-chain methane emissions on the lifecycle GHG intensity of natural gas. The compounding effects of environmental, social, and corporate governance trends, new U.S. Federal and State levels climate plans and European requirements are driving gas producers to invest in mitigating supply-chain methane emissions. In Canada (Alberta and British Columbia), the government already banned methane emission through venting and flaring, including explicit reference to pneumatic devices. Producers are also incentivized through carbon credits (Alberta) and rebates (British Columbia).

The “bleeding pneumatic devices” use natural gas to activate valves and pumps, mainly for process control and chemical injection, venting spent gas (i.e. methane) directly into the air. Millions of bleeding pneumatic devices are used in the natural gas supply chain, making them one of the largest sources of methane emissions in the natural gas value chain. According to the International Energy Agency (“IEA”), emissions from bleeding pneumatic devices is about 15% of the total GHG emissions of the oil and gas value chain. Although each pneumatic device is a relatively small emitter, collectively they comprise a major source of methane emissions.

The simplest and most established solution is to replace natural gas as a source of power with compressed air. This solution fits into the infrastructure that exists on-site. However, air compression requires electrical power and nearly half the sites in the US, a larger percentage in Canada, and an additional double-digit percentage globally, are not connected to a stable electrical grid. The reason that bleeding pneumatic devices are so ubiquitous is because most gas fields do not have a stable electrical grid or any grid connectivity at all.

Our solution is to connect the PowerGen to the unprocessed wellhead gas to produce utility-grade power and clean instrument air. It is being implemented across gas fields in North America including the Marcellus, Haynesville and other natural gas plays.

Cellular communication became critical infrastructure and it depends on reliable power

Increasing wireless data proliferation and usage continues to drive wireless service providers to improve their network quality and make investments in the coverage and capacity of their networks. The 2020 COVID-19 epidemic created a slowdown in the industry but made communication even more important. These trends are expected to drive growth in telecommunication infrastructure investments in both urban and remote locations. The demand increases further with the transition to 5G and the requirement for additional capacity driven by ‘Internet of Things’ and ‘edge computing’.

Traditionally, this pressure would drive demand for the incumbent technology, which conventionally consisted of diesel generators. These generators are ubiquitous and cheap. Diesel generators have low capital expenditure and use locally-abundant diesel. However, in some locations, diesel generators are expected to be phased out and the telecom industry is seeking alternatives.

Among the alternatives are gas generators that also have low capital expenditures, but, similar to diesel generators, have high operating expenses and low reliability. Solar-charged batteries are suitable in unique areas where radiation is abundant throughout the year and land is not a constraint. In most other locations, despite the decline in solar panels and battery cost, a 24/7 solar-battery solution is expensive. PowerGen has already been deployed in remote locations and other places, demonstrating competitive performance. We are now starting to commercialize our PowerGen to this sector as a solution for new and existing (retrofit) telecommunication towers.

The Residential and Business Sectors Moving to Distributed Energy Resources

The increasing frequency and severity of natural disasters will likely increase the cost of grid-supplied power to customers. According to data from the U.S. Department of Energy (DOE), the United States electric grid loses power 285% more often than in 1984, when data collections on blackouts began. These outages result in an annual loss to American businesses of as much as $150 billion, with weather-related disruptions costing the most per event. The recent fire-driven and cold-driven outages in California and Texas significantly enhanced this issue.

Residential and small and medium businesses (SMB) distributed energy resources (DER) are looking for sustainable energy solutions that provide resiliency and immunity against electricity outages. Specifically in the residential market, the ‘home as a sanctuary’ trend was accelerated by the 2020 pandemic, where people live, learn, work and shop from home is already driving a surge in sales of residential generators for both prime power or standby generators. We focus on the high-end segment and are starting to pilot the use of PowerGen for prime and backup power.

Growing Interest in Biogas

Biogas is composed mostly of methane, which is a potent GHG. It contains other components that need to be removed before biogas can be used in the current infrastructure. Refined biogas is often called biomethane or renewable natural gas. According to Navigant, the potential GHG emissions reductions of renewable natural gas in California from the residential and commercial building sectors, could reach similar GHG emissions reduction targets in 2030 as appliance electrification. Furthermore, when comparing the cost effectiveness of different GHG emissions reduction strategies, renewable natural gas scenarios have comparable or lower costs to electrification scenarios. In addition, according to EIA, Biogas qualifies under the U.S. Renewable Fuel Standard Program. Nearly all of the biogas now consumed in the United States is produced from anaerobic decomposition and used for electricity generation.

One of the applications of PowerGen through a feasibility study is the use of direct biogas in-situ at the production site, in addition to our capability to use renewable natural gas to generate electricity. The main components of this solution are a PowerGen; biodigester; gas-tank and a controller. Our preliminary estimates show that PowerGen can abate about 3-4 tons of methane per month at a ratio of 0.1 ton of methane to ton of food waste.

Electric Vehicle Charging

EV charging is an important related application. According to Frost and Sullivan, the U.S. EV sales will rise to 6.9 million cars by 2025. According to McKinsey, the U.S. alone will need a cumulative 20 million charging stations by 2030. This growth will add a significant burden on the U.S. electrical grid. In addition, unlike gas stations, EV fast-charging stations cannot be placed everywhere. They must be placed in close proximity to transformers that can support their heavy draw from the grid.

PowerGen can support this transition in multiple configurations: slow (Level 1 and 2) charging and direct current fast charging (DCFC), which will require 50kW and a supporting battery bank that will be charged by PowerGen over a longer period. This opportunity is currently being studied by the Company.

Transformed Utility Landscape

The EIA projects that the share of renewables in the United States electricity generation mix will increase from 21% in 2020 to 42% in 2050. Wind and solar generation are responsible for most of that growth. The EIA projects that by 2030, renewables will collectively surpass natural gas to be the predominant source of generation in the United States and that solar electric generation will surpass wind energy by 2040 as the largest source of renewable generation in the United States. The excessive supply of solar and wind lead to curtailment of conventional gas power plants.

While solar and wind help reduce GHG emissions, they provide only intermittent power to the grid. Consequently, renewable energy reduces the grid’s ability to deliver 24/7 reliable electric power. As the penetration of these resources increases, balancing real-time supply and demand becomes more challenging and costly.

Utilities and energy asset owners are leveraging new technologies to drive adoption of distributed prime power generators and Combined Heat and Power (mCHP) that can help balance supply and demand. According to Wood Mackenzie, these technologies may supplant direct load controls in homes as a primary source of demand response, creating large new reservoirs of potential grid flexibility.

We believe that a reliable and fuel flexible generator, which can operate with conventional as well as new fuels will play an important role in this transition.

Our Solution

The PowerGen can deliver highly reliable, uninterrupted, 24/7 clean and sustainable prime power. It can also work as standby power and potentially Combined Heat and Power. It contains a FPSE engine that converts heat into electrical energy. The heat source is external to the sealed engine, which contains a fixed amount of compressed helium gas. The FPSE has a small number of moving parts. The motion is linear and the piston is suspended on flexures, giving rise to the name “Free Piston Stirling Engine.” The FPSE technology allows us to build systems that are customizable, always-on and can serve as a source of reliable power.

The electrical output of the PowerGen is connected to the customer’s electrical load. The typical use configuration for our products provides reliable distributed power in modules of 500 to 5,500-watt range. The footprint is roughly equivalent to five kilowatt per square meter, or approximately fifty times more space-efficient than solar power generation.

The PowerGen is designed for harsh environmental conditions. In addition, it can be easily integrated into a residential or corporate environment due to its compact space requirement, minimal noise profile and absence of harmful emissions.

Figure 1 shows the PowerGen in some installations.

Figure 1. PowerGen in various installations working as both Prime and standby power (1) A system in Louisiana supplying prime power for Cathodic Protection working after being through Hurricanes Laura and Delta; (2) A remote weather station in Colorado - Rocky Mountains; (3) Remote cell tower in Alaska. PowerGen on the right side of the picture serves as backup power for Telecommunication. It charges batteries when needed using propane. The insert shows the system working during winter at -40⁰F. This picture was taken through a helicopter window. Some of our distributed installations require a helicopter trip for maintenance. In those cases, the ROI of our elevated reliability is nearly immediate.; (4) A pilot installation in Mexico (in collaboration with Sistema bio). The fuel is biogas from animal manure, which was digested in the sleaves in the left side of the picture. The low-pressure biogas is fed into PowerGen to create clean power; (5) Off-shore installation providing prime power to an unmanned platform of the Gulf of Mexico.

The fastest growing application of our solution is the CAP3 system. This system replaces methane emission in pneumatic devices in gas fields with clean instrument air. The air is compresses using our PowerGen, which combusts the normally vented methane, while providing reliable electric power and clean instrument air. The CAP3 package contains: duplex compressors; air dryer; gas flow measurement for mitigation reporting (emissions offset and carbon credits). Available models include: CAP3-F: Large walk-in shelter with auxiliary equipment space for cold weather; CAP3-M: All weather reach-in enclosure; CAP3-L: Warm climate partially roofed open skid; CAP3-G: Grid powered skid. Two of these configurations are shown in Figure 2.

Figure 2. Two examples of CAP3 configurations: (1) CAP3-M All-weather reach-in enclosure installed in Pennsylvania; (2) CAP3-F Large walk-in shelter for cold climate s with auxiliary equipment space

Our Value Proposition

Clean, reliable remote power. We provide the complete, integrated solution including installation, equipment, service, maintenance and remote monitoring software. Our value proposition has multiple key elements: reliability, resiliency, and low-maintenance; cost savings and predictability; efficiency, sustainability and fuel-flexibility. While the relative importance of these attributes can vary by customer, our ability to deliver these attributes is a significant differentiator for us in the current marketplace and adjacent markets.

Reliability over lifetime. Our legacy is based on our experience providing reliable, low-maintenance, long-life missions including both terrestrial and participation in the development of deep space remote power generation platforms. Reliability is deeply ingrained within our culture. We provide high-performing products to our customers by designing them to stringent reliability targets and then stress-test reliability by intentionally failing parts within extreme, harsh operating parameters. Tests to failure shows us exactly where the margins are, establishes the validity of our products within their specified operating envelope, and helps speed up product improvement cycles. With millions of total hardware operating hours, we continue to demonstrate our capacity to design and manufacture products to the most stringent of reliability requirements.

Resiliency. The PowerGen is designed to provide power in the harshest environments. Our systems provide prime power in the -40⁰F (-58⁰F including wind-chill) of the winters in Canada and Alaska and the +135⁰F of the summers in Arizona and California. In most of our locations, there is either no available grid or the grid is unreliable. The resiliency of our systems becomes exceedingly important with the decreasing availability of a reliable electrical grid.

Availability. The PowerGen operates at very high availability; many of our systems have availability of more than 99+%. Thus, the PowerGen provides resiliency in off-grid or weak-grid locations and security against a failure that can occur on the electrical grid.

Best in class maintenance. The FPSE is designed to work continuously nearly maintenance free. All our generators are capable of being read remotely to monitor performance. We recommend a light annual inspection; unlike gas generators, this is the only visit recommended.

Cost savings and predictability. We offer our customers the ability to choose the lowest total cost of ownership (TCO) solution. Most of our customers are sensitive to down-time. The combination of our reliability with the significantly lower TCO than competition is a leading differentiator in the natural gas market and expected to be in telecom. In addition, our solution often provides greater predictability and uptime in grid-connected scenarios. We can help customers load shift and peak shave, thereby reducing their exposure to demand charging and other time of use price volatilities.

Sustainability. Our recent solution, CAP3, reduces emissions while minimizing capital and operating costs. Each 5.5 kilowatt of generation from solar panels abates less than 9 metric tons of CO2 per year. The same amount of power in CAP3 abates more than 1,000 metric tons of CO2 per year. Additional sustainability benefits are the very low NOx and CO emissions and very little noise levels. These qualities are important especially for residential power where CO poisoning is known to lead to severe health risks and sometimes even fatalities.

Flexible fuel. Additional sustainability benefits are the flexible fuel capability that stems from the external combustion characteristics of our technology. The need for a flexible fuel is expected to grow as utilities will shift to biogas, hydrogen and perhaps other low-carbon fuels. Technologies that can utilize these fuels efficiently and reliably will be at a high demand especially in a grid dominated by intermittent sources like solar and wind. Our systems in the field currently use only natural gas and propane as sources of heat to provide power, while there is a feasibility proof for the use of biogas and waste heat and use of residual heat and hydrogen remains to be tested.

Our Market Opportunity

Natural gas. The natural gas market can be divided into two segments: conventional distributed power and decarbonization opportunities. The annual North America conventional remote power market is estimated at hundreds of millions of dollars. It is an established market that follows asset development and equipment replacements. The main applications are cathodic protection (midstream) and automation (upstream) applications.

