UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

☒  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2017

2023

OR

☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT

☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________ to _________
Commission file number: 000-53704

001-37673

WORKHORSE GROUP INC.

(NameExact name of registrant as specified in its charter)

Nevada26-1394771
(State or other jurisdiction of

incorporation or organization)		(I.R.S. Employer

Identification No.)

100 Commerce
3600 Park 42 Drive, Suite 160E
Sharonville, Ohio 45241(1-888) 646-5205
Loveland, Ohio 45140513-360-4704
(Address of principal executive offices)(Registrant’s telephone number)number, including area code)

SECURITIES REGISTERED PURSUANT TO SECTION

Securities Registered Pursuant to Section 12(b) OF THE EXCHANGE ACT:

of the Exchange Act:
Title of each Class:Trading Symbol(s)Name of Each Exchangeeach exchange on which registered
Common Stock, $0.001 par value per shareWKHSThe NASDAQ StockCapital Market LLC

SECURITIES REGISTERED PURSUANT TO SECTION

Securities Registered Pursuant to Section 12(g) OF THE EXCHANGE ACT:

of the Exchange Act: None.

Indicate by check mark if the Registrantregistrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐¨     No  ☒

x

Indicate by check mark if the Registrantregistrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐¨     No  ☒

x

Indicate by check mark whether the Registrantregistrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrantregistrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒x     No  ☐

¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒x     No ☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐

¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer☐Accelerated filer☐
Non-accelerated filer☒Smaller reporting company☒
Non-accelerated filer☐ (Do not check if a smaller reporting company)

Smaller reporting company

Emerging growth company

☐

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.7262(b)) by the registered public accounting firm that prepared or issued its audit report. Yes ☐

     No ☒

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.



Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b).
☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ☐    No  ☒

As of June 30, 2017,2023, the last business day of the Registrant’s most recently completed second fiscal quarter, the market value of our common stock held by non-affiliates was $134,353,896. 

was $173,157,504.

The number of shares of the Registrant’s common stock, $0.001 par value per share, outstanding as of March 8, 2018,2024, was 41,828,474.

314,830,058.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Workhorse Group’s Definitive Proxy related to the 2023 Annual Meeting of Stockholders to be filed subsequently are incorporated by reference into Part III of this Form 10-K.


TABLE OF CONTENTS

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Item 1.1
Item 1A.10
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22
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Item 1C.
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Item 6.Selected Financial Data26
27
22
31
34
F-1
F-1
32
35
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35
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34
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40
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47
37
49
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40
Item 15.Exhibits, Financial Statement Schedules50
53
41

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Forward-Looking Statements

The discussions in this Annual Report on Form 10-K (this “Report”) contain forward-looking statements reflecting our current expectations that involve risks and uncertainties. These statements are made under the “safe harbor” provisions of the U.S. Private Securities Litigation Reform Act of 1995. When used in this Report, the words “anticipate”, expect”, “plan”, “believe”, “seek”,“anticipate,” “expect,” “plan,” “believe,” “seek,” “estimate” and similar expressions are intended to identify forward-looking statements. These are statements that relate to future periods and include, but are not limited to, statements about the features, benefits and performance of our products, our ability to introduce new product offerings and increase revenue from existing products, expected expenses including those related to selling and marketing, product development and general and administrative, our beliefs regarding the health and growth of the market for our products, anticipated increase in our customer base, expansion of our products functionalities, expected revenue levels and sources of revenue, expected impact, if any, of legal proceedings, the adequacy of our liquidity and capital resource,resources, the likelihood of us obtaining additional financing in the immediate future and the expected terms of such financing, and expected growth in business. Forward-looking statements are statements that are not historical facts. Such forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ materially from the forward-looking statements contained in this Report. Factors that could cause actual results to differ materially from those projected. These risks and uncertainties include, but are not limited to: our ability to market acceptance fordevelop and manufacture our products,new product portfolio, including the W4 CC, W750, W56 and WNext programs; our ability to attract and retain customers for our existing and new products; risks associated with obtaining orders and executing upon such orders; the unavailability, reduction, elimination or adverse application of government subsidies, incentives and regulations; supply chain disruptions, including constraints on steel, semiconductors and other material inputs and resulting cost increases impacting our Company, our customers, our suppliers or the industry; our ability to capitalize on opportunities to deliver products to meet customer requirements; our limited operations and need to expand and enhance elements of our production process to fulfill product orders; our general inability to raise additional capital to fund our operations and business plan; our ability to obtain financing to meet our immediate liquidity needs and the potential costs, dilution and restrictions imposed by any such financing; our ability to regain compliance with the listing requirements of the Nasdaq Capital Market and otherwise maintain the listing of our securities thereon and the impact of any steps we take to regain such compliance, such as a reverse split of our common stock, on our operations, stock price and future access to liquidity; our ability to protect our intellectual property; market acceptance for our products; our ability to obtain sufficient liquidity from operations and financing activities to continue as a going concern and, our ability to control our expenses,expenses; the effectiveness of our ability to recruitcost control measures and retain employees, legislation and government regulation,impact such measures could have on our operations; potential competition, including without limitation shifts in technology,technology; volatility in and deterioration of national and international capital markets and economic conditions; global and local business conditions, our ability to effectively maintainconditions; acts of war (including without limitation the conflicts in Ukraine and update our product and service portfolio, the strength of competitive offerings,Israel) and/or terrorism; the prices being charged by those competitorsour competitors; our inability to retain key members of our management team; our inability to satisfy our customer warranty claims; the outcome of any regulatory or legal proceedings; and other risks and uncertainties and other factors discussed from time to time in our filings with the risks discussed elsewhere hereinSecurities and our ability to raise capitalExchange Commission (“SEC”), including under acceptable terms. These forward-lookingthe “Risk Factors” section of this Report. Forward-looking statements speak only as of the date hereof. We expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

based, except as required by law.

All references in this Form 10-KReport that refer to the “Company”, “WORKHORSE GROUP”“Workhorse Group”, “Workhorse”, “we,” “us” or “our” are to WORKHORSE GROUP INC. and unless otherwise differentiated, its wholly-owned subsidiaries, Workhorse TechnologiesGroup Inc., Workhorse Motor Works Inc and Workhorse Properties Inc.

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PART I

ITEM 1. BUSINESS

Overview



Recent Developments

Going Concern; Possible Financing

As discussed more fully under Risk Factors and Liquidity and Capital Resources; Going Concern, below, our ability to continue as a going concern is contingent upon successful execution of management’s intended plan over the next twelve months to improve the Company’s liquidity and working capital requirements.A vital component of such plan is the consummation of a financing in the immediate future to address these requirements in the short term.

Accordingly, the Company is in the process of negotiating with potential financing sources for a financing transaction that would make liquidity available both in the short term and over time (a “Possible Financing”). The Company intends to consummate a Possible Financing in the near future.

Although the terms of a Possible Financing remain under negotiation, the Company currently expects that any such financing would have a cost of capital materially higher than the cost of capital of its existing financing arrangements and a substantial potentially dilutive equity component, whether through a conversion feature, significant warrant coverage or both.A Possible Financing may also contain terms that limit the Company’s ability to sell common stock under its ATM Agreement and ELOC Agreement and to incur new debt.

There is no assurance that any Possible Financing will be available on any terms.If we are not able to complete a Possible Financing or find another source of liquidity in the immediate future, we may be unable to continue our operations or may need to substantially reduce them.

Additional Cost Reduction Measures

Another vital component of management’s intended plan over the next twelve months to improve our liquidity and working capital requirements is reducing our operating costs to, among other things, reduce demands on the liquidity that is available to us. Accordingly, in the first quarter of 2024 we took the measures described below.

•We are in the process of completing a reduction in force (the “RIF”) pursuant to which we terminated approximately 20% of our total workforce, excluding direct labor. We do not expect to incur material costs in connection with the RIF.
•Each of our executive officers agreed to defer payment of approximately 20% of their cash compensation into the second quarter of 2024.
•As described more fully below, we decided to fully transition our Aero business from a design and manufacturing drone business to Drones as a Service business. This transition has resulted in, among other things, our stopping production and development of both drone product lines and the termination of employees who performed the related work.

These measures are in addition to cost-reduction measures that we have implemented in prior periods, including those described in Note 16, Subsequent Events, to the consolidated financial statements included in this Annual Report on Form 10-K. Management plans to continue to seek additional opportunities to reduce costs and, in particular, cash expenditures, in a manner intended to minimize their adverse impact on our core operations. There can be no assurance that the measures described above, or any other cost-cutting measures we may implement in the future will be sufficient to address our immediate or longer-term liquidity and working capital needs. Moreover, it is possible that such measures will have an adverse effect on our operations.

NASDAQ Listing Requirements; Proposed Reverse Stock Split

As previously disclosed, on September 22, 2023, we received notice from Nasdaq indicating that the closing bid price for our common stock had fallen below the $1.00 minimum bid price for continued listing for 30 consecutive trading days and was no longer in compliance with the minimum bid requirement. In order for the Company to regain compliance, the closing bid price of our common stock must be equal to or above the $1.00 minimum bid price for a period of 10 consecutive trading days prior
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to March 20, 2024. Based on recent trading prices of our common stock, we believe that it is highly unlikely that we will be able to meet this requirement by that date.

Accordingly, we intend to regain compliance by effecting a reverse split of our common stock (the “Reverse Split”) following the 2024 Annual General Meeting of our stockholders. We will be able to effect the Reverse Split only if our stockholders vote to approve it. It is possible that our stockholders will not approve the Reverse Split, and we may not be able to regain compliance with the NASDAQ continuing listing requirements if we do not effect the Reverse Split. The Reverse Split also presents certain other risks to the Company and its stockholders, including the risk of a decline in the aggregate market value of our outstanding common stock. Please see Item 1A. Risk Factors, “We are currently out of compliance with the Nasdaq’s continuing listing requirements and if we fail to satisfy all such applicable Nasdaq continued listing requirements, our common stock may be delisted from Nasdaq, which could have an adverse impact on the liquidity and market price of our common stock, and our plan to regain compliance with these requirements may have an adverse effect on the Company and its stockholders' for more information.
Overview

We are an American technology company focused on providingwith a vision to pioneer the transition to zero-emission commercial vehicles. Our primary focus is to provide sustainable and cost-effective solutions to the commercial transportation sector. As an American manufacturer weWe design and build high performance battery-electricmanufacture all-electric delivery trucks and drone systems, including the technology that optimizes the way these vehicles and aircraft that make movementoperate. We are focused on our core competency of people and goods more efficient and less harmfulbringing our electric delivery vehicle platforms to serve the environment. As part of our solution, we also develop cloud-based, real-time telematics performance monitoring systems that enable fleet operators to optimize energy and route efficiency. Although we operate as a single unit through our subsidiaries, we approach our development through two divisions, Automotive and Aviation.

