12 KW air cooled, GT 990 engine, about 7 years old, low hours, ran fine until about 2 years ago, has not run since. Initially overspeed light was on. Since then has not run, recently when trying to start, after about 1 minute of cranking it backfired.

So far I have installed: new plugs, new ignition coils,new gas regulator, new valves,springs,heads,had valves and heads machined by shop, adjusted valves and plugs to spec. , new starter (old one wore out from all the cranking) Compression is about 40 psi, seems low but manual does not give value. Compression leak down test is about 8% on one cylinder, about 12% on the other. Gas pressure at the regulator, is around 11" w.c. propane.

Could it be that gearing between crankshaft and camshaft has changed? Generac mention that timing gears are pressed onto the shaft, I wonder if they could have slipped on the shaft?
Geoff Z
Compression was around 130 psi + from the factory. Sounds like you have some severe compression issues. This is very abnormal for a 990 engine with low hours.
Assuming the cyl walls looked good when You had the heads off, [no bad scars] I'd suspect valve timing may be off. Check to be sure the valves open and close when they're sposed to in relation to the piston movenent. If the cam is out of time the gear may have slipped or teeth may be bad.
We have replaced engines in that model due to bad cam gears.