Our fast-growing opportunity is natural gas decarbonization. This market is estimated at $3 billion based on multiple sources and approaches. Using the IEA (Methane Tracker), we have analyzed the natural gas supply chain emissions per country and per mitigation technology. The data was processed assuming that a Compressed Air Pneumatics (“CAP”) system abates 45-75 tCH4/yr (in round numbers, about 1,100-2,200 tCO2e/yr). The global warming potential (“GWP”) factor between methane to CO2 is assumed 25. This is an unfavorable assumption since under a 20 years scenario the GWP of methane is 86. In addition, we have assumed that 50% of the sites are off-grid. This approach was coupled with a bottom-up approach using the EPA (FLIGHT) data, Thundersaid Energy and Alberta Energy Regulator (AER). This market is driven by regulations that limit the use of bleeding pneumatic devices in gas fields. The Canadian Environmental Protection Act (CEPA) includes Directive 60 that limits emissions from pneumatic devices in Alberta. In the U.S., the Biden administration is expected to limit emissions the natural gas supply chain as part of its climate plan.

Telecommunications. Based on primary and secondary data in a study commissioned by Qnergy, we estimate that the global telecom market for PowerGen is approximately $8 billion. The estimation is based on a complete diesel generators phaseout across all geographies especially in developing countries.

Residential DER. According to Wood Mackenzie, the total U.S. distributed energy resources (“DER”) market is $110 billion. However, our segment is the very high end. About one percent (600,000) homes are valued at $2 million or more. The size of this sector is estimated at $11 billion. As our production costs decline and the adoption rate of DER grows, we will focus on larger markets.

SMB DER. According to the Small Business Bureau, the United States has about 30 million small businesses (“SMBs”). Assuming ten percent penetration of DER where we will sell to the high-end (assuming that businesses are more inclined to pay the premium for our superior performance), we estimate a $8 billion market in the U.S. SMB sector as well.

Biogas in SMB, Restaurants, Small Farms and other Organizations. According to an academic meta-analysis of data from United Nation’s Food and Agriculture Organization (FAO), there are about 570 million small farms globally. Assuming that 20% of these farms will adopt a DER solution that converts agricultural waste to energy and that 5% of those will acquire a low-cost version of the PowerGen, our products will address a $19 billion market. In addition, there is a growing interest in biogas from utilities, SMB, restaurants, government organizations and other.

Our Growth Strategy

Our growth strategy is based on our superior economics and environmental performance. We are initiating the market through high-end customers that depend on clean, distributed power for their operations. These sales allow us to increase volume, reduce cost and penetrate new markets. This will be done while continuing to innovate and improve our performance envelope as well as introducing new business models that allow our customers to select the combination of operating cost and capital cost that meets their needs.

Expanding Fuel Capabilities. Part of our technology roadmap is to leverage our fuel – agnostic capability to allow customers to use our system not only with propane and natural gas, but also with any mix of biogas and hydrogen. Additional heat sources that are in active discussions or trials are nuclear and waste-heat.

Focus on high-end segments for strategic growth. To establish our product offering and capture the commercial opportunity, we have started selling to high-end sectors and segments that are willing to pay a premium for our superior performance. Our market grows as our volume increase and cost reduced. We have begun our commercialization with remote power solutions to the natural gas sector and are now expanding to telecommunication and plan to expand into the residential and SMB DER sectors.

Geographical Expansion. We expect the demand for our products to grow in first world countries as well as in emerging economies. The list of countries that are relevant to PowerGen due to a combination of insufficient power supply, higher intensity of extreme weather events and commitments to reduce carbon emissions is very broad. Outside of North and Latin America it includes, among others, the U.K., France, Germany, Russia, Italy, Spain, Poland, India, China, Philippines, Vietnam, Indonesia, Mexico, Turkey, Saudi Arabia, U.A.E., Nigeria, Algeria.

Maintain a “field-first” mentality to attract and retain customers. Our customers are willing to pay a premium for our products not only because PowerGen’s superior performance, but also because we have demonstrated our commitment to field service and technical support. Reputation is hard to gain and easy to lose. We have invested and will continue to invest in field support making sure that our customers receive the up-time and ‘peace of mind’ that they expect. Our post-sale engagement is as important as our pre-sale. Our customer support team ensures that our customers are well-served and that our uptime commitment is respected. Our sales strategy is based on a close interaction with end-users both directly and through our distributors.

Shorten sale-cycles by becoming specified vendor. We launched our PowerGen in 2018. As new entrants in a competitive market, we launched our offering with a “try and buy” program. We have sold hundreds of units without a single unit returned to us. The quality and staying power of our customers are important factors contributing to our confidence in this strategy. A high percentage of our current orders are repeat (approximately 80% in year to date 2021), which shortens our sales-cycle and lowers our cost of sales. Our success in landing industry leading customers encouraged other natural gas companies to follow suit. We employ a “land and expand” model with channel partners, which recognizes that new customers typically pilot a limited scale solution initially to gain experience with our PowerGen solutions. Many of our customers have very significant assets and distributed power needs. Moving from a trial to being specified is a key element in our strategy. We work with our customers to become and remain the specified vendor for all their needs in our power range.

Drive production cost reductions to expand our market. We expect to reduce cost with technological innovation and as our volume increases. Since our initial commercial deployments, we have continually reduced the production cost of our systems. This continuous trend will enable our expansion into new markets. We believe that our technology innovation will drive further cost reductions as each successive generation of PowerGen builds on the design and field experience of all previous generations. In addition, increased production volumes should lead to further cost reductions based on economies of scale, enabling market expansion and improved margins. We continue cost reduction with our staff and consultants approaching it from multiple directions including design, tooling, materials and procurement.

Provide innovative financing options to our customers. We intend to continue to assist our customers by providing innovative financing options to purchase our products. We have developed multiple options for our customers to acquire our products and enjoy the benefits of the carbon credits that can be obtained in some regions. We are the first to introduce the option of compressed air as a service (CAaaS) in our industry. CAaaS is a simple utility style agreement with an activation fee and charges for metered air and electricity. These offerings provide a range of options that enable customers to do business with us and secure service (power or air) best customized to their needs. Our customers will be able to purchase our system outright, with operations and maintenance services contracts, or purchase the electricity or compressed air that our systems produce through various financing vehicles including lease. Although to date we have not sold any CAaaS agreements, we believe that it is important that our customers be aware of multiple ways to purchase our product.

Simplify the process of developing innovative power solutions based on our technology platform. Our technology leadership is considerable and we have a well-established track record of continuous improvements. Our priority is to continue to advance our technology to maintain and reinforce this leadership position. Our current offering is well suited for powering natural gas sites, cell sites in the mobile telephony market and the residential SMB DER markets, that we intend to address. Our FPSE is a broad technology platform. We intend to establish a “Powered by Qnergy” developer program that allows researchers around the world to buy our engines and controllers and develop their own products around our platform. These potential customers will find a flexible arrangement where we support their development efforts with nonrecurrent engineering service to help them couple their heat source to our engine. Our arrangement will include an OEM supply and license agreement in which we will supply engines and controllers to the customer product. Examples include: Terrestrial Nuclear Power, Space Nuclear Power, Sub Sea Power, Waste to Energy and more.

Our Technology

Free Piston Stirling Engine. The original Stirling engine was invented by Robert Stirling in 1816. It is also called external combustion engine because heat energy is applied to the outside of the device. Like a steam engine or internal combustion engine, a Stirling engine converts heat energy to mechanical energy (work) by repeating a series of basic operations, known as its cycle. Stirling engines use pistons but the engine itself is sealed to the atmosphere.

The engine operates using the Stirling cycle, which can theoretically reach the maximal thermal efficiency known as Carnot efficiency. The efficiency achieved in practice is less due to pressure and thermal losses in the engine. The Stirling cycle operates on a closed regenerative thermodynamic cycle, with cyclic compression and expansion of a working fluid at different temperature and pressure levels.

The heat is transferred to the engine’s working gas through the walls of the primary heater. The engine is a completely closed system. The working gas (which may be air or an inert gas such as helium or hydrogen) forces the pistons in the engine to move, compressing and expanding the working fluid, thus producing mechanical energy that can be used to drive a generator and produce electricity.

The original Stirling Engine evolved into what is known as the kinematic Stirling engines where manual linkages like cranks are used to move the working fluid inside the engine. Despite the superior theoretical efficiency, the kinematic Stirling engine did not gain significant commercial traction over the conventional internal combustion engines.

The Stirling engine was modified to the FPSE in the early 1960s with a design that reduces the number of moving parts and nearly eliminates friction and wear altogether. FPSE use pressure variations in the working fluid to drive a linear alternator. In the FPSE the moving parts have no side load thanks to the lack of connecting rods, which enables a long operating life without the need for lubrication. In FPSE the mechanical dynamics and the thermodynamics are highly coupled, making designing a FPSE more complicated than designing a kinematic Stirling engine. The FPSE can operate very quietly, since off-axis motions and forces are eliminated, hence resulting vibrations to the engine are in the axial direction and may be easily isolated.

The motion in the FPSE is linear and the piston is suspended on flexures, giving rise to the name Free Piston Stirling Engine. The engine is contactless (i.e. no contact between moving parts, fully sealed and requires no lubrication or oil change). Since the FPSE have no manual linkages, both the reliability and life expectancy of the engine are increased as there is nearly no wear in the system. The FPSE construct allows us to build systems that are, always-on and can serve as a source of reliable primary and/or standby power. Among the benefits attributed to FPSE beside high reliability, low emissions and fuel flexibility. In the last few decades Qnergy and its predecessors improved the FPSE technology in term of manufacturability, cost and power density.

Electronic controller firmware and hardware. We have developed and are manufacturing an electronic control board which we call Qnergy Electronic Control (QEC). The QEC is responsible for the health and the operation of the engine. Among other functions, the QEC verifies the stroke of the engine, ensuring that at any given time the engine is cooled by water and does not over stroke.

From the electrical standpoint, the QEC converts the Stirling Engine AC power to DC power. It also uses our firmware to accurately follow customers’ electrical loads. In addition, the QEC has a bidirectional battery interface which enables the QEC to charge its DC buses during startup. This allows the QEC to provide AC auxiliary power to a system when the engine is not providing power.

System. The engine + controller are the ‘muscle’ and ‘brain’ of our products. But there is still a need for a body to have a full product. This is the system. It includes the engine and controller but also a Coolant Loop, Heat Rejection Unit, Local User Interface and Control (LUI) and more.

Remote monitoring. Our PowerGen units are connected to a cloud-based IoT platform and a database server. Data is pushed constantly to monitor performance and provide early alerts, which are created for faults or any other abnormalities. Systems typically communicate via an amplified cellular signal. We can also provide a satellite option in remote locations where cell signal is unavailable. For CAP customers we enable methane abatement monitoring that enables quantifying their emissions for internal or reporting purposes such as carbon credits.

Our Products

Our products are based on our proprietary FPSE platform. Most of our currently commercial products are built on the QB80 series. As an external combustion engine, the Qnergy QB80 can run on almost any heat source. The engine is designed for long, uninterrupted quiet operation.

We have three main product lines that are based on the QB80: Power Generator Series; Engineered Solutions and a Stirling Engine with Controller (OEM / Developer Program), as illustrated in Figure 3.

Figure 3. We have three product lines: (1) PowerGen units for various markets and applications that will be able to use natural gas, propane, biogas or hydrogen; (2) Engineered Solutions. The figure shows our Compressed Air Pneumatics (CAP3) solution; (3) Developer Package for long-term supply and OEM Program.

PowerGen Series

The PowerGen is our versatile generator that is designed to serve multiple markets and opportunities. utilizes the Qnergy QB80 series engine. PowerGen is a thermal-powered generator suitable to utilize virtually any combustible gaseous fuel. The PowerGen is made for rugged and remote operation and yet can easily meet the aesthetic design requirements of an indoor residential or corporate environment. The PowerGen provides reliable electrical power supply to the most demanding and mission-critical loads.

We offer PowerGen systems with different sizes and specifications. We currently offer 600W, 1200W, 1800W and 5600W solutions. The PowerGen product line can be configured to prime or standby power and for tandem operation. By means of its flexible and modular design, this generator package can be tailored to provide a broad range of power output architectures to meet the electrical requirements of each specific site load.

As of the date of this prospectus, the sale price of the PowerGen to the end user is in the range of $35,000 to $50,000, and the sale price of the CAP-3 is in the range of $60,000 to $100,000. As of the date of this prospectus, by utilizing our current manufacturing facilities, we are able to produce approximately 6,000 linear engines annually. As of the date of this prospectus, we have sold more than 420 PowerGen units. We estimate that the potential production capacity existing in our current facilities will satisfy our business needs and goals in the coming years such that in five to seven years, our actual production volume is expected to be approximately 85% to 95% of such potential production capacity. This estimate, which is subject to change and is no guarantee of future performance, is based on, among other things, management’s assessments based on its experience, market data and other information available to us as of the date of this prospectus and the implementation of a business plan focusing on the following: the market development of CAP3 systems; marketing and sales to new areas for strategic growth; expanding fuel supply capabilities; shortening the sales cycle as a result of performance proof; reducing production costs; providing innovative financing options to customers; simplifying development processes for innovative power supply solutions based on our products; maintaining a “field” service and support approach to attract and retain customers; and geographical expansion.