Automotive

In March of 2013, we purchased the former Workhorse Custom Chassis assembly plant in Union City, Indiana from Navistar International (NAV: NYSE). With this acquisition, we acquired the capability to belast mile delivery market.

We are an American-based Original Equipment Manufacturer (OEM) of Class 3-6 commercial-grade, medium-duty truck chassis, to be(“OEM”), and our products are marketed under the Workhorse® brand. All Workhorse last milelast-mile delivery vanstrucks are assembled in theour Union City, assemblyIndiana production facility.We believe that weAll Workhorse drone systems are the only medium-duty battery-electric OEMdesigned and built in the U.S. and we will be expanding our product portfolio through introduction of the N-GEN electric cargo van, as well as the W-15 range-extended electric pickup truck in late 2018 and 2019.

Mason, Ohio facility.

We believe our battery-electric and range-extended battery electricall-electric commercial vehicles offer fleet operators significant benefits, which include:

●Low Total Cost-of-Ownership vs. conventional gas/diesel vehicles

●Competitive advantage to increase brand loyalty and last mile delivery market share

●Improved profitability through:

oLower maintenance costs

oReduced fuel expenses

●Increased package deliveries per day through use of more efficient delivery methods

●Decreased vehicle emissions and reduction in carbon footprint

●Improved vehicle safety and driver experience

The Company currently sells and leases its vehicles to fleet customers directly and through its primary distributor Ryder System, Inc. Ryder also is the exclusive maintenance provider for Workhorse, whichprovides fleet operators with access to Ryder’s network of 800 maintenance facilities and nearly 6,000 trained service technicians across North America.

Cargo Vans for Last Mile Delivery and Commercial Work Use

Workhorse E-100 battery-electric and E-GEN range-extended delivery vans are currently in production at our Union City, Indiana plant and are in use by our customers on daily routes across the United States. To date, we have built and delivered over 360 electric and range extended medium-duty delivery trucks to our customers. To our knowledge, we are the only American commercial electric vehicle OEM to achieve such a milestone.Our delivery customers include companies such as UPS, FedEx Express, Alpha Baking and Ryder System.

Data from our in-house developed Metron telematics system demonstrates our vehicles have logged more than 2,000,000 customer miles on the road and are averaging a 500% increase in fuel economy


•Lower total cost-of-ownership as compared to conventional gasoline-based trucksgas/diesel vehicles;
•Improved profitability through lower maintenance costs and reduced fuel expenses;
•Increased package deliveries per day through use of more efficient delivery methods;
•Decreased vehicle emissions and reduced carbon footprint; and
•Improved vehicle safety and operator experience.

Commercial Vehicles

We currently manufacture Class 4 and 5/6 commercial delivery vehicles. During 2023, we launched the W56, a new truck chassis platform, which is the foundation of our revised strategic product roadmap. The W56, based on long-standing Company know-how in the Class 5/6 truck chassis market, is a robust medium-duty chassis, designed for last-mile delivery and high payload work-truck applications. Initially the W56 is delivered in either a stripped chassis or complete step van configuration. We intend to introduce a longer-wheelbase and cab-chassis version of the same sizeW56. Our product roadmap also includes the WNext, which we will be our second generation, low floor, advanced content offering for the truck chassis market, expanding our vehicle foundation and duty cycle. is expected to begin production in late 2025 or 2026.

To accelerate time-to-market for customers seeking delivery of electric vehicles during 2023, we produced and sold Class 4 vehicles using a supplied base vehicle. Our Class 4 vehicles are a zero-emission chassis designed to be sold in either a cab chassis version (“W4 CC”) or a step van version (“W750”) made to haul various cargo and take on both mid and last-mile routes. The W750 was launched into production and sale in 2023, in addition to the W4 CC, which became available for sale in 2022. Both are sold under the Workhorse brand and with Workhorse after sales and support service.

We generally sell our vehicles through our Certified Dealer Program, which is our official network of verified dealers trained to safely maintain and repair the electric components of our vehicles to support our customers.

Stables by Workhorse

In 2023, we continued to electrify our fleet of delivery vehicles being used to operate our Stables by Workhorse program, a series of FedEx Ground delivery routes in the greater Cincinnati, Ohio area.Stables by Workhorse provides us with firsthand experiences of the challenges and benefits independent fleet operators experience while executing last-mile delivery operations and making the transition to electric vehicles. During 2023 we began the electrification of the Stables fleet, which provides us
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further experience and data on the benefits and challenges of independent fleet operators experience. The entire fleet is expected to be electrified in 2024. The initiative is designed to provide valuable insights into how our customers can plan for and manage the transition to Electric Vehicle (“EV”) operations, including how to develop adequate charging infrastructure, training and maintenance services and the associated total cost of EV transition and ownership.
Aero

In addition to improved fuel economy,our growing delivery vehicle technology portfolio, we anticipate thathave developed Drones as a Service (“DaaS”) data products. As part of the performance of our vehicles on-route will reduce long-term vehicle maintenance expense by approximately 50% as compared to fossil-fueled trucks. Over a 20-year vehicle life,pilot program, we estimate that our E-GEN Range-Extended Electric delivery vans will save over $150,000 in fueloffer Unmanned Aerial Systems (“UAS”) services, including monitoring via drone, data procurement and maintenance savings. Due to this positive return-on-investment, we charge a premium price for our vehicles when selling to major fleet operators. We expect that fleet operators will be able to achieve a four-year or better total cost of ownership breakeven (without government incentives)analytics using Light Detection and Ranging (“LiDar”), which provides stakeholders the ability increase the efficiency of their land. We have successfully demonstrated our DaaS enhanced functionality working with local, state and federal government agencies to validate other, new cases, including supporting the US Department of Agriculture's National Resource Conservation Service (“NRCS”) where we believe justifies the higher acquisition cost of our vehicles.

Our goal is to continue to increase salesprovided enhanced geographical mapping and production of our existing vehicle portfolio, while executing on a cost-down strategy in order to achieve sustained gross margin profitability of the last mile-delivery van platform. It is our intention that this strategy in combination with the development and launch of the N-GEN cargo van and W-15 pickup truck platforms, which target high-volume market segments, will drive further cost-down volume synergies across our supply chain.

U.S. Post Office Replenishment Program / Next Generation Delivery Vehicle Project

Workhorse, with our partner VT Hackney, is one of five awardees that the United States Postal Service selected to build prototype vehiclesdata analysis for the USPS Next Generation Delivery Vehicle (NGDV) project. The Post OfficeLiDar missions.


We successfully developed two product lines of small UAS, which moved into production during 2023. During the first quarter of 2024, we have made the decision to fully transition from a design and manufacturing drone business to DaaS. This transition has stated thatresulted in, among other things, our stopping production and development of both product lines and the numbertermination of vehiclesemployees who performed the related work. For more information, see Note 16, Subsequent Events – Aero Drone Design and Manufacturing Operations, to be replacedthe Consolidated Financial Statements included in this Annual Report on Form 10-K.

Locations and Facilities

Our company headquarters and research and development facilities are located in the project is approximately 180,000. In September 2017, Workhorse delivered six vehicles for prototype testing under the NGDV Acquisition ProgramGreater Cincinnati area in compliance with the terms set forth in their USPS prototype contract. These vehicles continue to undergo testing in the fieldOhio.We manufacture and at testing facilities. The Post Office has stated that they intend to test the prototypes and select a winning bid(s) following the testing process.


N-GEN Electric Cargo Van

In 2017, Workhorse announced the development of its N-GENour electric cargo van, which leverages the existing ultra-low floor, long-life commercial delivery vehicle platform that was developed for the USPS, as well as our extensive customer experience gained from working with our E-GEN and E-100 customers. The N-GEN incorporates lightweight materials, all-wheel drive, best in class turning radius, 360o cameras, collision avoidance systems and an optional roof mounted HorseFly delivery drone. 

The Workhorse N-Gen electric cargo van platform will be available in 450, 700 and 1,000 cubic feet configurations. We intend to initially launch the 450 cubic foot and 1,000 cubic foot configurations with the goal of competing with conventional market leaders, including the Mercedes Sprinter, Ford Transit and Dodge Promaster gasoline/diesel vans for both last-mile delivery and other service-oriented applications such as telecommunications. We expect these vehicles to achieve a fuel economy of approximately 60 miles per gallon equivalent (MPGe), and offer fleet operators the most favorable total cost-of-ownership of any comparable conventional van utilizing an internal combustion engine that is available today.

W-15 Range-Extended Electric Pickup Truck

In May 2017, we unveiled a working prototype of our W-15 range-extended electric pickup truck to address the specific needs of commercial fleet work truck operators, including utilities, municipalities, construction, airports and service businesses. We believe that the W-15 has the potential to transform the pickup truck market for fleet operators in the United States, estimated at 250,000 new vehicle purchases per year. The performance specifications of the Workhorse W-15 pickup include a true all-wheel drivetrain and two electric engines that generate up to 460 horsepower and provide a top acceleration time from 0 to 60 MPH of 5.6 seconds. The W-15 also has a fuel-economy rating of 75 MPGe and a range of 80 miles in all-electric operation. A gasoline-powered range extender also comes standard on the truck to extend the driving range to 300 miles on a single tank of gas by continuously charging the batteries during operation.

We have secured letters-of-intent for more than 5,500 trucks amounting to nearly $300 million from corporate fleets representing the utility, municipality and automotive logistics sectors. We have established a Leadership Council comprised of seasoned fleet experts from our LOI partners, who will be piloting our production intent vehicles prior to launch in late 2018.

We intend to produce the W-15 at our existing 250,000 square foot manufacturing facility located in Union City, Indiana. This plant has the capability to produce more than 60,000 vehicles per year. The battery packs for all Workhorse vehicles will be builtWe also operate an engineering and technical design center in our Loveland, Ohio battery pack plant using Panasonic cells produced in Japan.