All of our PowerGen units are connected to our central cloud based, IoT platform that connects the system through an amplified cell signal and occasionally satellite. It allows us to perform over -the-air upgrades and real-time analytics as well as provide our customers with 24/7 live support and early failure alerts.

Assembled using lean manufacturing processes, the PowerGen meets strict quality standards. The integrated components and controls are all designed to maximize the customer’s ability to monitor their power-generation asset while minimizing servicing of any kind.

Engineered Solutions

This product line allows us to capture the value of a full solution to specific customer problems that require our PowerGen technology in a special configuration. The prime example is our compressed air solution for bleeding pneumatic devices. Other solutions are our off-shore package (released) and solar-hybrid system (released), that contains a PowerGen. A future off-grid fast EV charger will fall under this category as well. In most cases we work with specialized engineering firms to develop these solutions. Our ability to develop standardized and customized engineered solutions is important for building and retaining long-term relationships with our tier 1 customers.

Compressed Air Pneumatics (CAP3). Our CAP3 solution is our main revenue driver for 2021 as well as the next few years and is a prime example of an engineered solution. This system allows operators to replace methane emission in pneumatic devices in gas fields with clean instrument air. The air is compressed using our PowerGen, which combusts the normally vented methane, while providing reliable electric power and dry, clean instrument air.

In June 2021, we entered into a blanket purchase order agreement with one of the world’s leading energy companies to supply 100 CAP-3 systems for a period of 18 months to be installed in Texas, which we expect to result in proceeds of approximately $4,000,000 to $6,000,000.

Hybrid solutions Qnergy’s solar hybrid system leverages the PowerGen to supplement photovoltaic power. Under normal conditions the PV array supplies power through a battery bank. The PowerGen engine is in standby, monitoring the battery. In extended durations of poor solar availability, the PowerGen intelligent control system will start the engine and charge the batteries. In cold northern climates, the waste heat of the PowerGen system is harvested to maximize system performance and extend battery life. Pairing a more reasonably sized off-grid solar package with the PowerGen 5650 increased the reliability and value of a solar-battery system. The generator eliminates deep discharge cycles on the battery, preventing accelerated aging. Using fewer batteries that last longer not only saves capital but reduces the environmental waste associated with disposal. With the intelligent control system, the engine only runs when required, optimizing fuel consumption. This system adapts to changing weather conditions ensuring efficient power production, while the low-maintenance engine drives operational savings.

“Powered by Qnergy” Developer Program

We intend to establish a “Powered by Qnergy” developer program for customers in order to leverage our technology platform to develop new applications using non-conventional fuel sources. The developer program will be designed to capture additional value of our FPSE platform. In many cases, companies seek to develop markets and applications that we do not intend to pursue directly. We will establish a process that may include selling hardware and non-recurring engineering with a long term OEM agreement that includes manufacturing and supply and potentially a field-of-use license. We believe that OEM products serve as a future revenue source and a way to leverage innovation and expand our technology, while protecting our IP, proprietary information and assets.

Competition

Most often, we compete against the utility grid which is extremely high in capital expenditure requirement for connecting sites. In other cases, we compete against alternative power generation technologies mainly Gas-Powered Internal Combustion Engines (ICE) and Fuel Cells (FC). As we drive down our cost, we expect our economic value proposition to continue to improve relative to the grid and alternative generators in all the markets that we have described.

The main incumbent and most established technology are ICE generators. These generators are similar in design to the engines used in automobiles. ICEs suffer from frequent maintenance requirements, high noise levels, toxic emissions (CO, NOx) and low reliability. Gas-powered ICE generators are currently produced in part by Generac, Caterpillar, and Cummins. These companies have products and markets that are well developed and technologies that have been proven for a long time. Hence, our distributed generation competitors are well established firms, they derive advantages from production economies of scale, worldwide presence, and greater resources which they can devote to product development or promotion. Despite these incumbent advantages the fundamental challenges of high emissions and low reliability of gas-powered ICEs remain.

Realizing the threat on their core business we expect some of the large ICE companies to enter or attempt to enter the commercial production of FPSE, similar to the way that automotive companies shift to producing electric vehicles. These companies have greater resources than us. They may be able to produce FPSE or develop alternative technologies, either on their own or in collaboration with others. Our approach is to remain the global leader in FPSE by keenly protecting our know-how and trade secrets and leveraging our first mover advantage with FPSE technology.

Several fuel-cell companies sell to the Telecom and DER markets (e.g., Plug Power, Ballard Power Systems). We believe that despite the preferable scale of competing technologies, in many instances both gas-powered ICEs and fuel cells will not be able to compete with the superior reliability of the PowerGen.

Due to these competitive threats, our strategy has been to establish our company as a world-class supplier, while keenly protecting our know-how and trade secrets. We have initially focused on a single beachhead market to demonstrate the performance of our PowerGen in a well-defined sector. Now, that this milestone was met, we are expanding to other markets.

RISK FACTORS

Our business is subject to many risks and uncertainties, as more fully described under “Risk Factors” and elsewhere in this prospectus. For example, you should be aware of the following before investing in our common stock:

Corporate Information

We were incorporated in the State of Delaware on October 30, 2013 as Ricor Generation Inc. (“Ricor”). Ricor was a wholly-owned subsidiary of Dagai Gilboa Agriculture Cooperative Association Ltd., an Israeli corporation, which changed its name to Qnergy Agriculture Cooperative Association Ltd. before changing its name again to Qnergy Ltd. On January 7, 2014, we changed our name to Qnergy Inc. On December 31, 2019, Qnergy Ltd. transferred 100% of its holdings in Qnergy Inc. to its then existing shareholders, E.H.I holding 2002 - Agriculture Cooperative Association Ltd., Tene Growth Capital (Investment Fund) L.P and Tene Investment in Qnergy Limited Partnership, as payment for the redemption of redeemable shares by Qnergy Ltd. to its shareholders (the “Restructuring”). Upon completion of the Restructuring, Qnergy Ltd. was no longer a shareholder of Qnergy Inc.

Our principal executive offices are located at 300 West 12th Street Ogden, UT 84404, and our telephone number is (801) 752-0100. Our website address is www.qnergy.com. The information on, or that can be accessed through, our website is not incorporated by reference into, and is not part of this prospectus, and the inclusion of our website address in this prospectus is an inactive textual reference only.

“Qnergy” is our registered trademark in the United States and is registered in the United Kingdom, the European Union, the Russia Federation and Mexico. We do not have other registered trademarks and service marks in the United States or elsewhere.

This prospectus also contains trademarks, service marks and trade names of other companies. We do not intend for our use or display of other companies’ trade names, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of, us by these other companies.

Implications of Being an Emerging Growth Company

As a company with less than $1.07 billion in revenue during our last completed fiscal year, we qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. An emerging growth company may take advantage of specified reduced reporting requirements that are otherwise applicable generally to public companies. These reduced reporting requirements include:

We will remain an emerging growth company until the earliest to occur of: (1) the end of the first fiscal year in which our annual gross revenue is $1.07 billion or more; (2) the end of the first fiscal year in which we are deemed to be a “large accelerated filer,” as defined in the Securities Exchange Act of 1934, as amended, or the Exchange Act; (3) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt securities; and (4) the end of the fiscal year during which the fifth anniversary of this offering occurs. We may choose to take advantage of some, but not all, of the available benefits under the JOBS Act. We intend to take advantage of the exemptions discussed above. Accordingly, the information contained herein may be different than the information you receive from other public companies in which you hold stock.

THE OFFERING

The number of shares of our common stock outstanding after this offering is based on 1,000,000 shares of our common stock outstanding as of June 30, 2021, and gives effect to (1) the conversion of 500,000 shares of our Series A preferred stock, 130,180 shares of our Series B preferred stock and 102,093 shares of our Series B-1 preferred stock outstanding as of June 30, 2021 into an aggregate of 732,273 shares of our common stock upon the completion of this offering, (2) the conversion of 13,018 warrants to purchase shares of our common stock at an exercise price of $46.10 per share, outstanding as of June 30, 2021 into 13,018 shares of our common stock upon the completion of this offering, (3) the conversion of 1,000 shares of our Series A-1 preferred stock outstanding as of June 30, 2021 into 65,132 shares of our common stock upon the completion of this offering, and (4) a 10-for-1 forward stock split of our common stock to be effected upon the completion of this offering, but after the conversions described above, and excludes:

For more information regarding our Option Plan, see “Executive Compensation – Option Plan.”

SUMMARY FINANCIAL AND OTHER DATA

You should read the summary financial data set forth below in conjunction with our financial statements, the notes to our financial statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained elsewhere in this prospectus.

The summary consolidated statements of operations data for the years ended December 31, 2019 and 2020 are derived from our audited consolidated financial statements included elsewhere in this prospectus. We derived the summary consolidated balance sheet data as of December 31, 2020 from our audited consolidated financial statements included elsewhere in this prospectus. The statements of operations data for the six months ended June 30, 2021 and June 30, 2020 and the balance sheet data as of June 30, 2021 and June 30, 2020 are derived from our unaudited financial statements included elsewhere in this prospectus. You should read the following summary consolidated financial data below in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements, related notes and other financial information included elsewhere in this prospectus. Our historical results are not necessarily indicative of the results to be expected in the future. The selected consolidated financial data in this section are not intended to replace the consolidated financial statements and are qualified in their entirety by the consolidated financial statements and related notes included elsewhere in this prospectus.

Please see the section titled “Selected Consolidated Financial Data—Key Operating Metrics” for information regarding our key operating metrics.

Key operating metrics:

RISK FACTORS

Investing in our common stock involves a high degree of risk. You should carefully consider these risk factors, together with all of the other information included in this prospectus, including the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and related notes, before you decide to purchase shares of our common stock. While we believe the risks and uncertainties described below include all material risks currently known by us, it is possible that these may not be the only ones we face. If any of the risks actually occur, our business, financial condition, operating results and prospects could be materially and adversely affected. In that event, the market price of our common stock could decline, and you could lose part or all of your investment.

Risks Relating to Our Business and Industry

Our historical revenues have been generated in the natural gas market. However, our future growth is expected to be based partly on the DER markets.

Our historical revenues have been generated in the natural gas market, initially in remote power and later in compressed air pneumatics (CAP). However, our future growth is expected to be based partly on the biogas, telecom, residential and small-medium business DER markets. We plan to grow into these markets, but we currently do not have any revenue from or commercial or operational experience in these markets. The DER market, which is the market for energy resources that may or may not be connected to the grid, is expected to be a larger market than the natural gas market in which we currently operate and generate our revenues from. However, there is no guarantee that we will be successful in expanding into these markets. For example, we may fail to hire the right marketing and sales professionals or may find that the product fit is not as good as expected or anticipated.

Certain estimates of market opportunity and forecasts of market growth included in this prospectus may prove to be inaccurate.

This prospectus includes several estimates by us and third parties of the potential addressable market for electricity and for our products and services, both internationally and in the United States. Market opportunity estimates and growth forecasts, whether obtained from third-party sources or developed internally, are subject to significant uncertainty and are based on assumptions and estimates that may not prove to be accurate. In particular, estimates and forecasts relating to the size and expected growth of the demand for stand-alone generators in the sub 10 kilowatt range in our target markets, the adoption of our products, our capacity to address this demand, and our pricing may prove to be inaccurate. In addition, third-party estimates of the addressable market for commercial, industrial and public services electricity reflect the opportunity available from all participants and potential participants in the market. Any inaccuracies or errors in third-party estimates of market opportunity may cause us to misallocate capital and other business resources, which could divert resources from more valuable alternative projects and harm our business.

The addressable market we estimate may not materialize for many years, if ever, and even if the markets in which we compete meet the size estimates and growth forecasts in this prospectus, our business could fail to grow at similar rates, if at all. Our growth is subject to many factors, including our success in implementing our business strategy, which is subject to many risks and uncertainties. Accordingly, the forecasts of market size or growth included in this prospectus should not be taken as indicative of our future growth.

We derive a substantial portion of our revenue and backlog from a limited number of customers, and the loss of, or a significant reduction in orders from, a large customer could have a material adverse effect on our operating results and other key metrics.

In any particular period, a substantial amount of our total revenue could come from a relatively small number of customers. The loss of any large customer order, or delays in installations of new PowerGen units with any large customer, could materially and adversely affect our business results.

Disruptions in the global supply chain and other reasons that lead to the failure of our suppliers to continue to deliver necessary components of our PowerGen units in a timely manner could prevent us from delivering our products within required time frames, and could cause installation delays, cancellations, penalty payments and damage to our reputation.

We rely on a number of third-party suppliers for some of the components for our PowerGen units. If we fail to develop or maintain our relationships with our suppliers, we may be unable to manufacture our PowerGen units or our PowerGen units may be available only at a higher cost or after a long delay. Such delays could prevent us from delivering our PowerGen units to our customers within required timeframes and cause order cancellations. We have had to create our own supply chain for some of the components and materials utilized in our PowerGen units. We have made significant expenditures in the past to develop our supply chain. In many cases, we entered into contractual relationships with suppliers to jointly develop the components we needed. These activities were time and capital intensive. Accordingly, the number of suppliers we have for some of our components and materials is limited to only a few suppliers and in some cases sole sourced. Some of our suppliers use proprietary processes to manufacture components. We may be unable to obtain comparable components from alternative suppliers without considerable delay, expense or at all, as replacing these suppliers could take several months, although we believe that there is no significant cost expected as a result of the replacement of a supplier. Some of our suppliers are smaller, private companies, heavily dependent on us as a customer. If our suppliers face difficulties obtaining the credit or capital necessary to expand their operations when needed, they could be unable to supply necessary components needed to support our planned sales and services operations, which would negatively impact our sales volumes and cash flows.

Moreover, we may experience unanticipated disruptions to operations or other difficulties with our supply chain or internalized supply processes due to exchange rate fluctuations, volatility in regional markets from where materials are obtained, particularly China and Taiwan, changes in the general macroeconomic outlook, political instability, expropriation or nationalization of property, civil strife, strikes, insurrections, acts of terrorism, acts of war or natural disasters. The failure by us to obtain components in a timely manner, or to obtain raw materials or components that meet our quantity and cost requirements, could impair our ability to manufacture our PowerGen units or increase their costs or service our existing portfolio of PowerGen units under maintenance services agreements. If we cannot obtain substitute materials or components on a timely basis or on acceptable terms, we could be prevented from delivering our PowerGen units to our customers within required timeframes, which could result in sales and installation delays, cancellations, penalty payments, or damage to our reputation, any of which could have a material adverse effect on our business and results of operations. In addition, we rely on our suppliers to meet quality standards, and the failure of our suppliers to meet or exceed those quality standards could cause delays in the delivery of our products, unanticipated servicing costs and damage to our reputation.

If we are not able to continue to reduce our cost structure in the future, our ability to grow to additional markets may be impaired.

We must continue to reduce the manufacturing costs for our PowerGen units to expand our market. While we have been successful in reducing our manufacturing costs to date, the cost of components and raw materials, for example, could increase in the future. Any such increases could slow our growth and cause our financial results and operational metrics to suffer. In addition, we may face increases in our other expenses, including increases in wages or other labor costs, as well as installation, marketing, sales or related costs. We may continue to make significant investments to drive growth in the future. In order to expand into the broad residential market in which the price of competitive products is lower while still maintaining our current margins, we will need to continue to reduce our costs. In some cases, our cost-reduction activities will require engineering changes to our products. Increases in any of these costs, or our failure to achieve projected cost reductions, could adversely affect our results of operations and financial condition and harm our business and prospects.

The ongoing effects of the COVID-19 pandemic could adversely affect our business, financial condition, results of operations, or cash flows.

An infectious disease caused by Severe Acute Respiratory Syndrome Coronavirus 2 (SARS CoV-2) that was first detected in November 2019 in the city of Wuhan, China, known as COVID-19, resulted in an outbreak throughout the world. The subsequent spread of COVID-19 to the U.S. and many other parts of the world led the World Health Organization to characterize COVID-19 as a pandemic on March 11, 2020. Thereafter, most U.S. states imposed “stay-at-home” orders on their populations to stem the spread of COVID-19. Governments, public institutions, and other organizations in countries and localities throughout the world have taken and are continuing to take certain emergency measures to combat the spread of COVID-19, including implementation of restrictions on travel and orders that restrict the operations of institutions such as schools and businesses. These conditions will negatively impact all aspects of our business. Our business is also dependent on the continued health and productivity of our employees, including our manufacturing employees, sales staff and corporate management teams. While the full impact of the COVID-19 outbreak and government response is not yet known, we experienced impacts of this pandemic in the year ended December 31, 2020 and it could materially harm our business, results of operations and financial condition in the future.

In addition, due to domestic and international governmental orders restricting certain activities in response to COVID-19, we have experienced, and may in the future experience, certain disruptions in our business, including changes to our on-site operations to reduce manufacturing capacity and implement social distancing, reductions in our suppliers’ ability to source, maintain inventory and ship raw materials and components in alignment with our demands, work stoppages, slowdowns and delays, including having most of our employees working outside of our offices, travel restrictions, reduced access to our customers for product training and case support, and cancellation of events, delays in product development efforts, and other negative impacts on our capacity to manufacture, our suppliers’ capacity to source and ship raw materials and our distributors’ ability to sell and support the use of our products.

The COVID-19 pandemic has also caused significant uncertainty and volatility in global financial markets. Due to such volatility, we may not be able to raise additional capital, if needed, on favorable terms, or at all. Further adverse economic events resulting from the COVID-19 pandemic, including a recession, depression or other sustained economic downturn, could materially and adversely affect our business, access to capital markets and the value of our common stock.

As of April 22, 2020, we entered into a loan with Cache Valley Bank in an aggregate principal amount of $653 pursuant to PPP under the CARES Act. Our request for forgiveness in full of the PPP loan was accepted in May 2021.

Additionally, our liquidity could be negatively impacted if these conditions continue for a significant period of time and we may be required to pursue additional sources of financing to obtain working capital, maintain appropriate inventory levels, and meet our financial obligations. Currently, capital and credit markets have been disrupted by the crisis and our ability to obtain any required financing is not guaranteed and largely dependent upon evolving market conditions and other factors. Depending on the continued impact of the crisis, further actions may be required to improve our cash position and capital structure.

The ultimate impact of the COVID-19 pandemic is highly uncertain and subject to change. We do not yet know the full extent of potential impacts on our business or the global economy as a whole. However, these effects could adversely impact our business, financial condition, results of operations, or cash flows. Given the approval of the vaccines developed against the virus, as of the end of 2020 and during the first quarter of 2021, a number of states in the United States have returned to routine commercial activity, especially in areas where most of our activity is. On the other hand, Canada is still under closure, but we expect the return to commercial activity in the near future. In addition, we are still experiencing significant difficulties with regard to the continuity of the supply chain, mainly with respect to East Asian countries.

Our limited operating history and our nascent industry makes evaluating our business and future prospects difficult.

From our inception in 2013, we have been focused principally on research and development activities. We did not recognize any commercial revenue from PowerGen units until 2018. As a result, we have a limited history operating our business at its current scale, and therefore a limited history upon which you can base an investment decision.

Our PowerGen is a new type of product in the energy industry. Predicting our future revenue and appropriately budgeting for our expenses is difficult, and we have limited insight into trends that may emerge and affect our business. If actual results differ from our estimates or we adjust our estimates in future periods, our operating results and financial position could be materially and adversely affected. You should consider our prospects in light of the risks and uncertainties emerging companies encounter when introducing a new product into a nascent industry.

Our operating results are dependent, in large part, upon the successful production of our products. Failure to produce our products as scheduled and budgeted would materially and adversely affect our business and financial condition.

We cannot be certain that we will deliver ordered products in a timely manner. We have limited production slots for our products. Any delays in production will increase our costs, reduce future production slots and could significantly impact our business, financial condition and operating results.

We have early versions of engines and systems in the field. Some of these engines may need to be replaced.

Some of our installed units may fault because they were manufactured with earlier versions of our engines and electronics controller or due to a different reason. Although these units are out of warranty, they may fault which may lead to loss of reputation and damage our business. We may decide to replace those units if and when they fail which will lead to a financial cost that could adversely affect our operating results, financial condition and cash flow.

Our Free Piston Stirling Engine contains high pressure helium, but cannot be shipped pressurized with helium.

While our FPSE is not a conventional pressure vessel and is pressurized with helium, it is exempt from code for the design and construction of pressure vessels. We have applied the code methodologies to our pressure vessel design to the fullest extent possible. However, there can be no assurance that in the future our FPSE may be subject to different regulations. In addition, while we have tested our FPSE with respect to extreme temperatures and pressures, have taken steps to make sure that systems do not leave our factory pressurized and are working to obtain approval from the U.S. Department of Transportation to ship pressurized FPSE, our distributors and customers may still ship pressurized systems.

Components for the engine requires specialized tooling and equipment.

The nature of the free piston Stirling engine requires specialized component parts made from specific material including high nickel alloys, specialized aluminum alloys, and stainless steels. The manufacturing processes for these components are diverse and spread across many suppliers. Qnergy has made significant investments into tooling that resides at suppliers and some of these suppliers are sole sourced which represents a risk to Qnergy. We are seeking to diversify our supply chain and add secondary suppliers for engine components. The inability to diversify our supply chain could adversely affect our operating results, financial condition and cash flow and affect the marketability of our products.

Continuous manufacturing of the engine requires special built tooling and trained manufacturing personnel.

The engine assembly line depends on custom-built equipment and trained assembly personnel. Maintenance of the machinery is critical for continuous manufacturing. Downtime is a risk to delivery schedules. Retaining trained assembly personnel is a risk to the assembly process. New personnel take time to train on the specialized manufacturing process. A delay in tooling and hiring personnel could adversely affect our operating results, financial condition and cash flow.

Our field experience with biogas is limited.

Although we believe that using biogas as a fuel is an important growth avenue, which fits the fuel-agnostic characteristics of our FPSE technology, our actual field experience with biogas is limited. We may find specific technical challenges that are specific to biogas. Solving those challenges may require resources and /or lead to delays in commercialization, which could adversely affect our operating results, financial condition and cash flow and affect the marketability of our products.

Adverse economic conditions may have an impact on our business and financial condition, including some effects we may not be able to predict.

Adverse economic conditions may prevent our customers from purchasing our products or delay their purchases, which would adversely affect our business, financial condition and results of operations. In addition, our ability to access the capital markets may be severely restricted or made very expensive at a time when we need, or would like, to do so, which could have a material adverse impact on our liquidity and financial resources. Certain industries in which our customers do business and certain geographic areas have been and could continue to be adversely affected by adverse economic conditions. Our revenue may be negatively impacted by the volatility of the global gas markets.

Product quality expectations may not be met, causing slower market acceptance or warranty cost exposure.

In order to achieve our goal of improving the quality of our products, we may require engineering changes. Such improvement initiatives may render existing inventories obsolete or excessive. Despite our continuous quality improvement initiatives, we may not meet customer expectations. Any significant quality issues with our products could have a material adverse effect on our rate of product adoption, results of operations, financial condition and cash flow. Moreover, as we develop new configurations for our PowerGen units and as our customers place existing configurations in commercial use, our products may perform below expectations. Any significant performance below expectations could adversely affect our operating results, financial condition and cash flow and affect the marketability of our products.

We sell our products with warranties. There can be no assurance that the provision for estimated product warranty will be sufficient to cover our warranty expenses in the future. We cannot ensure that our efforts to reduce our risk through warranty disclaimers will effectively limit our liability. Any significant incurrence of warranty expense in excess of estimates could have a material adverse effect on our operating results, financial condition and cash flow.

We currently face and will continue to face competition.

We compete for customers and financing partners with other power generator providers. Many providers of power generators, such is internal combustion engines and fuel cell manufacturers, have longer operating histories, customer incumbency advantages, access to new customers, and more capital resources than we do. Significant developments in alternative technologies, such as energy storage, internal combustion engines and fuel cells, may materially and adversely affect our business and prospects in ways we cannot anticipate. We face competition from alternative solutions or technologies for methane gas mitigation. We may also face new competitors who are not currently in the market. In addition, large ICE companies may manufacture their own FPSE. If we fail to adapt to changing market conditions and to compete successfully with new competitors, we will limit our growth and adversely affect our business results.

Impairment charges on our long-lived assets, including intangible assets with finite lives would adversely affect our financial position and results of operations.

We evaluate the carrying value of long-lived assets, including intangible assets with finite lives, for impairment whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. To determine whether impairment has occurred, we compare the undiscounted cash flows of the long-lived asset group with its carrying value. The estimation of future cash flows requires significant estimates of factors that include future sales growth, gross margin performance, including our estimates of reductions in our direct material costs, and reductions in operating expenses. If our sales growth, gross margin performance or other estimated operating results are not achieved at or above our forecasted level, or inflation exceeds our forecast, the carrying value of our asset group may prove to be unrecoverable and we may incur impairment charges in the future. In addition, significant and unanticipated changes in circumstances, such as significant adverse changes in business climate, unanticipated competition, loss of key customers or changes in technology or markets, could require a charge for impairment that can materially and adversely affect our reported net loss and our stockholders’ equity.

The DER and specifically the stand-alone prime power generator industry is an emerging market that may not receive widespread market acceptance.

The stand-alone prime power generator industry is still relatively nascent, and we cannot be sure that potential customers will accept stand-alone power more broadly, or our PowerGen products more specifically. Customers may be unwilling to adopt our solution over traditional or competing power sources for any number of reasons including the perception that our technology is unproven, lack of confidence in our business model, unavailability of back-up service providers to operate and maintain the stand-alone power generators, installation costs and lack of awareness of our product. Because this is an emerging industry, broad acceptance of our products and service is subject to a high level of uncertainty and risk. If the market develops more slowly than we anticipate, our business will be harmed.

Our growth depends on companies and individual’s willingness to mitigate climate change and adapt to it.