Delivery As A Service (DAAS) and Future Platform Development

Last mile delivery is considered the most expensive, inefficient, and pollution generating segment of transport, in addition to being the largest growing segment of the trucking market, according to Datex Corp. and NTEA (2018). Driven by the growth in e-commerce, this is expected to double to 26 billion parcels over the next 10 years. McKinsey & Company estimates that 80% of all home deliveries will transition to driver assisted and autonomous models, driven by driver labor shortages, urban congestion, and consumer demand.

As part of continued efforts to advance our last mile delivery platform technologies, in the fourth quarter of 2017, Workhorse initiated a pilot of its Delivery As A Service offering, which provides turn-key electric last mile delivery for conventional brick and mortar and e-commerce businesses. Through our DAAS program, Workhorse electric vehicles, drivers and dispatchersWixom, Michigan as well as potentially drones provide an asset-light opportunityengineering, technical design and production facility for businessesour DaaS in Mason, Ohio.


Marketing

We are focused on building brand awareness, generating interest in our product offerings and establishing a robust dealer network. Our recently launched, revamped website reflects our current branding and provides relevant educational and information content to offer zero-emission last mile delivery servicesour customers about our products. We also utilize industry events and publications to their customers. Workhorse’s DAAS is currently operating in one major metropolitan market, with planstarget potential customers and we leverage social media channels to expand to additional cities in conjunctionengage with our pilotvarious audiences. We effectively utilize product demonstration opportunities to highlight the robust features and reliability of our products.

Our commercial vehicle sales channels include our certified dealer network and direct fleet sales focused on large fleet systems throughout the country. Aero Drones as a Service and sales are focused on various industries including agriculture, first-responders and last-mile delivery targeting government and non-government organizations alike.

Technology, Research and Development

Our technology focus is on developing complete-vehicle solutions for manufacture, and on software systems to support the use and maintenance of those vehicles. Research and development activities are conducted in-house at our Commercial Vehicle facilities in Sharonville, OH and Wixom, MI, and at our Aero facility in Mason, OH, and are carried out by staff located at those facilities.

Commercial Vehicle

Commercial Vehicle activities are focused on the development and integration of EV powertrain, commercial chassis, and commercial truck bodies into OEM vehicles for production in our Union City, IN facility. In 2023, those activities included the development, validation, certification and production launch of the W56 strip chassis and step van products, and continued improvements to our W4CC and W750 products.

We continue to develop and maintain our remote data telematics system that tracks the performance of all the vehicles we deploy, providing vehicle operational and service data to our customers in 2018.

Aviation

Delivery Drones

Our HorseFly™ Delivery Drone isand partners. We continue to work on integration of our telematics data with the internal telematics and data management systems of our clients, as well as expanding our ability to present and analyze data within a custom-designed, purpose-built droneproprietary Workhorse interface. In 2023 we continued the development of a 2.0 level release of our prior offering, with a new software and data management architecture that is fully integrated withthe base for Workhorse telematics and a future suite of business applications such as fleet management and service and repair.

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Competition

We believe that our electric trucks. We havelast-mile delivery EVs compete in both the internal combustion delivery vehicle space and delivery EV space. The shift in consumer behavior to home-delivery, as well as shifting regulatory requirements in the commercial vehicle space, continue to place more emphasis on EV work-trucks, which leaves a patent pending on this architecturesignificant, and we believe we aregrowing need for zero-emissions commercial vehicles in the only companyclass 4 through 6 work-truck space where Workhorse competes. The North American last-mile delivery market is the largest in the world, with a working drone/truck system. The HorseFly delivery drone and truck systemmarket size expected to more than double over the next decade. Yet electrification is designed to workjust emerging within the FAA Rule 107 that permitssegment. Workhorse commercial vehicles face competition from both traditional, established OEMs, who are expanding their product lines into the use of commercial drones in U.S. airspace under certain conditions.

To date, we have conducted two demonstration deliveries with large multi-national corporations, including UPS. UPS conducted a successful real-world test with us in February 2017EV space and it received worldwide news coverage. The knowledge we have gained in building electric delivery trucks for last-mile delivery has led us to believe that a drone/from new-entrants, focused solely on the commercial EV market.


Of the 23 North American truck delivery system can have significant cost savings inclassifications, Advanced Clean Trucks (“ACT”) Research identified Class 4-6 as the growing last mile delivery market.

UPS has estimated in a press release dated February 21, 2017 that a reduction of just one mile per driver per day over one year can save UPS up to $50 million. Rural delivery routes are the most expensive to serve due to the time and vehicle expenses required to complete each delivery. In this test, the drone made one delivery while the driver continued down the road to make another. We believe that this truck/drone architecture represents significant cost savings for delivery fleets and that we are first to market with such a system. We continue to work closely with the FAA as we strive to bring the system to the point of daily drone deliveries across rural America.

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SureFly™ Multicopter

SureFly is our entry into the emerging vertical take-off and landing (VTOL) market. It is designed to be a two-person, 400-pound payload aircraft with on a hybrid internal combustion/electric power generation system. Our approach in the design is to build the safest and simplest to fly rotary wing aircraft in the world. We believe it is a practical answer to personal flight, and has additional applications in the commercial transportation segments, including air taxi services, agriculture and others.

The FAA to date has granted three separate Experimental Airworthiness Certifications, registered as N834LW, for the aircraft. These certifications come after an extensive design review and inspection of the aircraft with each renewed certificate.

Our SureFly Aerospace team continues to further develop the SureFly platform and routinely performs test cards, including testing the aircraft’s power systems, executing tethered high-power ground tests and manned flights.

In December 2017, we initiated the process of spinning off our SureFly operations into a separate publicly traded company, Surefly, Inc.

Surefly, Inc. will encompass all of SureFly’s aerial technology and expertise, including property related to the personal helicopter, but it will not own the assets related to the package express-related HorseFly drone, which will be retained by Workhorse. Workhorse granted SureFly a royalty-free, perpetual license to utilize the HorseFly drone except with respect to deliveries implemented from a ground-based vehicle focused on package express.

The initial steps of the spin-off, which we took in December 2017, provided for a capital infusion of $5 million into Workhorse in the form of a Senior Secured Note which is expected, although not guaranteed, to be exchanged into equity of SureFly concurrent with the spin-off.

At the spin-off date, Workhorse expects to retain a portion of SureFly’s common stock and distribute a portion as a dividend to existing Workhorse shareholders. After the spin-off, expected during 2018, we intend to evaluate all of our options relating to the SureFly equity we have retained.

To facilitate the spin-off, Workhorse expects to enter into, among other things, a transition services agreement with SureFly to provide certain services not anticipated to be provided immediately by employees of SureFly.

The completion of the spin-off will enable us to focus all of our resources on our core automotive business. We believe the decision to spin-off SureFly into a separate entity will better position both companies for sustained long-term growth. The spin-off will improve the operational focus and financial outlook for Workhorse's core business while creating new opportunities for SureFly.

The spin-off transaction will be subject to the receipt of regulatory approvals, the execution of inter-company agreements, arrangement of adequate debt and/or equity financing, the effectiveness of a registration statement, final approval by Workhorse's board of directors, and certain other customary conditions. The spin-off will not require a shareholder vote and is expected to be completed by the end of 2018, but there can be no assurance regarding the ultimate timing of the spin-off or that the spin-off will ultimately occur.

Technology

Batteries Are Key

The battery pack is key to the design, development, and manufacture of advanced electric-vehicle powertrains. Where some other electric vehicle (EV) manufacturers purchase their batteries in a plug-and-play pack, we build our own battery packs. This keeps the intellectual property related to the design and production of the pack in-house and avoids the issues that occur when a battery supplier fails. It also enables us to pay less for our battery packs than our competitors, thus our all-electric truck is less expensive than competitive vehicles. We use the Panasonic 18650 cells and design the pack around these commodity cells.

In-House Software Development is Essential

Our powertrains encompass the complete motor assemblies, computers, and software required for vehicle electrification. We use off-the-shelf proven components and combine them with our proprietary software.

Innovation is the Future

Additionally, we have developed a cloud-based, remote management system to manage and track the performance of all of the vehicles that we deploy in order to provide a 21st Century solution for fleet managers.


The telematics system and associated hardware installed in the Workhorse vehicles is designed to monitor the controller area network (CAN) traffic for specific signals. These signals are uploaded along with GPS data to a Workhorse server facility where the data signals are tracked at ten second intervals while driving and during the electricity generating process and at sixty seconds during a plug-in charge. The real-time data is stored in a database as it arrives and delivers updates to clients connected through the web interface.


Clients are given login credentials (username and password) to the telematics website where they can monitor the performance and location of the vehicles. Group privileges can be configured to limit access to client-specific vehicles securing the vehicle data so clients can only view their vehicle data. Administrator privileges allow all data for all clients to be monitored and viewed.

As a parameter-based system, we can set route-specific parameters to better manage the battery-provided power with the additional power generated through the E-GEN process (not applicable to E-100). In an upcoming release, we will add the ability to integrate Metron Telematics with the client’s internal telematics system and automatically update the parameters each day with information about the route. This enhancement will result in a “SMART-GEN” vehicle that will maximize efficiency by automating the process to determine the ideal times and locations to use the E-GEN to add electricity to the batteries.

Locations and Facilities

Our company headquarters and R & D facility is located at 100 Commerce Drive, Loveland, Ohio, a Cincinnati suburb. We occupy a 45,000 sq. ft. facility that allows for the manufacture of 5,000 electric powertrain kits per year. Powertrains are delivered to the Workhorse facility in Indiana or shipped to our dealer network for onsite installation in conversion vehicles. On October 28, 2016 the Company purchased its operating facilities in Loveland, Ohio. The total purchase price was $2.5 million with $1.7 million financed with a financial institution. The note carries an interest rate of 6.5% accruing monthly with a maturity date of November 1, 2026.

Our truck assembly facility is located in Union City, Indiana. This facility consists of three buildings with 250,000 square feet of manufacturing and office space on 47 acres.


In March of 2013, we purchased the former Workhorse Custom Chassis assembly plant in Union City, Indiana. With this acquisition, we became an Original Equipment Manufacturer (OEM) of Class 3-6 commercial-grade, medium-duty truck chassis marketed under the Workhorse® brand.

Ownership and operation of this plant enables us to build new chassis with gross vehicle weight capacity of between 10,000 and 26,000 pounds.

At the same time, the Company intends to partner with engine suppliers and body fabricators to offer fleet-specific, custom, purpose-built chassis that providelowest total cost of ownership solutions that are superiorand fastest payback period compared to the competition.