Our fastest growing application of replacing methane in bleeding pneumatic devices with compressed air is an extra expense for gas companies. These companies are compelled to make the investment because of regulatory, shareholders and market pressure to eliminate methane emissions. Absence this pressure, there is a risk that we will not meet our revenue growth plan.

Our telecom market depends on customers’ willingness to replace diesel generators with a cleaner solution and on regulatory pressure to do so.

Our long-term growth depends on customers’ willingness to adopt biogas solutions as well as the willingness of homeowners as well as small and medium businesses to acquire generators for multiple reasons, including as a way to reduce their exposure to electrical outages. Such willingness may be limited to areas that have some combination of excess renewable on the grid, weak grid, frequent outages and extreme weather events.

We depend upon the development of new products and enhancements of existing products.

Our operating results depend on our ability to develop and introduce new products, enhance existing products and reduce the costs to produce our products. The success of our products is dependent on several factors, including proper product definition, product cost, timely completion and introduction of the products, differentiation of products from those of our competitors, meeting changing customer requirements, emerging industry standards and market acceptance of these products. The development of new, technologically advanced products and enhancements is a complex and uncertain process requiring high levels of innovation, as well as the accurate anticipation of technological and market trends. There can be no assurance that we will successfully identify new product opportunities, develop and bring new or enhanced products to market in a timely manner, successfully lower costs and achieve market acceptance of our products, or that products and technologies developed by others will not render our products or technologies obsolete or uncompetitive.

Commodity market factors impact our costs and availability of materials.

Our products contain or use a number of commodity materials from metals, which include steel and copper, to electronic components to helium. The availability of these commodities could impact our ability to acquire the materials necessary to meet our production requirements. The cost of metals has historically fluctuated. The pricing could impact the costs to manufacture our products. If we are not able to acquire commodity materials at prices and on terms satisfactory to us or at all, our operating results may be materially adversely affected. We currently are experiencing the impact of an electronic component shortage on our ability to build controllers and supply-chain disruptions resulting in commodity price increases for many parts for our products. In addition, our FPSE, which is not a conventional pressure vessel, is pressurized with helium, which may be in short supply, leading to high prices and low availability and potential delays in the production of our FPSE.

We have incurred significant losses in the past.

Since our inception in 2013, we have incurred significant net losses and have used significant cash in our business. As of December 31, 2020 and June 30, 2021, we had an accumulated deficit of $39,352,000 and $42,066,000, respectively. We expect to continue to expand our operations, including by investing in manufacturing, sales and marketing, research and development, staffing systems and infrastructure to support our growth. Our ability to achieve profitability in the future will depend on a number of factors, including:

Even if we do achieve profitability, we may be unable to sustain or increase our profitability in the future.

If our PowerGen units contain manufacturing defects, our business and financial results could be harmed.

Our PowerGen units are complex products, and they may contain undetected or latent errors or defects. In the past, we have experienced latent defects, only discovered once the PowerGen is deployed in the field. Changes in our supply chain or the failure of our suppliers to otherwise provide us with components or materials that meet our specifications could also introduce defects into our products. In addition, as we grow our manufacturing volume, the chance of manufacturing defects could increase. Any manufacturing defects or other failures of our PowerGen units to perform as expected could cause us to incur significant re-engineering costs, divert the attention of our engineering personnel from product development efforts and significantly and adversely affect customer satisfaction, market acceptance and our business reputation.

In addition, we may fail to detect defective products before they leave the factory. We may be unable to correct manufacturing defects or other failures of our PowerGen units in a manner satisfactory to our customers, which could adversely affect customer satisfaction, market acceptance and our business reputation. Furthermore, the impact of defective systems will be high since our value proposition is based on reliability.

We may fail to use hydrogen as fuels.

Our long-term business plan relies on the technology being fuel-agnostic using hydrogen among other fuels. Despite the external combustion characteristics of our PoweGen units and similar experience that we have we lack specific field experience with hydrogen. If hydrogen will become a dominant fuel and we will be delayed in launching our hydrogen compatible PowerGen, we may experience a material adverse effect on our operating results, financial condition and cash flow.

Some of our customers may benefit from the availability of rebates, carbon credits and other financial incentives. The reduction, modification, or elimination of government economic incentives could cause our revenue to decline and harm our financial results.

The provincial governments in Alberta and British Columbia provide incentives to gas companies that wish to reduce their methane emissions. Some of our Canadian customers benefit from those incentives and may not be inclined to buy our CAP products if these incentives are removed.

Our products involve a lengthy sales and installation cycle, and if we fail to close sales on a regular and timely basis it could harm our business.

Our sales cycle is typically six months or less, but can vary considerably. In order to make a sale, we must typically provide a significant level of education to prospective customers regarding the use and benefits of our product and its technology. The period between initial discussions with a potential customer and the sale of even a single product typically depends on a number of factors, including the potential customer’s budget. Prospective customers often undertake a significant evaluation process, which may further extend the sales cycle. Once a customer makes a formal decision to purchase our product, the fulfillment of the sales order by us requires a substantial amount of time. Currently, we believe the time between the entry into a sales contract with a customer and the installation of our PowerGen units can range from one to three months or more. This lengthy sales and installation cycle is subject to a number of significant risks over which we have little or no control. Because of both the long sales and installation cycles, we may expend significant resources without having certainty of generating a sale.

These lengthy sales and installation cycles increase the risk that our customers fail to satisfy their payment obligations or cancel orders before the completion of the transaction. Our operating expenses are based on anticipated sales levels, and many of our expenses are fixed. If we are unsuccessful in closing sales after expending significant resources or if we experience delays or cancellations, our business could be materially and adversely affected. Since we do not recognize revenue on the sales of our products until shipment, a small fluctuation in the timing of the completion of our sales transactions could cause operating results to vary materially from period to period.

If we do not effectively implement our sales, marketing and service plans, our sales will not grow and our results of operations will suffer.

Our sales and marketing efforts may not achieve intended results and, therefore, may not generate the revenue we anticipate. As a result of our corporate strategies, we have decided to focus our resources on selected vertical markets. We may change our focus to other markets or applications in the future. There can be no assurance that our focus or our near term plans will be successful. If we are not able to address markets for our products successfully, we may not be able to grow our business, compete effectively or achieve profitability.

Our business and financial performance depends in part on the natural gas industry, and a decline in prices for natural gas may have an adverse effect on our revenue, cash flows, profitability and growth.

We experienced an improvement in revenue during 2019 due to favorable gas prices, however revenue has decreased in 2020 due to COVID 19 and declining gas prices. We continue to be impacted by the volatility of the global gas industry. If prices were to remain low or decline further, we would expect to see similar declines in our customers’ spending which would have an adverse effect on our revenue. In addition, a worsening of these conditions may result in a material adverse impact on certain of our customers’ liquidity and financial position resulting in further spending reductions, delays in the collection of amounts owing to us and similar impacts.

Our sales and results of operations could be materially and adversely impacted by risks inherent in international markets.

As we expand in international markets, customers may have difficulty or be unable to integrate our products into their existing systems or may have difficulty complying with foreign regulatory and commercial requirements. As a result, our products may require redesign. Any redesign of the product may delay sales or cause quality issues. In addition, we may be subject to a variety of other risks associated with international business, including import/export restrictions, fluctuations in currency exchange rates and economic or political instability. In addition, doing business internationally subjects us to risks relating to political or social unrest, as well as corruption and government regulation, including U.S. laws such as the Foreign Corrupt Practices Act If any of these events occur, our businesses may be adversely affected.

Changes to trade regulation, quotas, duties or tariffs, and sanctions caused by the changing U.S. and geopolitical environments or otherwise, may increase our costs or limit the amount of raw materials and products that we can import, or may otherwise adversely impact our business.

The U.S. administration may decide to impose import duties or other restrictions on products, components or raw materials sourced from countries that it perceives as engaging in unfair trade practices. Any such duties or restrictions could have a material adverse effect on our business, results of operations or financial condition.

Moreover, these new tariffs, or other changes in U.S. trade policy, could trigger retaliatory actions by affected countries. Certain foreign governments have instituted or are considering imposing trade sanctions on certain U.S. goods. Others are considering the imposition of sanctions that will deny U.S. companies access to critical raw materials. A “trade war” of this nature or other governmental action related to tariffs or international trade agreements or policies has the potential to adversely impact demand for our products, our costs, customers, suppliers and/or the U.S. economy or certain sectors thereof and, thus, to adversely impact our businesses.

The U.S. government imposes sanctions through executive orders restricting U.S. companies from conducting business activities with specified individuals and companies, such as in Russia and the Ukraine, and requires export licenses for certain of such activities. While we believe that the executive orders currently do not have a material impact on our business, the sanctions imposed by the U.S. government could be expanded in the future. If we are unable to conduct business with new or existing customers or pursue opportunities with sanctioned countries, our business, including revenue, profitability and cash flows, could be materially adversely affected.

Our business may be impacted by international instability, war, terrorism, and geopolitical events.

International political and economic instability or volatility, geopolitical regional conflicts, terrorist activity, political unrest, civil strife, acts of war, public corruption, expropriation and other economic or political uncertainties could interrupt and negatively affect the performance of our services, sale of our products or other business operations. A slowdown in economic growth in some emerging markets could result in long sales cycles, greater risk of uncollectible accounts and longer collection cycles. Fluctuations or devaluations in currency values, especially in emerging markets, could have an adverse effect on us, our suppliers, logistics providers and manufacturing vendors. All of these factors could result in increased costs or decreased revenues, and could materially and adversely affect our product sales, financial condition and results of operations.

If any of our distributor relationships is not successful, we may terminate or choose not to renew the related distributor agreement, which could potentially negatively impact our distribution channel or result in litigation costs or other expenses.

Successfully managing our distribution channel in an effort to reach various potential customer segments for our products and services is a complex process. Each of our distributors is a strategically placed independent partner that provides for marketing and selling of our products and services on our behalf. If our distribution relationships are not successful, we may lose sales opportunities, customers, and revenues. Our agreements with our distribution partners require them to comply with performance conditions that are subject to interpretation, which could result in disagreements. At any given time, we may be in disputes with one or more distribution partners. Any such dispute could result in lengthy and costly litigation, even if the outcome is ultimately in our favor. We cannot predict the outcome of any arbitration or litigation, the effect of any negative judgment against us or the amount of any settlement that we may enter into with such distribution partners. A contractual dispute with a distribution partner may result in our or our distribution partner seeking to terminate the related distribution agreement, even if such termination would be wrongful, which could harm our business, or interfere with a previously agreed wind down of the relationship or transition of end-user service agreements. Any prolonged disruptions of our distribution channels that results from the termination of one or more of our distribution agreements or our failure to renew our distribution agreements with our desired distributors, could negatively affect our ability to effectively sell our products and would materially and adversely affect our business, financial condition, results of operations and prospects.

We may not be able to develop sufficiently trained applications engineering, installation and service support to serve our targeted markets.

Our ability to identify and develop business relationships with companies who can provide quality, cost-effective application engineering, installation and service can significantly affect our success. The application engineering and proper installation of our PowerGen units, as well as proper maintenance and service, are critical to the performance of the units. Additionally, we need to reduce the total installed cost of our PowerGen units to enhance market opportunities. Our inability to improve the quality of applications, installation and service while reducing associated costs could affect the marketability of our products.

Our financial condition and results of operations and other key metrics are likely to fluctuate on a quarterly basis in future periods, which could cause our results for a particular period to fall below expectations, resulting in a severe decline in the price of our common stock.

Our financial condition and results of operations and other key metrics have fluctuated significantly in the past and may continue to fluctuate in the future due to a variety of factors, many of which are beyond our control. For example, the amount of product revenue we recognize in a given period is materially dependent on the volume of installations of our PowerGen units in that period and the type of financing used by the customer.

In addition to the other risks described in this “Risk Factors” section, the following factors could also cause our financial condition and results of operations to fluctuate on a quarterly basis:

Fluctuations in our operating results and cash flow could, among other things, give rise to short-term liquidity issues. In addition, our revenue, key operating metrics and other operating results in future quarters may fall short of the expectations of investors and financial analysts, which could have an adverse effect on the price of our common stock.

We must maintain customer confidence in our liquidity and long-term business prospects in order to grow our business.

Currently, we are the only provider able to fully support and maintain our PowerGen units. If potential customers believe we do not have sufficient capital or liquidity to operate our business over the long-term or that we will be unable to maintain their PowerGen units and provide satisfactory support, customers may be less likely to purchase our products, particularly in light of the significant financial commitment required. In addition, financing sources may be unwilling to provide financing on reasonable terms. Similarly, suppliers, financing partners and other third parties may be less likely to invest time and resources in developing business relationships with us if they have concerns about the success of our business.

Accordingly, in order to grow our business, we must maintain confidence among customers, suppliers, financing partners and other parties in our liquidity and long-term business prospects. This may be particularly complicated by factors such as:

Several of these factors are largely outside our control, and any negative perceptions about our liquidity or long-term business prospects, even if unfounded, would likely harm our business.

Our future success depends in part on our ability to increase our production capacity and we may not be able to do so in a cost-effective manner.

To the extent we are successful in growing our business, we may need to increase our production capacity. Our ability to plan, construct and equip additional manufacturing facilities is subject to significant risks and uncertainties, including the following:

If we are unable to expand our manufacturing facilities, we may be unable to further scale our business. If the demand for our PowerGen units or our production output decreases or does not rise as expected, we may not be able to spread a significant amount of our fixed costs over the production volume, thereby increasing our per unit fixed cost, which would have a negative impact on our financial condition and results of operations.

We have in some instances, entered into long-term supply agreements that could result in insufficient inventory and negatively affect our results of operations.

We have entered into long-term supply agreements with certain suppliers. Some of these supply agreements provide for fixed or inflation-adjusted pricing and substantial prepayment obligations. If our suppliers provide insufficient inventory at the level of quality required to meet customer demand, or if our suppliers are unable or unwilling to provide us with the contracted quantities, as we have limited or in some case no alternatives for supply, our results of operations could be materially and negatively impacted. Further, we face significant specific counterparty risk under long-term supply agreements when dealing with suppliers without a long, stable production and financial history. Given the uniqueness of our product, some of our are private companies that may not have substantial capital resources. In the event any such supplier experiences financial difficulties, it may be difficult or impossible, or may require substantial time and expense, for us to recover any or all of our prepayments. We do not know whether we will be able to maintain long-term supply relationships with our critical suppliers, or secure new long-term supply agreements. Additionally, many of our parts and materials are procured from foreign suppliers, which exposes us to risks including unforeseen increases in costs or interruptions in supply arising from changes in applicable international trade regulations, such as taxes, freight, tariffs, or quotas. Any of the foregoing could materially harm our financial condition and results of operations.

We face supply chain competition, including competition from businesses in other industries, which could result in insufficient inventory and negatively affect our results of operations.

Certain of our suppliers also supply parts and materials to other businesses, including businesses engaged in the production of consumer electronics and other industries unrelated to Free Piston Stirling engines. As a relatively low-volume purchaser of certain of these parts and materials, we may be unable to procure a sufficient supply of the items in the event that our suppliers fail to produce sufficient quantities to satisfy the demands of all of their customers, which could materially harm our financial condition and results of operations.

If we fail to manage our growth effectively, our business and operating results may suffer.

Our current growth and future growth plans may make it difficult for us to efficiently operate our business, challenging us to effectively manage our capital expenditures and control our costs while we expand our operations to increase our revenue. If we experience significant growth in orders, without improvements in automation and efficiency, we may need additional manufacturing capacity and we and some of our suppliers may need additional and capital intensive equipment. Any growth in manufacturing must include a scaling of quality control as the increase in production increases the possible impact of manufacturing defects. In addition, any growth in the volume of sales of our PowerGen units may outpace our ability to engage sufficient and experienced personnel to manage the higher number of installations and to engage contractors to complete installations on a timely basis and in accordance with our expectations and standards. Any failure to manage our growth effectively could materially and adversely affect our business, prospects, operating results and financial condition. Our future operating results depend to a large extent on our ability to manage this expansion and growth successfully.

Our failure to protect our intellectual property rights may undermine our competitive position, and litigation to protect our intellectual property rights may be costly.

Although we have taken many protective measures to protect our technology with trade secrets, know-how and specialized domain expertise, including agreements, limited access, segregation of knowledge, password protections and other measures, policing unauthorized use of proprietary technology can be difficult and expensive.

Also, litigation may be necessary to enforce our intellectual property rights, protect our trade secrets, or determine the validity and scope of the proprietary rights of others. Such litigation may result in our intellectual property rights being challenged, limited in scope, or declared invalid or unenforceable. We cannot be certain that the outcome of any litigation will be in our favor, and an adverse determination in any such litigation could impair our intellectual property rights and may harm our business, prospects and reputation.

We rely primarily on know-how, specialized knowledge, domain expertise, trade secrets and non-disclosure, confidentiality and other types of contractual restrictions to establish, maintain, and enforce our intellectual property and proprietary rights. However, our rights under these laws and agreements afford us only limited protection and the actions we take to establish, maintain, and enforce our intellectual property rights may not be adequate. For example, our trade secrets and other confidential information could be disclosed in an unauthorized manner to third parties, our owned or licensed intellectual property rights could be challenged, invalidated, circumvented, infringed, or misappropriated or our intellectual property rights may not be sufficient to provide us with a competitive advantage, any of which could have a material adverse effect on our business, financial condition or operating results. In addition, the laws of some countries do not protect proprietary rights as fully as do the laws of the United States. As a result, we may not be able to protect our proprietary rights adequately abroad.

Our patent applications may not result in issued patents, and our issued patents may not provide adequate protection, which may have a material adverse effect on our ability to prevent others from commercially exploiting products similar to ours.

We cannot be certain that our pending patent applications will result in issued patents or that any of our issued patents will afford protection against a competitor. The status of patents involves complex legal and factual questions, and the breadth of claims allowed is uncertain. As a result, we cannot be certain that the patent applications that we file will result in patents being issued, or that our patents and any patents that may be issued to us in the future will afford protection against competitors with similar technology. In addition, patent applications filed in foreign countries are subject to laws, rules, and procedures that differ from those of the United States, and thus we cannot be certain that foreign patent applications related to issued U.S. patents will be issued in other regions. Furthermore, even if these patent applications are accepted and the associated patents issued, some foreign countries provide significantly less effective patent enforcement than in the United States.

In addition, patents issued to us may be infringed upon or designed around by competitors, suppliers or others which may obtain patents that we need to license or design around, either of which would increase costs and may adversely affect our business, prospects, and operating results.

We may need to defend ourselves against claims that we infringe, have misappropriated or otherwise violate the intellectual property rights of others, which may be time-consuming and would cause us to incur substantial costs.

Companies, organizations, or individuals, including our competitors, and suppliers may hold or obtain patents, trademarks, or other proprietary rights that they may in the future believe are infringed by our products or services. Although we are not currently subject to any claims related to intellectual property, these companies holding patents or other intellectual property rights allegedly relating to our technologies could, in the future, make claims or bring suits alleging infringement, misappropriation, or other violations of such rights, or otherwise asserting their rights and seeking licenses or injunctions. In specific cases indemnify our customers or suppliers against claims that the products we supply infringe, misappropriate, or otherwise violate third party intellectual property rights, and we may therefore be required to defend our customers against such claims. If a claim is successfully brought in the future and we or our products are determined to have infringed, misappropriated, or otherwise violated a third party’s intellectual property rights, we may be required to do one or more of the following:

Any of the foregoing could adversely affect our business, prospects, operating results and financial condition. In addition, any litigation or claims, whether or not valid, could harm our reputation, result in substantial costs, and divert resources and management attention.

If we are unable to attract and retain key employees and hire qualified management, technical, engineering, and sales personnel, our ability to compete and successfully grow our business could be harmed.

We believe that our success and our ability to reach our strategic objectives are highly dependent on the contributions of our key management, technical, engineering and sales personnel. The loss of the services of any of our key employees could disrupt our operations, delay the development and introduction of our products and services, and negatively impact our business, prospects and operating results. None of our key employees is bound by an employment agreement for any specific term. We cannot assure you that we will be able to successfully attract and retain senior leadership necessary to grow our business. Furthermore, there is increasing competition for talented individuals in our field. We cannot assure that we will be able to afford the compensation packages customary in our filed, which may lead to inability to attract and retain leadership and talent. Our failure to attract and retain our executive officers and other key technology, sales, marketing and support personnel, could adversely impact our business, prospects, financial condition, and operating results. In addition, we do not have “key person” life insurance policies covering any of our officers or other key employees.

We may be subject to various environmental, health and safety laws and regulations that could impose substantial costs upon us and cause delays in building our manufacturing facilities.

We may be subject to national, state, and local environmental, health and safety laws and regulations as well as environmental laws in those foreign jurisdictions in which we operate. Environmental, health and safety laws and regulations can be complex and may change often. These laws can give rise to liability for administrative oversight costs, cleanup costs, property damage, bodily injury, fines and penalties. Capital and operating expenses needed to comply with environmental laws and regulations can be significant, and violations may result in substantial fines and penalties or third-party damages. In addition, ensuring we are in compliance with applicable environmental health and safety laws could require significant time and management resources and could cause delays in our ability to build out, equip and operate our facilities, as well as service our fleet which would adversely impact our business, prospects, financial condition and operating results. In addition, environmental laws and regulations, such as the Comprehensive Environmental Response, Compensation and Liability Act in the United States, impose liability on several grounds for the investigation and cleanup of contaminated soil and ground water, for building contamination and impacts to human health and for damages to natural resources. If, in the future, contamination is discovered at properties formerly owned or operated by us or owned or operated by us, or properties to which hazardous substances were sent by us, it could result in liability for us under environmental laws and regulations. Many of our customers who purchase our PowerGen units have high sustainability standards and any environmental noncompliance by us could harm our reputation and impact a current or potential customer’s buying decision.

The costs of complying with environmental laws, regulations and customer requirements, and any claims concerning noncompliance, or liability with respect to contamination in the future could have a material adverse effect on our financial condition or operating results.

The installation and operation of our PowerGen units may be subject to environmental laws and regulations in various jurisdictions, and there is uncertainty with respect to the interpretation of certain environmental laws and regulations to our PowerGen units, especially as these regulations evolve over time.

Qnergy is committed to compliance with applicable environmental laws and regulations, including health and safety standards, and we continually review the operation of our PowerGen units for health, safety and compliance. Our PowerGen units, like other generator technology-based products of which we are aware, produce small amounts of air pollutants, and we seek to ensure that they are handled in accordance with applicable regulatory standards.

While we seek to comply with air quality and emission standards in every region in which we operate, it is possible that certain customers may request that we comply with the stricter standards even though they are not applicable and even though we are under no contractual obligation to do so. Failure or delay, satisfying requests or attaining regulatory approval could result in our not being able to operate in a particular local jurisdiction.

Since in the current mode of operation, we primarily use fossil fuel, our business prospects may be negatively impacted if we are prevented from completing new installations or our installations become more costly as a result of laws, regulations, ordinances or other rules applicable to our PowerGen units, or by our customers’ and potential customers’ power generation procurement policies.

The operation of our PowerGen units on natural gas or propane does produce carbon dioxide (CO2), which has been shown to be a contributing factor to global climate change. As such, we may be negatively impacted by CO2-related changes in applicable laws, regulations, ordinances or other rules. Changes, or in some cases a lack of change, in any of the laws, regulations, ordinances or other rules that apply to our installations and new technology could make it illegal or more costly for us or our customers to install and operate our PowerGen units on particular sites, negatively affecting our ability to deliver cost savings to customers, or we could be prohibited from completing new installations or continuing to operate existing projects. Our customers’ and potential customers’ energy procurement policies may prohibit or limit their willingness to procure our PowerGen units. Our business prospects may be negatively impacted if we are prevented from completing new installations or our installations become more costly as a result of laws, regulations, ordinances or other rules applicable to our PowerGen units, or by our customers’ and potential customers’ power generation procurement policies.

We may become subject to product liability claims, which could harm our financial condition and liquidity if we are not able to successfully defend or insure against such claims.

We may in the future become subject to product liability claims. Each PowerGen installation must be designed, constructed, and operated in compliance with applicable federal, state, and local regulations, codes, standards, guidelines, policies, and laws. To install and operate our systems, we or our customers are required to obtain applicable permits and approvals from local authorities having jurisdiction (AHJ) to install the PowerGen and when applicable to interconnect the systems with the local electrical utility. For this reason, the PowerGen and the engine + controller packages carry a third-party certification from a Nationally Recognized Testing Laboratory (NRTL) for both the United States and Canada (cETLus). If not properly handled in accordance with our servicing and handling standards and protocols, there could be a system failure and resulting liability. These claims could require us to incur significant costs to defend. Furthermore, any successful product liability claim could require us to pay a substantial monetary award. Moreover, a product liability claim could generate substantial negative publicity about our company and our PowerGens, which could harm our brand, business, prospects, and operating results. While we maintain product liability insurance, our insurance may not be sufficient to cover all potential product liability claims. Any lawsuit seeking significant monetary damages either in excess of our coverage, or outside of our coverage, may have a material adverse effect on our business and financial condition.

Future litigation or administrative proceedings could have a material adverse effect on our business, financial condition and results of operations.

We may be involved in legal proceedings, administrative proceedings, claims and other litigation that arise in the ordinary course of business. In addition, since our PowerGen is a new type of product, we may in the future need to seek the amendment of existing regulations or, in some cases, the creation of new regulations, in order to operate our business in some jurisdictions. Such regulatory processes may require public hearings concerning our business, which could expose us to subsequent litigation.

Unfavorable outcomes or developments relating to proceedings to which we are a party or transactions involving our products, such as judgments for monetary damages, injunctions, or denial or revocation of permits, could have a material adverse effect on our business, financial condition, and results of operations. In addition, settlement of claims could adversely affect our financial condition and results of operations.

We may work on a defense project that will result in a component of our technology subject to export control.