In addition to building our own chassis, we design and produce battery-electric powertrains that can be installed in newinternal combustion engine (“ICE”) vehicles. The Workhorse chassis or installed as repower packages to convert used Class 3-6 medium-duty vehicles from diesel or gasoline power to electric power. Our approachteam’s sole focus is to provide battery-electric powertrains utilizes proven, automotive-grade, mass-produced parts in its architecture coupledClass 4-6 with in-house control softwareelectric trucks. Our ability to compete relies upon the ability to field high-quality, reliable, and cost-competitive vehicles that it has developed over the last five years.

The Workhorse Custom Chassis acquisition included other important assets including the Workhorse branddeliver lower total-cost-of-ownership benefits to customers.Our market research and logo, intellectual property, schematics, logistical support from UpTime Parts (a Navistar subsidiary).

Marketing

Our sales team is focused on the goal of securing purchase orders from commercial transportation companies. These purchases will givedirect customer engagements have helped us additional data toward chassis demand relatedprovide value to electric and extended range electric vehicles.

Our priority is to establish the commercial delivery van as our core business. We intend to be the best choice for a vehicle in this segment regardlesssome of the fuel type that the customer chooses. Our sales plan is to meet with the top potential customerslargest and obtain purchase orders for new electric and extended range electric vehicles for their production vehicle requirements.

As themost efficient last mile delivery service space expandscompanies in North America, through deployment of our E-Series, which was produced until 2018. While traditional and non-traditional customers enter, Workhorse is reachingOEMs are placing increased focus on the EV space, we believe the expansion of the development of the electric vehicle market highlights the benefits of electric vehicles relative to those potential new customers as part of their supply chain enhancement. This market is comprised of a higher quantity of smaller delivery vehicles, such as the Workhorse N-GEN platform.

Finally, since our competitive advantage in the marketplace is our ability to provide purpose-built solutions to customers that have unique requirements at relatively low-volume, we have submitted proposals to companies for purpose-built vehicle applications.


Strategic Relationships

Panasonic:Workhorse Group has signed an agreement with the rechargeable battery division of Panasonic Industrial Devices Sales Co. of America for the supply of 18650 cylindrical Panasonic lithium-ion batteries for Workhorse’s battery-electric, medium-duty trucks.

Ryder:On April 27, 2017, the Company entered into an agreement with Ryder to serve as the primary distributor, except with respect to certain exclusive accounts, in the United States, Mexico and Canada. Ryder will also serve as the sole and exclusive provider of certain repair services and the sole and exclusive distributor of certain vehicle parts in the United States, Canada and Mexico.

BMW:Workhorse has partnered with BMW where BMW provides the internal combustion enginevehicles and will benefit us.


Supply Chain

We continue to develop relationships with suppliers of key parts, components and raw materials to be used in the range extended vehicle applications as a source for on board battery recharging. BMW provides the engine, service support and technical advice necessary for vehicle certification. The engine currently used in production is the same engine used in the i3 passenger car.

Prefix:Michigan-based Prefix Corporation began in 1979 developing innovative design and engineering solutions for the automotive industry. Workhorse relies on Prefix’s complementary capabilities in the areas of complete prototype design, build and finishing to more rapidly advance product development.

Research and Development

The majoritymanufacture of our researchproducts such as batteries, electronics, and development is conducted in-house atvehicle chassis that are sourced from suppliers across the world. As we continue to execute on our facilities near Cincinnati, Ohio. Additionally,new vehicle programs, we contract with engineering firmswill continue to assist with validationidentify supplier relationship and certification requirements as well as specific vehicle integration tasks.

Competitive Companies

The commercial vehicle market, specifically in the last mile delivery segment, is highly competitiveprogram synergies which may allow us to take advantage of pricing efficiencies from economies of scale. Where available, we will utilize multiple supply sources for key parts, and we expect itwill work to become even more so in the future as additional companies launch competing vehicle offerings. The commercial alternative fueled vehicle market, however, is less developedqualify multiple supply sources to achieve pricing efficiencies and less competitive. There are two primary competitors in the medium-duty vehicle segment in the US market:  Ford and Freightliner.  Neither has disclosed any plansminimize potential production risks related to offer 100% EVs or electric range extended vehicles (EREV) in this segment. Ford is vertically integrated building a complete vehicle or chassis including Ford engine and transmission. They provide a chassis as a strip-chassis (which is similar to the Workhorse product) or they provide it with a cab. Freightliner provides a chassis as a strip-chassis, which is similar to the Workhorse Truck chassis.

We believe the most dramatic difference between Workhorse and the other competitors in the medium duty truck market is our ability to offer customers purpose-built solutions that meet the needs of their unique requirements at a competitive price. While there are many electric car companies from abroad, there are only a few foreign companies that have vehicles in the category of medium-duty trucks.

We believe that the primary competitive factors within the medium-duty commercial vehicle market are:

●the difference in the initial purchase prices of electric vehicles and comparable vehicles powered by internal combustion engines, both including and excluding the impact of government and other subsidies and incentives designed to promote the purchase of electric vehicles;

●the total cost of vehicle ownership over the vehicle’s expected life, which includes the initial purchase price and ongoing operational and maintenance costs;

●vehicle quality, performance and safety;

●government regulations and economic incentives promoting fuel efficiency and alternate forms of energy;

●the quality and availability of service for the vehicle, including the availability of replacement parts.
supply chain.


GOVERNMENT REGULATION

Regulatory

Our electric vehicles are designed to comply with a significant number of governmentalrequired government regulations and industry standards, some of which are evolving as new technologies are deployed.standards. Government regulations regarding the manufacture, sale and implementation of products and systems similar to our electric vehicles are subject to future change. We cannot predict what impact, if any, such changes may have uponon our business.


Emission and fuel economy standards


Government regulation related to climate change is in effect at the U.S. federal and state levels. The U.S. Environmental Protection Agency (“EPA”) and the National Highway Traffic Safety Administration or NHTSA,(“NHTSA”) issued a final rulerules for greenhouse gas emissions and fuel economy requirements for trucks and heavy-duty engines on August 9, 2011, which is applicable in model years 2018 through 2020. NHTSA and EPA also issued a final rule on August 16, 2016 increasingincreased the stringency of thesethe standards for model years 2021 through 2027.


The rules provide emission standards for CO2 and fuel consumption standards for three main categories of vehicles: (i) combination tractors,tractors; (ii) heavy-duty pickup trucks and vansvans; and (iii) vocational vehicles. We believe that the Workhorse vehicles would be considered “vocational vehicles” and "heavy-duty“heavy-duty pickup trucks and vans"vans” under the rules. According to the EPA and NHTSA, vocational vehicles consist of a wide variety of truck and bus types, including delivery, refuse, utility, dump, cement, transit bus, shuttle bus, school bus, emergency vehicles, motor homes and tow trucks, and are characterized by a complex build process, with an incomplete chassis often built with an engine and transmission purchased from other manufacturers, then sold to a body manufacturer.


The EPA and NHTSA rule also establishes multiple flexibility and incentive programs for manufacturers of alternatively fueled vehicles, such as the Workhorse vehicles, includingvehicles. Programs include an engine averaging, bankingAveraging, Banking and trading, or ABT,Trading (“ABT”) program, a vehicle ABT program and additional credit programs for early adoption of standards or deployment of advanced or innovative technologies. The ABT programs will allow for emission and/or fuel consumption credits to be averaged, banked or traded within defined groupings of the regulatory subcategories. The additional credit programs will allow manufacturers of engines and vehicles to be eligible to generate credits if they demonstrate improvements in excess ofmore than the standards established in the rule prior to the model year the standards become effective or if they introduce advanced or innovative technology engines or vehicles.


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On April 12, 2023, the EPA announced a proposal for more stringent standards to reduce greenhouse gas emissions from heavy-duty (“HD”) vehicles beginning in model year (“MY”) 2027. The new standards would be applicable to HD vocational vehicles (such as delivery trucks, refuse haulers, public utility trucks, transit, shuttle, school buses, etc.) and tractors (such as day cabs and sleeper cabs on tractor-trailer trucks). Specifically, the EPA is proposing stronger CO2 standards for MY 2027 HD vehicles that go beyond the current standards that apply under the HD Phase 2 Greenhouse Gas program. The EPA is also proposing an additional set of CO2 standards for HD vehicles that would begin to apply in MY 2028, with progressively lower standards each model year through 2032.

The Clean Air Act requires that we obtain a Certificate of Conformity (“CoC”) issued by the EPA and aFederal emissions compliance. In the state of California, an Executive Order issued by CARBthe California Air Resource Board (“CARB”) is required for emissions compliance, examined and issued with respect to emissions and mileage requirements for our vehicles. The Certificate of ConformityCoC is required for vehicles sold in states covered by the Clean Air Act’s standards and the California Executive Order is required for vehicles sold in states that have sought and received a waiver from the EPA to utilize California standards. The California standards for emissions control for certain regulated pollutants for new vehicles and engines sold in California are set by CARB. States that have adopted the California standards as approved by EPA also recognize the Executive Order for sales of vehicles.

Manufacturers who sell In California, a Zero-emission Powertrain (“ZEP”) Certification is an additional requirement for new applicants to participate in the Hybrid and Zero-Emission Truck and Bus Voucher Incentive Project (“HVIP”) on or after January 1, 2023. This new requirement applies to all zero-emission powertrains and the trucks and buses in which they are installed. Workhorse received Executive Order A-445-0011 for MY 2022 and MY 2021 W4CC and W750 electric vehicles. In addition, Workhorse received Executive Order A-445-0006 and Zero-Emission Powertrain Executive Order A-445-0005 for MY 2024 W56. All Workhorse models, W4CC, W750, and W56 are eligible for HVIP incentives including $60,000 for Class 4 vehicles, and $85,000 for Class 5/6 standard vouchers.


It is important to highlight the regulatory context in states covered by federal requirements underwhich we operate, particularly concerning the EPA waivers for California’s ACT and Advanced Clean Fleets (“ACF”) rules:

•ACT Rule: In March 2023, the EPA granted a waiver for California's ACT rule, a key regulatory step. This rule imposes mandates on truck manufacturers as part of the state’s comprehensive strategy to reduce emissions from its trucking sector.
•ACF Rule: In November 2023, CARB submitted a request to the EPA for a waiver concerning the ACF rule. This regulation is primarily directed at the purchasers of vehicles, delineating mandates that complement the manufacturer-focused ACT rule.

It is important to note that the enforcement of California’s ACF rule is contingent upon the EPA granting a waiver or determining that a waiver is not necessary. Under the Clean Air Act, withoutCalifornia holds the unique authority to request a Certificatewaiver of Conformity may be subject to penalties of up to $44,539 per violation and be required to recall and remedy any vehicles sold with emissions in excess of Clean Air Act standards. In 2013, we received approvalpreemption, which typically restricts states from CARB to sell the E-100 in California based on oursetting their own emissions tests.

standards for new motor vehicles. The EPA’s role involves a thorough review of comments and an assessment to determine if the criteria for granting a waiver are satisfied. This regulatory landscape is a significant consideration for our operations and strategic planning.


Vehicle safety and testing


The National Traffic and Motor Vehicle Safety Act of 1966 or the Safety Act,(the “Safety Act”) regulates motor vehicles and motor vehicle equipment in the United States in two primary ways. First, the Safety Act prohibits the sale in the United States of any new vehicle or equipment that does not conform to applicable motor vehicle safety standards established by NHTSA. Meeting or exceeding many safety standards is costly, in part because the standards tend to conflict with the need to reduce vehicle weight in order to meet emissions and fuel economy standards. Second, the Safety Act requires that defects related to motor vehicle safety be remedied through safety recall campaigns. A manufacturer is obligated to recall vehicles if it determines that the vehicles do not comply with a safety standard. Should we or NHTSA determine that either a safety defect or noncompliance exists with respect to any of our vehicles, the cost of such recall campaigns could be substantial.



Battery

In the United States, the FAA regulates our aerospace vehicles. Those regulations govern two important areas: operating rules and aircraft certification rules. The FAA’s operating rules govern all operations of all aerial vehicles in the National Airspace System of the United States. The FAA’s certification rules help define the safety and testing

reliability requirements of certain aircraft and systems. Not every aircraft and system are required to be FAA certificated, though typically certification is required for commercial operations like package delivery.


Current regulatory constraints, particularly those pertaining to Beyond Visual Line of Sight (“BVLOS”) operations and drone flights over populated areas, present significant challenges in integrating Unmanned Aerial Systems (“UAS”) into routine logistics and package delivery services. These limitations are key factors impeding the broader adoption and implementation of drone technology in day-to-day delivery operations. 49 U.S.C. § 44807 grants the Secretary of Transportation the authority to
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use a risk-based approach to determine if certain unmanned aircraft systems may operate safely in the national airspace system (“NAS”) on a case-by-case basis. This grants UAS operators safe and legal entry into the NAS, thus improving safety.

Intellectual Property

Our battery pack configurationssuccess depends in part upon our ability to protect our core technology and intellectual property. We protect our intellectual property rights, both in the U.S. and abroad, through a combination of patent, trademark, copyright and trade secret protection, as well as confidentiality agreements with our employees and consultants. We seek to control access to, and distribution of, our proprietary information through non-disclosure agreements with our vendors and business partners. Unpatented research, development, know-how, and engineering skills make a vital contribution to our business, and we pursue patent protection when we believe it is possible and consistent with our overall strategy for safeguarding intellectual property.

We are designednot aware of any infringing uses or any prior claims of ownership of our trademarks that could materially affect our business. It is our policy to conformpursue registration of our primary trademarks whenever possible and to mandatory regulations that govern transport of “dangerous goods,” which includes lithium-ion batteries, which may present a risk in transportation. The governing regulations, which are issued by PHMSA, arevigorously defend our patents, trademarks and other proprietary marks against infringement or other threats to the extent practical under applicable laws.

Environmental, Social, and Governance (“ESG”)

Workhorse’s mission is based on the UN Recommendationsfoundation of the commercial vehicle transition to zero emissions. To do this, we embrace a world with reduced carbon emissions in both energy generation and consumption. We are designing and manufacturing a key ingredient of the transportation ecosystem evolution to achieve this goal - last mile electric delivery vehicles.

We are investing to make our facilities more efficient and sustainably designed and are also driving a continuous safety mindset by focusing on worker engagement. In addition, we are focused on reducing the Safe Transportcarbon footprint throughout our supply chain. We are committed to sourcing responsibly produced materials from suppliers who have social, environmental and sustainability best practices in their own operations.

Finally, we believe that sound corporate governance is essential to helping us achieve our goal, including with respect to ESG. We continue to evolve a governance framework that exercises appropriate oversight of Dangerous Goods Model Regulations,responsibilities at all levels throughout the company. During 2023, the ESG Committee, made up of leaders from across our company, oversaw workforce training to advance the Company's ESG priorities. The Committee provides regular presentations on ESG related initiatives to our Board of Directors, which guides our ESG impacts, initiatives and related UN Manualpriorities.

Human Capital

As of TestsDecember 31, 2023, we had 298 full-time employees. None of our U.S. employees are represented by a labor organization or are party to any collective bargaining arrangement. We have never experienced a strike or similar work stoppage, and Criteria. The requirements for shipments of these goods vary by mode of transportation, such as ocean vessel, rail, truck and air.

Our battery suppliers have completed the applicable transportation test forwe consider our prototype and production battery packs demonstratingrelations with our compliance with the UN Manual of Tests and Criteria, including:

●altitude simulation, which involves simulating air transport; 

●thermal cycling, which involves assessing cell and battery seal integrity;

●vibration, which involves simulating vibration during transport;

●shock, which involves simulating possible impacts during transport;

●external short circuit, which involves simulating an external short circuit; and

●overcharge, which involves evaluating the ability of a rechargeable battery to withstand overcharging.

Vehicle dealer and distribution regulation

Certain states’ laws require motor vehicle manufacturers and dealersemployees to be licensedgood.


We understand that our innovation leadership is ultimately rooted in such statespeople. Competition for qualified personnel in order to conduct manufacturingour space is intense, and sales activities. To date, we are registered as both a motor vehicle manufacturer and dealerour success depends in Indiana and Ohio as well as a dealer in California, New York and Chicago. We have not yet sought formal clarification oflarge part on our ability to manufacture or sellrecruit, develop and retain a productive and engaged workforce. Accordingly, investing in our vehiclesemployees and their well-being, offering competitive compensation and benefits, promoting diversity and inclusion, adopting progressive human capital management practices and community outreach constitute core elements of our corporate strategy.

We are in any other states.

Intellectual Property

the process of completing a reduction in force (the “RIF”) pursuant to which we terminated approximately 20% of our total workforce, excluding direct labor. We do not expect to incur material costs in connection with the RIF.


Governance. Our Board of Directors and its committees provide important oversight on certain human capital matters. The Human Resource Management and Compensation Committee maintains responsibility to review, discuss and set strategic direction for various people-related business strategies, including compensation and benefit programs. Our collective recommendations to the Board of Directors and its committees are how we proactively manage our human capital and care for our employees in a manner that aligns with our core values.

Our management team administers all employment matters, such as recruiting and hiring, onboarding and training, compensation and rewards, performance management and professional development. We continuously evaluate and enhance our internal policies, process and practices to increase employee engagement and productivity.

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We have two pending trademark applicationsan employee hotline, providing our employees an opportunity to report matters such as safety concerns, fraud or other misconduct. All reported matters are reviewed in accordance with established protocols by our Legal, Human Resources and ten issued trademark registrations (USInternal Audit departments, who monitor the remediation and foreign)disposition of any reported matters.

Support Employee Well-being and Engagement. We support the overall well-being of our employees from a physical, emotional, financial, and social perspective. Our well-being program includes a long-standing practice of flexible paid time off, life planning benefits, wellness platforms and employee assistance programs.

Offer Competitive Compensation and Benefits. We strive to ensure that our employees receive competitive and fair compensation and innovative benefits offerings, tying incentive compensation to both business and individual performance, offering competitive maternal/paternal leave policies and providing meaningful retirement and health benefits.

Promote Sense of Belonging through Diversity and Inclusion Initiatives. We promote an inclusive and diverse workplace, where all individuals are respected and feel they belong regardless of their age, race, national origin, gender, religion, disability, sexual orientation, or gender identity.

Provide Programs for Employee Recognition. We also intendoffer rewards and recognition programs to pursue additional foreign trademark registrations.our employees, including awards to recognize employees who best exemplify our values and spot awards to recognize employee contributions. We have two pending (one non-provisionalbelieve that these recognition programs help drive strong employee performance and one provisional) U.S. patent applications,retention. We conduct annual employee performance reviews, where each employee is evaluated by their personal manager and seven existing patents, twoalso conducts a self-assessment, a process which empowers our employees. Employee performance is assessed based on a variety of whichkey performance metrics, including the achievement of objectives specific to the employee’s department or role.

Create Opportunities for Growth and Development. We focus on creating opportunities for employee growth, development, training, and education, including opportunities to cultivate talent and identify candidates for new roles from within the Company and management and leadership development programs.

Available Information

We file or furnish periodic reports and amendments thereto, including our Annual Reports on Form 10-K, our Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, proxy statements and other information with the Securities and Exchange Commission (“SEC”). In addition, the SEC maintains a website (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically. Our website is located at www.workhorse.com, and our reports, amendments thereto, proxy statements and other information are design patents. We also plan to pursue appropriate foreign patent protectionmade available on those inventions, if available. The following is a summaryour investor relations website, free of our patents:

Country Status Serial Number Application Date Patent Number  Issue/Grant Date Expiration Date  Title
United States G 13/283,663 10/28/2011  8,541,915  9/24/2013  12/16/2031  DRIVE MODULE AND MANIFOLD FOR ELECTRIC MOTOR DRIVE ASSEMBLY
Canada G 2523653 10/17/2005  2523653  12/22/2009  10/17/2025  VEHICLE CHASSIS ASSEMBLY
United States G 11/252,220 10/17/2005  7,717,464  5/18/2010  9/6/2026  Vehicle Chassis Assembly
United States G 11/252,219 10/17/2005  7,559,578  7/14/2009  9/6/2026  Vehicle Chassis Assembly
United States G 29/243,074 11/18/2005  D561,078  2/5/2008  2/5/2022  Vehicle Header
United States G 29/243,129 11/18/2005  D561,079  2/5/2008  2/5/2022  Vehicle Header
United States G 14/606,497 1/27/2015  9,481,256  11/1/2016  5/3/2035  ONBOARD GENERATOR DRIVE SYSTEM FOR ELECTRIC VEHICLES
United States F 14/989,870 1/7/2016           PACKAGE DELIVERY BY MEANS OF AN AUTOMATED MULTICOPTER UAS/UAV DISPATCHED FROM A CONVENTIONAL DELIVERY VEHICLE
United States F 62/513,677 6/1/2017        6/1/2018  AUXILIARY POWER SYSTEM FOR ROTORCRAFT WITH FOLDING PROPELLER ARMS AND CRUMPLE ZONE LOADING GEAR

Employees

We currently have 83 full-time and 9 part-time employees located in Loveland, Ohio and 26 full-time employees located in Union City, Indiana. We also contract for hirecharge, at ir.workhorse.com as soon as reasonably practicable after we electronically file or furnish such information with approximately three outside consultants and contractors.

the SEC.