Although we are not currently working directly on any projects for defense applications, we are selling PowerGens to the U.S. government and its contractors, and from time to time we support research at government labs and affiliated institutions. In addition, we are in contact with companies that work on space power and we may be requested by the U.S. government to work on defense related projects from time to time. While our PowerGen is dual use, there is a risk that a new component will be subject to export control if we are working on any projects for defense applications. Such a restriction may increase production costs and could adversely affect our financial condition and results of operations.

A breach or failure of our networks or computer or data management systems could damage our operations and our reputation.

Our business is dependent on the security and efficacy of our networks and computer and data management systems. For example, all of our PowerGen units are connected to, controlled and monitored by our centralized remote monitoring service and we rely on our internal computer networks for many of the systems we use to operate our business generally. Although we take protective measures and endeavor to modify them as circumstances warrant, the security of our infrastructure, including the network that connects our PowerGen units to our remote monitoring service, may be vulnerable to breaches, unauthorized access, misuse, computer viruses or other malicious code and cyber-attacks that could have a material adverse impact on our business and our PowerGen units in the field. A breach or failure of our networks or computer or data management systems due to intentional actions such as cyber-attacks, negligence or other reasons, could seriously disrupt our operations or could affect our ability to control or to assess the performance in the field of our PowerGen units and could result in disruption to our business and potentially legal liability. These events could result in significant costs or reputational consequences.

Expanding operations internationally could expose us to risks.

Although we currently primarily operate in North America, we will seek to expand our business internationally. We currently have operations in the United States and a sales office in Canada. Managing any international expansion will require additional resources and controls, including additional manufacturing and assembly facilities. Any expansion internationally could subject our business to risks associated with international operations, including:

As a result of these risks, any potential future international expansion efforts that we may undertake may not be successful.

If we discover a material weakness in our internal control over financial reporting or otherwise fail to maintain effective internal control over financial reporting, our ability to report our financial results on a timely and accurate basis and the market price of our common stock may be adversely affected.

The Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley Act) requires, among other things, that we evaluate the effectiveness of our internal control over financial reporting and disclosure controls and procedures. Although we did not discover any material weaknesses in internal control over financial reporting at December 31, 2020, subsequent testing by us or our independent registered public accounting firm, which has not performed an audit of our internal control over financial reporting, may reveal deficiencies in our internal control over financial reporting that are deemed to be material weaknesses. To comply with Section 404A, we may incur substantial cost, expend significant management time on compliance-related issues and hire additional accounting, financial and internal audit staff with appropriate public company experience and technical accounting knowledge. Moreover, if we are not able to comply with the requirements of Section 404A in a timely manner or if we or our independent registered public accounting firm identify deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, we could be subject to sanctions or investigations by the Securities and Exchange Commission (SEC) or other regulatory authorities, which would require additional financial and management resources. Any failure to maintain effective disclosure controls and procedures or internal control over financial reporting could have a material adverse effect on our business and operating results, and cause a decline in the price of our common stock.

Our ability to use our deferred tax assets to offset future taxable income may be subject to limitations that could subject our business to higher tax liability.

We may be limited in the portion of net operating loss carryforwards that we can use in the future to offset taxable income for U.S. federal and state income tax purposes. At December 31, 2020, we had federal and state net operating loss carryforwards (NOLs) of $36.1 million, which will expire, if unused, beginning of 2033. A lack of future taxable income would adversely affect our ability to utilize these NOLs. In addition, under Section 382 of the Internal Revenue Code of 1986, as amended (the Code), a corporation that undergoes an “ownership change” is subject to limitations on its ability to utilize its NOLs to offset future taxable income. Changes in our stock ownership, including this offering or future offerings, as well as other changes that may be outside of our control, could result in ownership changes under Section 382 of the Code, which could cause our NOLs to be subject to these limitations. Our NOLs may also be impaired under similar provisions of state law. Our deferred tax assets may expire unutilized or underutilized, which could prevent us from offsetting future taxable income.

Our substantial indebtedness may limit our financial and operating activities and may adversely affect our ability to incur additional debt to fund future needs.

As of December 31, 2020 and June 30, 2021, we had approximately $3,532,000 and $2,900,000 of total indebtedness, respectively. Our substantial indebtedness and any new indebtedness could:

In addition, our substantial level of indebtedness could limit our ability to obtain required additional financing on acceptable terms or at all for working capital, capital expenditures and general corporate purposes. Any of these risks could impact our ability to fund our operations or limit our ability to expand our business, which could have a material adverse effect on our business, financial condition, liquidity and results of operations. Our liquidity needs could vary significantly and may be affected by general economic conditions, industry trends, performance and many other factors not within our control.

We may not be able to generate sufficient cash to meet our operational and financial goals.

Our ability to generate sufficient cash to make scheduled payments on our debt obligations will depend on our future financial performance, which will be affected by a range of economic, competitive and business factors, many of which are outside of our control.

If we do not generate sufficient cash to satisfy our debt obligations, including interest payments, the payment of principal at maturity or other payments that may be required from time to time under the terms of our debt instruments, we may have to undertake alternative financing plans, such as refinancing or restructuring our debt, selling assets, reducing or delaying capital investments or seeking to raise additional capital. We cannot provide assurance that any refinancing would be possible, that any assets could be sold, or, if sold, of the timing of the sales and the amount of proceeds realized from those sales, that additional financing could be obtained on acceptable terms, if at all, or that additional financing would be permitted under the terms of our various debt instruments then in effect. Furthermore, the ability to refinance indebtedness would depend upon the condition of the finance and credit markets at the time, which have in the past been, and may in the future be, volatile. Our inability to generate sufficient cash to satisfy our debt obligations, or to refinance our obligations on commercially reasonable terms or on a timely basis, would have an adverse effect on our business, results of operations and financial condition.

We may not be able to secure additional debt financing.

As of December 31, 2020, we had approximately $3,532,000 of total indebtedness, including $1,500,000 in short-term debt and $2,032,000 in long-term debt. As of June 30, 2021, we had approximately $2,900,000 of total indebtedness, including $2,238,000 in short-term debt and $662,000 in long-term debt. Given our current level of indebtedness and the fact that most of our assets serve as collateral to secure existing debt, it may be difficult for us to secure additional debt financing at an attractive cost, which may in turn impact our ability to expand our operations and product development activities and remain competitive in the market.

Restrictions imposed by the agreements governing of our outstanding indebtedness contain covenants that significantly limit our actions.

The agreements governing our outstanding indebtedness contain, and any of our other future debt agreements may contain, covenants imposing operating and financial restrictions on our business that limit our flexibility including, among other things, to:

Our debt agreements require the satisfaction of financial tests. Our ability to meet these financial tests may be affected by events beyond our control and, as a result, we cannot assure you that we will be able to meet these tests. We cannot provide assurance that we would have sufficient liquidity to satisfy our debt obligations. Furthermore, our financing and debt agreements contain events of default. If an event of default were to occur, the trustee or the lenders could, among other things, terminate their commitments and declare outstanding amounts due and payable, and our cash may become restricted. We cannot provide assurance that we would have sufficient liquidity to repay or refinance our indebtedness if such amounts were accelerated upon an event of default. Borrowings under other debt instruments that contain cross-acceleration or cross-default provisions may, as a result, be accelerated and become due and payable. We may be unable to pay these debts in such circumstances. If we were unable to repay those amounts, lenders could proceed against the collateral granted to them to secure repayment of those amounts. We cannot assure you that the collateral will be sufficient to repay in full those amounts. We cannot assure you that the operating and financial restrictions and covenants in these agreements will not adversely affect our ability to finance our future operations or capital needs, or engage in other business activities that may be in our interest, or react to adverse market developments.

We are an “emerging growth company” and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our common stock less attractive to investors and may make it more difficult to compare our performance with other public companies.

We are an “emerging growth company,” as defined in the JOBS Act, and we intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies,” including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We may take advantage of these exemptions for so long as we are an “emerging growth company,” which could be as long as five years following the completion of this offering. We cannot predict if investors will find our common stock less attractive because we will rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.

As an “emerging growth company,” we have elected to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(2) of the JOBS Act, that allows us to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies. As a result of this election, our financial statements may not be comparable to companies that comply with public company effective dates.

Risks Related to this Offering and Ownership of our Common Stock

There has been no prior public market for our common stock, the stock price of our common stock may be volatile or may decline regardless of our operating performance, and you may not be able to resell your shares at or above the initial public offering price.

There has been no public market for our common stock prior to this offering. The initial public offering price for our common stock will be determined through a Tender Process (as described in “Plan of Distribution”), and may vary from the market price of our common stock following this offering. The market prices of the securities of newly public companies such as us have historically been highly volatile. An active or liquid market in our common stock may not develop following this offering or, if it does develop, may not be sustainable. We intend to apply to have our common stock listed on the TASE. We do not intend to apply to have our common stock listed on a national securities exchange in the United States and we do not expect an active trading market for our common stock to develop in the United States. The market price of our common stock may fluctuate significantly in response to numerous factors, many of which are beyond our control, including:

In addition, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. Stock prices of many companies have fluctuated in a manner unrelated or disproportionate to the operating performance of those companies. In the past, stockholders have instituted securities class action litigation following periods of market volatility. If we were to become involved in securities litigation, it could subject us to substantial costs, divert resources and the attention of management from our business, and adversely affect our business.

Sales of substantial amounts of our common stock in the public markets, or the perception that they might occur, could cause the market price of our common stock to decline.

Sales of a substantial number of shares of our common stock into the public market, particularly sales by our directors, executive officers, and principal stockholders, or the perception that these sales might occur, could cause the market price of our common stock to decline.

Substantially all of the shares of our common stock and securities convertible into or exchangeable for shares of our common stock outstanding prior to this offering are restricted from resale as a result of lock-up agreements. See the section titled “Shares Eligible for Future Sale—Lock-Up Agreements” for additional information. These securities will become available to be sold 181 days after the completion of this offering. Shares of our common stock held by directors, executive officers and other affiliates will also be subject to volume limitations under Rule 144 under the Securities Act and various vesting agreements.

All of the shares of our common stock issuable upon the exercise of stock options and the shares of our common stock reserved for future issuance under our Option Plan will be registered under the Securities Act. Accordingly, these shares of our common stock will be able to be freely sold in the public market upon issuance subject to the lock-up agreements described above and applicable vesting requirements.

If securities or industry analysts do not publish research, or publish inaccurate or unfavorable research, about our business, the market price of our common stock and trading volume could decline.

The market price for our common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business. Securities and industry analysts do not currently, and may never, publish research on our company. If few securities analysts commence coverage of us, or if industry analysts cease coverage of us, the trading price for our common stock would be negatively affected. If one or more of the analysts who cover us downgrade our common stock or publish inaccurate or unfavorable research about our business, our common stock price would likely decline. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, demand for our common stock could decrease, which might cause our common stock price and trading volume to decline.

Because the initial public offering price of our common stock will be substantially higher than the pro forma as adjusted net tangible book value per share of our outstanding common stock following this offering, new investors will experience immediate and substantial dilution.

The initial public offering price will be substantially higher than the pro forma as adjusted net tangible book value per share of our common stock immediately following this offering based on the total value of our tangible assets less our total liabilities. Therefore, if you purchase shares of our common stock in this offering, based on an assumed initial public offering price per share of $11.515, which is the midpoint of the price range set forth on the cover page of this prospectus, and the issuance of 4,342,160 shares of common stock in this offering, you will experience immediate dilution of $7.35 per share, the difference between the price per share you pay for our common stock and its pro forma as adjusted net tangible book value per share as of June 30, 2021. As a result of the dilution to investors purchasing shares in this offering, investors may receive less than the purchase price paid in this offering, if anything, in the event of our liquidation. See the section titled “Dilution” for additional information.

There are currently no U.S. corporations whose common equity is traded on the TASE.

There are currently no U.S. corporations whose common equity trades on the TASE. Accordingly, there is no historical market data on how our common stock may trade on the TASE, whether a liquid market will develop or whether the trading price of our common stock may be adversely affected by virtue of the fact that there are no similar corporations trading in the local market. If a robust trading market for our common stock does not develop on the TASE or if Israeli investors otherwise treat our common stock unfavorably as compared to the securities of listed domestic companies, the market price of our common stock could decline.

We will have broad discretion in the use of the net proceeds to us from this offering and may not use them effectively.

We will have broad discretion in the application of the net proceeds to us from this offering, including for any of the purposes described in the section titled “Use of Proceeds,” and you will not have the opportunity as part of your investment decision to assess whether the net proceeds are being used appropriately. Because of the number and variability of factors that will determine our use of the net proceeds from this offering, their ultimate use may vary substantially from their currently intended use. The failure by our management to apply these funds effectively could harm our business. Pending their use, we may invest the net proceeds from this offering in investment-grade rated, interest-bearing instruments, such as money market funds, certificates of deposit, commercial paper, direct or guaranteed obligations of the U.S. government. These investments may not yield a favorable return to our investors.

We do not intend to pay dividends for the foreseeable future.