ITEM 1A. RISK FACTORS


Operational Risks

Substantial doubt exists regarding the Company’s ability to continue as a going concern through the twelve months following the date of the issuance of the financial statements accompanying this Form 10-K.

We have incurred net losses of $123.9 million and $117.3 million for the fiscal years ended December 31, 2023 and December 31, 2022, respectively. As a result of our recurring losses from operations, accumulated deficit, projected working capital needs and delays in bringing our vehicles to market, and, accordingly, slower market demand than previously expected, substantial doubt exists as to the Company’s ability to continue as a going concern over the twelve months from the date of the issuance of the audited financial statements accompanying this Form 10-K. To the extent we are unable to satisfy these capital needs, we will need to significantly modify or terminate our operations and our planned business activities.

We are currently negotiating possible financing to meet our immediate liquidity needs, and the terms of the financing, if consummated, may have adverse effects on us and our stockholders.

As discussed in “Recent Developments,” above, a vital component of management’s plan to address our liquidity and working capital needs, and to reduce the short-term risk that we may not be able to continue as a going concern, is the consummation of a financing in the immediate future to address these requirements for the short term. Although there can be no assurance that a Possible Financing will be consummated and its possible terms are under negotiation, if it is consummated, we expect that it will have a materially higher cost of capital than our existing financing arrangements and contain provisions that may be
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dilutive to both existing and future stockholders of the Company. A Possible Financing may also contain terms that limit the Company’s ability to sell common stock under its ATM Agreement and ELOC and to obtain new debt financing. Further, if a Possible Financing includes a convertibility feature, warrants or both, sales by investors of the underlying common stock may directly or indirectly reduce the market price of the common stock.

More generally, expect that we will not be able to maintain the levels of capital and operating expenditures necessary to perform our current business plan, including the development of our W56 variants and WNext truck chassis platforms unless we generate additional cash from operations or obtain additional financing. In light of our operating history and the expected schedule for bringing our W56 variants and WNext platforms to market, we expect that it will be necessary to obtain additional financing, through Possible Financing, and through our ATM Agreement. Our continued access to capital markets is essential for us to meet our current and long-term obligations, fund operations, and fund our strategic initiatives. We cannot be certain that additional financing will be available to us on favorable terms when required, or at all. An interruption in our access to external financing could affect our business prospects and financial condition. Recent turmoil in the capital markets, including the tightening of credit and rise of interest rates, may cause us to face higher borrowing costs, less available capital, more stringent terms and tighter covenants. In such circumstances, if we cannot raise additional capital, our financial condition, results of operations, business and prospects could be materially and adversely affected. In addition, if we raise additional capital through issuances of equity, through our ATM Agreement, ELOC or otherwise, our stockholders could experience dilution.

We are currently out of compliance with the Nasdaq’s continuing listing requirements and if we fail to satisfy all such applicable Nasdaq continued listing requirements, our common stock may be delisted from Nasdaq, which could have an adverse impact on the liquidity and market price of our common stock.

Our common stock is currently listed on The Nasdaq Capital Market, which has qualitative and quantitative continued listing requirements, including corporate governance requirements, public float requirements and a $1.00 minimum closing bid price requirement. Our common stock price has been and may in the future be below the minimum bid price for continued listing on Nasdaq. On September 22, 2023, we received notice from Nasdaq indicating that the closing bid price for our common stock had fallen below the minimum bid price for continued listing for 30 consecutive trading days and was no longer in compliance with the minimum bid requirement. In order to regain compliance, the closing bid price of our common stock must be equal to or above the minimum bid price for a period of 10 consecutive trading days prior to March 20, 2024. In the event the Company fails to meet this requirement by such date, the Company may be eligible for an additional grace period of another 180 days, so long as it meets the applicable market value of publicly held shares requirement and other applicable listing standards for the Nasdaq Capital Market, other than the minimum bid price requirement, on the trading date prior to the deadline, and informs Nasdaq of its intent to cure this deficiency. If the Company fails to meet these requirements or fails to satisfy any other continued listing requirements, Nasdaq may take steps to delist our common stock. Delisting would likely have an adverse effect on the liquidity of our common stock, decrease the market price of our common stock, result in the potential loss of confidence by investors, suppliers, customers, and employees, and fewer business development opportunities, and adversely affect our ability to obtain financing for our continuing operations.

The unavailability, reduction, elimination or adverse application of government subsidies and, incentives and, or any failure by states or other governmental entities to adopt or enforce regulations, could have an adverse effect on our business, prospects, financial condition and operating results.

We believe the availability of government subsidies and incentives, including the California Hybrid and Zero-Emission Truck and Bus Voucher Incentive Project (“HVIP”), is an important factor considered by our customers when purchasing our vehicles. Our growth depends in part on the availability and amounts of these subsidies and incentives. Many of our current and prospective customers are seeking to leverage HVIP due to its ease of access and amount of funding available per vehicle. In addition, some of our purchase orders have contingencies related to HVIP funding. If our vehicles, fail to qualify for the HVIP, or we experience a material delay in obtaining qualification for the HVIP program, our business, financial condition and results of operations would suffer. Furthermore, any reduction, elimination or discriminatory application of the HVIP or other government subsidies and incentives because of budgetary challenges, policy changes, the reduced need for such subsidies and incentives due to the perceived success of electric vehicles or other reasons may result in the diminished price competitiveness of the alternative fuel vehicle industry.

As discussed in Item 1, Business – Regulatory – Emission and fuel economy standards, our strategy and business plan depend on the enforcement of state regulations, such as California’s Advanced Clean Fleet regulation. Any failure by states or other governmental agencies to adopt or enforce regulations related to emissions and mileage requirements could have an adverse effect on our business, prospects, financial condition and operating results.

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Uncertain global macro-economic and political conditions could materially adversely affect our results of operations and financial condition.

Electric vehicle sales and production are cyclical and are materially affected by macroeconomic, geopolitical and industry conditions that are outside of our control and the control of our customers and suppliers, including monetary fiscal policy, economic recessions, inflation, deflation, interest rates, political instability, labor relations issues, energy prices, regulatory requirements, government initiatives, capital and liquidity constraints, acts of war and terrorism, and natural and man-made disasters. Our operational costs are similarly impacted by such macroeconomic, geopolitical and industry conditions, which has and may continue to adversely impact our margins and profitability. Current or potential customers may delay or decrease spending on our products and services as their business and/or budgets are impacted by economic conditions. The inability of current and potential customers to pay us for our products and services may adversely affect our earnings and cash flows. In addition, deterioration of conditions in worldwide credit markets could limit our ability to obtain financing to fund our operations and capital expenditures.

The current conflicts in Ukraine and Israel and any resulting sanctions could have an adverse impact on our current operations.

Further, such conflicts are likely to lead to market disruptions, including significant volatility in commodity prices, credit and capital markets, as well as supply chain interruptions for equipment, which could have an adverse impact on our operations and financial performance.

We cannot assure you that we will be successful in executing our business plan, which envisions selling recently developed truck chassis and the continued provision of a new delivery van to customers which commenced in late 2022. Our failure to execute our business plan would have a material adverse effect on our business, financial position, results of operations, cash flows and liquidity.

During 2023, we launched the W56, a new truck chassis platform, which is the foundation of our revised strategic product roadmap. We also intend to introduce a longer-wheelbase and cab-chassis version of the W56. In addition, our product roadmap also includes the WNext, which we will be our second generation, low floor, advanced content offering for the truck chassis market, expanding our vehicle foundation and is expected to begin production in late 2025 or 2026. To accelerate time-to-market for customers seeking delivery of electric vehicles during 2023, we produced and sold Class 4 vehicles to be sold in either a cab chassis version (“W4 CC”) or a step van version (“W750”) made to haul various cargo and take on both mid and last-mile routes. The W750 was launched into production and sale in 2023, in addition to the W4 CC, which became available for sale in 2022.

Product development involves numerous risks and uncertainties. We cannot assure you that we have successfully developed our new truck platforms or that we have identified any potential issues in their design or use. We may be unable to launch and ramp up production as necessary, we may experience unexpected costs, delays or service burdens, we may be unable to deliver such vehicles on an economical basis and our customers may not find our vehicles are acceptable for their use. Any of the foregoing would have a material adverse effect on our business, financial position, results of operations, cash flows and liquidity.

We may experience delays in launching and ramping up production or we may be unable to control our manufacturing costs.

We have previously experienced and may in the future experience launch and production ramp-up delays. In addition, we may introduce in the future new or unique manufacturing processes and design features for our products including enhancements under development relating to production assembly efficiency, material component availability, cost reduction and customer feedback. There is no guarantee we will be able to successfully and timely introduce and scale such processes or features. We have relatively limited experience to date in manufacturing electric vehicles at high volumes. To be successful, we will need to implement, maintain, and ramp-up efficient and cost-effective manufacturing capabilities, processes and supply chains and achieve the design tolerances, high quality and output rates planned at our Union City, IN manufacturing facility. We also need to hire, train, and compensate skilled employees for operations. Bottlenecks and other unexpected challenges such as those experienced in the past may arise during our production ramps, and we must address them promptly while continuing to improve manufacturing processes and reducing costs. If we are not successful in achieving these goals, we could face delays in establishing and/or sustaining our vehicle production ramp-ups or be unable to meet our related cost and profitability targets. Any delay or other complication in ramping up the production of our current products or the development, manufacture, launch and production ramp-ups of our future products, features and services, or in doing so cost-effectively and with high quality, may harm our brand, business, prospects, financial condition, and operating results.


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Our results of operations have not resulted in profitability and we may not be able to achieve profitability going forward.


We have incurred net losses amounting to $105.3had an accumulated deficit of $751.6 millionas of December 31, 2023. Except for the period from inception (February 20, 2007) throughyear ended December 31, 2017.  We2020, we have had net losses in each quarterevery year since our inception. We expect that we will continue to incur net losses for the foreseeable future.in 2024. We may incur significant losses in the future for a number of reasons, including the other risks described in this report,“Risk Factors”, and we may encounter unforeseen expenses, difficulties, complications, delays and other unknown events. Accordingly, we may not be able to achieve or maintain profitability. Our management is developing plans to alleviate the negative trends and conditions described above and there is no guarantee that such plans will be successfully implemented. Our business plan is focused on providing sustainable and cost-effective solutions to the commercial transportation sector but is still unproven. There is no assurance that even if we successfully implement our business plan, that we will be able to curtail our losses.losses or ever achieve profitable operations. If we incur additional significant operating losses, our stock price may decline, perhaps significantly.

significantly decline.


We have yet to achieve positive cash flow and, given our projected funding needs, our ability to generate positive cash flow is uncertain.


We have had negative cash flow from operating activities of $38.7$123.0 million and $19.0$93.8 million for the years ended December 31, 20172023 and 2016,2022, respectively. We anticipate that we willmay continue to have negative cash flow from operating and investing activities for the foreseeable future2024 as we expect to incur increased research and development, sales and marketing, and general and administrative expenses and make significant capital expenditures in our efforts to increase sales and ramp up operations at our Union City, IN facility. Our business also will at times require significant amounts of working capital to support our growth particularly as we acquire inventory to support our existing production as well as an anticipated increase in production.of additional platforms. An inability to generate positive cash flow for the foreseeable futurenear term may adversely affect our ability to raise needed capital for our business on reasonable terms, diminish supplier or customer willingness to enter into transactions with us, and have other adverse effects that may decrease our long-term viability. There can be no assurance wethe Company will achieve positive cash flow in the foreseeable future.

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We need access to additional financing in 2018 and beyond, which may not be available to us on acceptable termsnear future or at all.


If we cannot access additional financing when we need it and on acceptable terms, our business may fail.

Our business planvehicles fail to design, produce, sell and service commercial electric vehicles through our Union City facility will require substantial continued capital investment. Our research and development activities will also require substantial continued investment. For the year ended December 31, 2017, our independent registered public accounting firm issued a report on our 2017 financial statements that contained an explanatory paragraph stating that the lack of sales, negative working capital and stockholders’ deficit, raise substantial doubt aboutperform as expected, our ability to continuedevelop, market and sell our electric vehicles could be harmed.


If our vehicles were to contain design or manufacturing defects that cause them not to perform as a going concern. For example, our existing capital resources will be insufficient to fund our operations through the first half of 2018. Through December 31, 2018, we expectexpected or that we will need funding to be used in our research and development activities, inventory funding and working capital. The additional funding will allow us to continue to deliver vehicles associated with existing and expected orders, further develop our N-GEN platform resulting in a “production ready vehicle” and further develop our W-15 Pickup Truck resulting in a “production intent vehicle”. Unless and until we are able to generate a sufficient amount of revenue, reduce our costs and/or enter a strategic relationship, we expect to finance future cash needs through public and/or private offerings of equity securities and/or debt financings. We do not currently have any committed future funding. If we are not able to obtain additional financing and/or substantially increase revenue from sales, we will be unable to continue as a going concern. As a result, we may have to liquidate our assets and may receive less than the value at which those assets are carried on our consolidated financial statements, and investors will likely lose a substantial part or all of their investment. We cannot be certain that additional financing will be available to us on favorable terms when required, or at all, particularly given that we do not now have a committed credit facility with any government or financial institution. Further, if there remains doubt aboutrequire repair, our ability to continue asdevelop, market and sell our vehicles could be harmed. We currently have a going concern, investors or other financing sources may be unwillinglimited frame of reference by which to provide additional funding on acceptable terms or at all. If we cannot obtain additional financing when we need itevaluate the long-term quality, reliability and on terms acceptable to us, we will not be able to continue as a going concern. 

The developmentperformance characteristics of our business in the near future is contingent upon the implementation of orders from UPStrucks, battery packs and other key customers forproducts, particularly our new chassis platforms, the purchase of Workhorse vehiclesW4 CC, W750, W56 and ifWNext. There can be no assurance that we are unable to perform under these orders, our business may fail.

On June 4, 2014, the Company entered into a Vehicle Purchase Agreement with United Parcel Service Inc. (“UPS”) which outlined the relationship by which the Company would sell vehicles to UPS. To date, we have received six separate orders totaling up to 1,405 vehicles from UPS. The sixth and most recent order is from Q1 2018. We have entered into various purchase orders with UPS relating to the delivery of the vehicles ordered. There is no guarantee that the Company will be able to detect and repair any defects in our products before commencing the sale of our vehicles.


In addition, the performance specifications of our vehicles may vary from our current estimates and could change over time and from vehicle to vehicle based on a number of factors, including the manner in which the vehicle is used or maintained, driving conditions and weather and other environmental conditions where the vehicle is used. While we perform under these ordersextensive internal testing on our vehicles, we currently have a limited frame of reference by which to evaluate detailed long-term quality, reliability, durability and if it does perform, that UPS will purchase additional vehicles from the Company. Also, there isperformance characteristics of our battery packs, powertrains and vehicles. There can be no assurance that UPSany of our products will perform in accordance with our published specifications, consistently or at all.

We currently have a limited number of customers and prospective customers, we do not terminate its agreementhave long-term agreements with existing customers, and we expect that a significant portion of our future sales will be from a limited number of customers. The loss of any of these customers could materially harm our business.

A significant portion of our projected future revenue is expected to be generated from a limited number of dealers and fleet customers. Additionally, much of our business model is focused on building relationships with a few large dealers and fleet customers. Currently, we have no contracts with customers that include long-term commitments or minimum volumes to ensure future sales of vehicles. As such, a customer may take actions that negatively affect us for reasons we cannot anticipate or control, such as a customer’s financial condition, changes in the Company pursuant tocustomer’s business strategy or operations, or the termination provisions therein. Further, if the Company is not able to raise the required capital to purchase required parts and pay certain vendors, the Companyperceived performance or cost-effectiveness of our vehicles. In addition, as described above, we may not be able to meet customer requirements with the new truck chassis platforms we are developing and plan to offer to them. The loss of or a reduction in sales or anticipated sales to our most significant customers would have a material adverse effect on our business, prospects, financial condition and operating results.

Regulatory requirements may have a negative impact upon our business.

Our vehicles are subject to substantial regulation under federal, state, and local laws. In addition, these laws are subject to change. To the extent the laws change, or if we introduce new vehicles in the future (including, without limitation, the new truck chassis platforms we are developing), some or all of our vehicles may not comply with UPS’s deadlines. Accordingly, despiteapplicable federal, state, or local
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laws. Further, certain federal, state, and local laws and industrial standards currently regulate electrical and electronics equipment. Although standards for electric vehicles are not yet generally available or accepted as industry standards, our products may become subject to federal, state, and local regulation in the receiptfuture. Compliance with these regulations could be burdensome, time consuming, and expensive.

Our products are subject to environmental and safety compliance with various federal and state regulations, including regulations promulgated by the EPA, NHTSA, FAA and various state boards, and compliance certification is required for each new model year. NHTSA is active in requesting information from vehicle manufactures regarding potential product defects and safety measures. The cost of these compliance activities and the risks, delays, and expenses incurred in connection with such compliance could be substantial.

We may incur costs, expenses and penalties related to regulatory matters, governmental investigations, legal proceedings and other claims, which could have a material adverse effect on the Company's business, financial position, results of operations, cash flows or liquidity.

We are subject to extensive government regulations. Federal, state and local laws and regulations may change from time to time and our compliance with new or amended laws and regulations in the future may materially increase our costs and could adversely affect our results of operations and competitive position. In addition, violations of the orders from UPS, there is no assurance, duelaws and regulations to which we are subject could result in civil and criminal fines, penalties and sanctions against us, our officers or our employees, as well as prohibitions on the conduct of our business, and could also materially affect our reputation, business and results of operations. See Note 15, Commitment and Contingencies, to the Company’sConsolidated Financial Statements included in this Annual Report on Form 10-K.

In 2023, we settled a class action lawsuit alleging violation of the securities laws and agreed to create a settlement fund consisting of $15.0 million in cash and $20.0 million in shares of our common stock. This settlement could adversely affect the price of our equity securities, thereby exposing us to new securities class action and/or shareholder derivative litigation. New securities class action and/or shareholder derivative suits against us and/or our officers and directors could result in substantial additional costs to us and divert our management’s time and attention, which would otherwise be used to benefit our business.

Pandemics, epidemics, disease outbreaks and other public health crises, such as the COVID-19 pandemic, have disrupted our business and operations, and future public health crises could materially adversely impact our business, financial constraintscondition, liquidity and statusresults of operations.

Pandemics, epidemics, or disease outbreaks in the U.S. or globally, including the COVID-19 pandemic, have disrupted, and may in the future, disrupt our business, which could materially affect our financial condition, liquidity, and results of operations as well as future expectations. Any such events may adversely impact our global supply chain in the U.S., China and elsewhere. In particular, we could experience among other things: (1) continued or additional global supply disruptions, including with our third-party manufacturers, upon whom we rely to provide certain parts incorporated into our vehicles; (2) labor disruptions; (3) an inability to manufacture our vehicles; (4) an inability to sell to our customers; (5) a development stage company, that the Company will be abledecline in customer demand during and following any pandemic; (6) an impaired ability to deliver such vehicles or that it will receive additional orders whether from UPSaccess credit and capital markets. Any new pandemic or other potential customers.

If we are unable to perform underpublic health crises, or future public health crises, could have a material impact on our orders with UPS, the Company business, will be significantly negatively impacted.

financial condition and results of operations going forward.


Our limited operating history makes it difficult for us to evaluate our future business prospects and make decisions based on those estimates of our future performance.

While our revenue has increased from $6.4 million in 2016 to $10.8 million in 2017, a significant portion of our activities are still focused on research and development. We have a limited operating history and have generated limited, but improving, revenue.  


As we begin to fully implement and ramp up our manufacturing capabilities, it is difficult, if not impossible, to forecast our future results based upon our historical data. Because of the uncertainties related to our lack of historical operations in a highly regulated and rapidly evolving industry, we may be hindered in our ability to anticipate and timely adapt to increases or decreases in revenues or expenses. If we make poor budgetary decisions as a result of unreliablelimited historical data, we could be less profitable or incur losses, which may result in a decline in our stock price.

losses.