We have never declared or paid any cash dividends on our capital stock and do not intend to pay any cash dividends in the foreseeable future. We anticipate that we will retain all of our future earnings for use in the development of our business and for general corporate purposes. Any determination to pay dividends in the future will be at the discretion of our board of directors (the “Board”). Accordingly, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investments.

Provisions in our charter documents could make an acquisition of our company more difficult, limit attempts by our stockholders to replace or remove our current management, limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, or employees, and limit the market price of our common stock.

Provisions in our Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws may have the effect of delaying or preventing a change of control or changes in our management. Our Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws include provisions that:

We may not raise a sufficient amount of capital in this offering to meet our business objectives.

We are offering up to 4,342,160 shares of our common stock and there is no minimum number of shares of our common stock that must be sold in order for us to consummate this offering. Accordingly, the amount of money raised may not be sufficient for us to meet our business objectives. Moreover, if only a small amount of money is raised, all or substantially all of this offering proceeds may be applied to cover the offering expenses and we will not otherwise benefit from this offering. Additionally, if fewer than anticipated shares of our common stock are sold in this offering, but we nonetheless choose to complete this offering, there may not be enough shares to facilitate an active trading market for our common stock or to satisfy the minimum listing requirements established by the TASE.

Allocation of shares to successful bidders in a uniform offering may result in a phenomenon known as the “winner’s curse,” and, as a result, investors may experience significant losses.

The allocation of shares to successful bidders in a uniform offering may result in a phenomenon known as the “winner’s curse”. At the conclusion of this offering, bidders that receive allocations of our common stock in this offering, may infer that there is little incremental demand for our common stock above or equal to the public trading price. As a result, successful bidders may conclude that they paid too much for our common stock and could seek to immediately sell their common stock to limit their losses should the price of our common stock decline. In this situation, other investors who were not allocated shares may wait for this selling to be completed, resulting in reduced demand for our common stock in the public market and a significant decline in the price of our common stock. Therefore, we caution investors that submitting successful bids and receiving allocations may be followed by a significant decline in the value of their investment in our common stock shortly after this offering.

Submitting a bid in a uniform offering does not guarantee an allocation of shares of our common stock.

Submitting a bid in a uniform offering does not guarantee an allocation of shares of our common stock. Acceptance of an interested investor’s bid may depend on a number of factors, including:

In the case of a uniform offering, the manner in which shares will be allocated to bidders and the resulting Unit Price will be determined by the bids submitted during the Tender Process as described below in the “Plan of Distribution.” We do not know how many bids will be submitted or what the prices will be for any such bids. We cannot guarantee that an interested investor who submits a bid will be allocated any shares or will receive the full number of shares indicated in such bid.

The Tender Process may result in a situation in which less price-sensitive investors play a larger role in the determination of the offering price per share and constitute a larger portion of the investors in this offering, and, therefore, the offering price per share may not be sustainable.

In a typical public offering, a majority of the securities sold to the public are purchased by professional investors that have significant experience in determining valuations for companies. These professional investors typically have access to, or conduct their own, independent research and analysis regarding investments. Other investors typically have less access to this level of research and analysis, and, as a result, may be less sensitive to price when participating in the Tender Process. In the case of a uniform offering with pricing determined in a Tender Process, these less price-sensitive investors may have a greater influence in setting the offering price per share and may have a higher level of participation in our offering than is normal. This, in turn, could cause the Tender Process to result in an offering price per share that is higher than the price professional investors are willing to pay for our common stock. As a result, the market price of our common stock may decrease once trading begins. Also, because professional investors may have a substantial degree of influence on the trading price of our common stock over time, the price of our common stock may decline and not recover after this offering. Furthermore, if the offering price per share is above the level that investors determine to be reasonable for our shares, certain investors might attempt to short sell the stock after trading begins, which would create additional downward pressure on the trading price of our common stock.

Classified Investors who submitted successful bids during the Tender Process will pay a price per share that is effectively lower than the Unit Price for other investors.

As discussed below under “Plan of Distribution — Uniform Offering with Pricing Determined in a Tender Process — Early Bidding by Classified Investors”, in the case of a uniform offering with pricing determined in a Tender Process, we will pay to each Classified Investor an early commitment fee equal to 2.5% of the product of  (i) the number of shares of our common stock the Classified Investor committed to bid for during the Early Bidding Process multiplied by (ii) the Minimum Price. As a result, Classified Investors who submitted successful bids during the Tender Process will effectively pay a price per share for the shares represented by such bids that is lower than the Unit Price paid by the other investors.

The mechanics of the Tender Process make it difficult for persons not having an account with an Authorized Entity at the time of the Tender Process to place a bid for our common stock.

In the case of a uniform offering with pricing determined in a Tender Process, such Tender Process will be conducted in accordance with the Israeli Securities Law as well as rules established by the TASE. Although the Tender Process is open to all persons who wish to participate, with the exception of the Early Bidding Process for Classified Investors, bids for our common stock must be submitted through an Authorized Entity. This requirement may make it difficult and/or costly for persons without an account with an Authorized Entity to bid on our common stock.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements within the meaning of the federal securities laws. All statements contained in this prospectus other than statements of historical fact, including statements regarding our future operating results and financial position, our business strategy and plans, and our objectives for future operations, are forward-looking statements. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “predict,” “intend,” “could,” “would,” “should,” “expect,” “plan” and similar expressions are intended to identify forward-looking statements.

You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this prospectus primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, operating results, and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors, including those discussed in the section titled “Risk Factors” and elsewhere in this prospectus. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time and it is not possible for us to predict all risks and uncertainties or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make in this prospectus. We cannot assure you that the results, events, and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events, or circumstances could differ materially and adversely from those described or anticipated in the forward-looking statements.

The forward-looking statements made in this prospectus relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this prospectus to reflect events or circumstances after the date of this prospectus or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements.

USE OF PROCEEDS

We are offering to sell shares of our common stock on a best efforts basis. We will conduct the offering of shares of our common stock through a uniform offering with the price of the shares of our common stock determined through a Tender Process (as described in “Plan of Distribution”). The distributors will not be under any obligation to purchase or sell any shares of our common stock. There is no minimum number of shares required to be sold in order for the offering to proceed. We estimate that the net proceeds from the sale of shares of our common stock that we are selling in this offering, based on an assumed initial public offering price of $11.515 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting estimated distributor commissions and estimated offering expenses payable by us, will be approximately:

Each $1.00 increase or decrease in the assumed initial public offering price of $11.515 per share would increase or decrease the net proceeds that we receive from this offering by approximately $1.1 million (if 25% of the offering is sold), $2.1 million (if 50% of the offering is sold), $3.2 million (if 75% of the offering is sold) or $4.2 million (if 100% of the offering is sold), assuming that the number of shares of common stock offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated distributor commissions.

We may use the net proceeds that we receive from this offering, as well as any cash income from our ongoing activities, for (i) an increase in our marketing and sales efforts, mainly for the CAP-3 system, in the natural gas market in the U.S. and Canada ($2 million to $5 million), (ii) geographic expansion into additional territories outside North America, as well as adopting our products to the regulation in any such new territory ($2 million to $5 million), (iii) ongoing R&D, focusing on improving our existing products and decreasing production costs ($6 million to $12 million), (iv) investing in additional markets, and in particular the bio-gas, the telecom and the residential markets, by developing targeted products and creating joint ventures ($6 million to $12 million), (v) the repayment of any outstanding loans or other indebtedness, and (vi) the establishment of an R&D center in Israel with at least five full time employees.

DIVIDEND POLICY

We have never declared or paid cash dividends on our capital stock. We currently intend to retain all available funds and any future earnings for use in the operation of our business and do not anticipate paying any cash dividends in the foreseeable future. Any decision to declare and pay dividends in the future will be made at the discretion of our Board and will depend on, among other things, our results of operations, cash requirements, financial condition, requirements under applicable law (including the Israeli Companies Law), contractual restrictions including compliance with covenants under our credit facilities and other factors that our Board may deem relevant.

Our charter provides that, we will be subject to the provisions of the Israeli Companies Law applicable to issuers incorporated outside of Israel. Therefore, distributions of dividends by us to our stockholders will be made in accordance with Delaware law and the requirements of the Israeli Companies Law and the regulations promulgated thereunder applicable to the distribution of dividends.

CAPITALIZATION

The following table sets forth our cash and cash equivalents and our capitalization as of June 30, 2021 on:

The preceding table is based on 1,000,000 shares of our common stock outstanding as of June 30, 2021, and gives effect to (1) the conversion of 500,000 shares of our Series A preferred stock, 130,180 shares of our Series B preferred stock and 102,093 shares of our Series B-1 preferred stock outstanding as of June 30, 2021 into an aggregate of 732,273 shares of our common stock upon the completion of this offering, (2) the conversion of 13,018 warrants to purchase shares of our common stock, at an exercise price of $46.10 per share, outstanding as of June 30, 2021 into 13,018 shares of our common stock upon the completion of this offering, (3) the conversion of 1,000 shares of our Series A-1 preferred stock outstanding as of June 30, 2021 into 65,132 shares of our common stock upon the completion of this offering, and (4) a 10-for-1 forward stock split of our common stock to be effected upon the completion of this offering, but after the conversions described above, and excludes:

For more information regarding our Option Plan, see “Executive Compensation – Option Plan.”

DILUTION

If you invest in our common stock, your interest will be diluted to the extent of the difference between the public offering price per share of our common stock and the pro forma as adjusted net tangible book value per share of our common stock after this offering.

Our net tangible book value as of June 30, 2021 was $3.975 million, or $3.975 per share of common stock. Pro forma net tangible book value per share represents total tangible assets less total liabilities, divided by the number of shares of common stock outstanding as of June 30, 2021.

After giving effect to (1) the conversion of 500,000 shares of our Series A preferred stock, 130,180 shares of our Series B preferred stock and 102,093 shares of our Series B-1 preferred stock outstanding as of June 30, 2021 into an aggregate of 732,273 shares of our common stock upon the completion of this offering, (2) the conversion of 13,018 warrants to purchase shares of our common stock, at an exercise price of $46.10 per share, outstanding as of June 30, 2021 into 13,018 shares of our common stock upon the completion of this offering, (3) the conversion of 1,000 shares of our Series A-1 preferred stock outstanding as of June 30, 2021 into 65,132 shares of our common stock upon the completion of this offering, and (4) a 10-for-1 forward stock split of our common stock to be effected upon the completion of this offering, but after the conversions described above, our pro forma net tangible book value as of June 30, 2021 was $4.575 million, or $0.25 per share of common stock.

Our pro forma as adjusted net tangible book value per share gives further effect to our sale of our common stock in this offering at the assumed initial public offering price of $11.515 per share, the midpoint of the price range on the cover of this prospectus, after deducting the estimated distributor commissions and our estimated offering expenses, and assuming the sale of 25%, 50%, 75% and 100% of the shares in this offering. Our pro forma as adjusted net tangible book value as of June 30, 2021 would have been $15.912 million, or $0.83 per share (assuming 25% of the offering is sold), $28.037 million, or $1.38 per share (assuming 50% of the offering is sold), $40.162 million, or $1.88 per share (assuming 75% of the offering is sold) and $52.287 million, or $2.33 per share (assuming 100% of the offering is sold). This represents an immediate increase in net tangible book value of $0.58 per share to our existing stockholders and an immediate dilution of $10.69 per share to new investors purchasing shares of common stock in this offering if 25% of the offering is sold, an immediate increase in net tangible book value of $1.13 per share to our existing stockholders and an immediate dilution of $10.13 per share to new investors purchasing shares of common stock in this offering if 50% of the offering is sold, an immediate increase in net tangible book value of $1.63 per share to our existing stockholders and an immediate dilution of $9.63 per share to new investors purchasing shares of common stock in this offering if 75% of the offering is sold, and an immediate increase in net tangible book value of $2.08 per share to our existing stockholders and an immediate dilution of $9.19 per share to new investors purchasing shares of common stock in this offering if 100% of the offering is sold. The following table illustrates this dilution on a per share basis:

Each $1.00 increase or decrease in the assumed initial public offering price of $11.515 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase or decrease our pro forma as adjusted net tangible book value per share after this offering by $0.05 (if 25% of the offering is sold), $0.10 (if 50% of the offering is sold), $0.15 (if 75% of the offering is sold) and $0.19 (if 100% of the offering is sold), and would increase or decrease dilution per share to new investors in this offering by $0.05 (if 25% of the offering is sold), $0.10 (if 50% of the offering is sold), $0.15 (if 75% of the offering is sold) and $0.19 (if 100% of the offering is sold), assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting estimated distributor commissions and estimated offering expenses payable by us.

The following table illustrates as of June 30, 2021 the differences between the number of shares of common stock purchased from us, the total consideration paid, and the average price per share paid by existing stockholders and new investors purchasing shares of our common stock in this offering based on an assumed initial public offering price of $11.515 per share, the midpoint of the price range on the cover of this prospectus, before deducting estimated distributor commissions and estimated offering expenses payable by us, and assuming the sale of 25%, 50%, 75% and 100% of the shares in this offering.