We offer no financingdo not receive progress payments on our vehicles. As such, our business is dependent on cash sales, which may adversely affect our growth prospects.

While mostorders of our currentvehicles, and if a purchaser fails to pay upon delivery, we may not be able to recoup the costs we incurred in producing such vehicles.


Our arrangements with existing customers are well-established companies with significant purchasing power, many of our potential smaller and medium-sized customers may need to rely on credit or leasing arrangements to gain access to our vehicles. Unlike some of our competitors who provide credit or leasing services for the purchase of their vehicles, we do not provide and currently dofor progress payments as we begin to fulfill orders. Customers are only required to pay us upon delivery of vehicles. If a customer fails to take delivery of an ordered vehicle or fails to pay for
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such vehicle, we may not have commercial arrangements with a third party that provides,receive cash to offset the production expenses of such financial services. We believe the current limited availability of credit or leasing solutions for our vehiclesvehicle, which could adversely affect our revenues and market share in the commercial electric vehicle market.

cash flows.


Our business, prospects, financial condition and operating results will be adversely affected if we cannot reduce and adequately control the costs and expenses associated with operating our business, including our material and production costs.


We incur significant costs and expenses related to procuring the materials, components and services required to develop and produce our electric vehicles. We have secured supply agreements for our critical components including our batteries. However, these are dependent on volume to ensure that they are available at a competitive price. Thus, our current cost projections are higher than the projected revenue stream that such vehicles will produce, excluding vehicles purchased under voucher programs, such the Hybrid and Zero-Emission Truck and Bus Voucher Incentive Project (HVIP) offered in California. As a result, we currently lose money on each medium-duty vehicle sold without an associated voucher. We continually work on cost-down initiatives to reduce our cost structure so that we may effectively compete. If we do notare unable to reduce our costs and expenses, our net losses will continue which will negatively impact our business and stock price.

Increases in costs, disruption of supply or shortage of lithium-ion cells could harm our business.

We may experience increases in the cost or a sustained interruption in the supply or shortage of lithium-ion cells. Any such increase, supply interruption or shortage could materially and negatively impact our business, prospects, financial condition and operating results. The prices for these lithium-ion cells can fluctuate depending on market conditions and global demand for these materials and could adversely affect our business and operating results. We are exposed to multiple risks relating to lithium-ion cells including:

●the inability or unwillingness of current battery manufacturers to build or operate battery cell manufacturing plants to supply the numbers of lithium-ion cells we may require going forward;
●disruption in the supply of cells due to quality issues or recalls by battery cell manufacturers;
●an increase in the cost of raw materials used in the cells; and
●fluctuations in the value of the Japanese yen against the U.S. dollar in the event our purchasers of lithium-ion cells are denominated in Japanese yen.
continue.


Our business is dependent on the continued supply of battery cells for the battery packs used in our vehicles. While we believe several sources of the battery cells are available for such battery cells, we have fully qualified only Panasonic for the supply of the cells used in such battery packs and have very limited flexibility in changing cell suppliers. Any disruption in the supply of battery cells could disrupt production of our vehicles until such time as a different supplier is fully qualified. Furthermore, fluctuations or shortages in petroleum, tariff or trade issues and other economic or tax conditions may cause us to experience significant increases in freight charges. Substantial increases in the prices for the battery cells or prices charged to us, would increase our operating costs, and could reduce our margins if we cannot recoup the increased costs through increased vehicle prices. Any attempts to increase vehicle prices in response to increased costs in our battery cells could result in cancellations of vehicle orders and therefore materially and adversely affect our brand, image, business, prospects and operating results.

The demand for commercial electric vehicles depends, in part, on the continuation of current trends resulting from dependence on fossil fuels. Extended periods of low diesel or other petroleum-based fuel prices could adversely affect demand for our vehicles, which would adversely affect our business, prospects, financial condition, and operating results.


We believe that much of the present and projected demand for commercial electric vehicles results from concerns about volatility in the cost of petroleum-based fuel, the dependency of the United States on oil from unstable or hostile countries, government regulations and economic incentives promoting fuel efficiency and alternative forms of energy, as well as the belief that climate change results in part from the burning of fossil fuels. If the cost of petroleum-based fuel decreased significantly, the outlook for the long-term supply of oil to the United States improved, the government eliminated or modified its regulations or economic incentives related to fuel efficiency and alternative forms of energy, or if there is a change in the perception that the burning of fossil fuels negatively impacts the environment, the demand for commercial electric vehicles could be reduced, and our business and revenue may be harmed.


Diesel and other petroleum-based fuel prices have been extremely volatile, and we believe this continuing volatility will persist. Lower diesel or other petroleum-based fuel prices over extended periods of time may lower the perception in government and the private sector that cheaper, more readily available energy alternatives should be developed and produced. If diesel or other petroleum-based fuel prices remain at deflated levels for extended periods of time, the demand for commercial electric vehicles may decrease, which would have an adverse effect on our business, prospects, financial condition, and operating results.


Our future growth is dependent upon the willingness of operators of commercial vehicle fleets to adopt electric vehicles and on our ability to produce, sell and service vehicles that meet their needs. This often depends upon the cost for an operator adopting electric vehicle technology as compared to the cost of traditional internal combustion technology. When the price of oil is low, as it recently has been, it is difficult to convince commercial fleet operations to change to more expensive electric vehicles.


Our growth is dependent upon the adoption of electric vehicles by operators of commercial vehicle fleets and on our ability to produce, sell and service vehicles that meet their needs. The entry of commercial electric vehicles into the medium-duty commercial vehicle market is a relatively new development, particularly in the United States, and is characterized by rapidly changing technologies and evolving government regulation, industry standards and customer views of the merits of using electric vehicles in their businesses. This process has been slow as without including the impact of government or other subsidies and incentives, the purchase prices for our commercial electric vehicles currently is higher than the purchase prices for diesel-fueled vehicles. Our growth has also been negatively impacted by the relatively low price of oil overin previous years.

Our success depends on our ability to develop and market products that are recognized and accepted as reliable, enabling and cost-effective and our ability to convince potential customers that our products and technology are an attractive alternative to existing products and technology. Prior to adopting our products and technology, some customers may need to devote time and effort to testing and validating our systems. Any failure to meet these customer benchmarks could result in potential customers choosing to retain their existing vehicles or to purchase vehicles other than ours. If the last few years.

market for electric vehicles in general, and our vehicles in particular, do not develop as we expect, develops more slowly than we expect, or if demand for our vehicles decreases in our markets, our business, prospects, financial condition and operating results could be harmed.


If the market for commercial electric vehicles does not develop as we expect or develops more slowlybroadly and quickly than we expect,is currently developing, our business, prospects, financial condition and operating results will be adversely affected.


As part of our sales efforts, we must educate fleet managers as to the economical savings we believe they will benefit from duringachieve over the life of the vehicle. As such, we believe that operators of commercial vehicle fleets should consider a number of factors when deciding whether to purchase our commercial electric vehicles (or commercial electric vehicles generally) or vehicles powered by internal combustion engines, particularly diesel-fueled or natural gas-fueled vehicles. We believe these factors include:

●the difference in the initial purchase prices of commercial electric vehicles and vehicles with comparable GVWs powered by internal combustion engines, both including and excluding the impact of government and other subsidies and incentives designed to promote the purchase of electric vehicles;
●the total cost of ownership of the vehicle over its expected life, which includes the initial purchase price and ongoing operating and maintenance costs;
●the availability and terms of financing options for purchases of vehicles and, for commercial electric vehicles, financing options for battery systems;
●the availability of tax and other governmental incentives to purchase and operate electric vehicles and future regulations requiring increased use of nonpolluting vehicles;
●government regulations and economic incentives promoting fuel efficiency and alternate forms of energy;
●fuel prices, including volatility in the cost of diesel;
●the cost and availability of other alternatives to diesel fueled vehicles, such as vehicles powered by natural gas;
●corporate sustainability initiatives;
●commercial electric vehicle quality, performance and safety (particularly with respect to lithium-ion battery packs);
●the quality and availability of service for the vehicle, including the availability of replacement parts;
●the limited range over which commercial electric vehicles may be driven on a single battery charge;
●access to charging stations and related infrastructure costs, and standardization of electric vehicle charging systems;
●electric grid capacity and reliability; and
●macroeconomic factors.

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•the difference in the initial purchase prices of commercial electric vehicles and vehicles with comparable gross vehicle weight powered by internal combustion engines, both including and excluding the impact of government and other subsidies and incentives designed to promote the purchase of electric vehicles;
•the total cost of ownership of the vehicle over its expected life, which includes the initial purchase price and ongoing operating and maintenance costs;
•the availability and terms of financing options for purchases of vehicles and, for commercial electric vehicles, financing options for battery systems;
•the availability of tax and other governmental incentives to purchase and operate electric vehicles and future regulations requiring increased use of nonpolluting vehicles;
•government regulations and economic incentives promoting fuel efficiency and alternate forms of energy;
•fuel prices, including volatility in the cost of diesel;
•the cost and availability of other alternatives to diesel fueled vehicles, such as vehicles powered by natural gas;
•corporate sustainability initiatives;
•commercial electric vehicle quality, performance and safety (particularly with respect to lithium-ion battery packs);
•the quality and availability of service for the vehicle, including the availability of replacement parts;
•the range over which commercial electric vehicles may be driven on a single battery charge;
•access to charging stations and related infrastructure costs, and standardization of electric vehicle charging systems;
•electric grid capacity and reliability; and
•macroeconomic factors.

If, in weighing these factors, operators of commercial vehicle fleets determine that there is not a compelling business justification for purchasing commercial electric vehicles, particularly those that we produce and sell, then the market for commercial electric vehicles may not develop as we expect or may develop more slowly than we expect, which would adversely affect our business, prospects, financial condition and operating results.


In addition, a significant number of electric vehicle suppliers have reduced their operations, been acquired on terms unfavorable to them or ceased operations in recent years, because demand for such vehicles has not increased in accordance with expectations at the time such suppliers entered the market. Accordingly, the future of the electric vehicle market, particularly the portion of the market in which we operate, is substantially uncertain. If our customers are unablemarket conditions do not improve significantly, it is unlikely that we will be able to efficiently and effectively integrate our electric vehicles into their existing commercial fleets our sales may suffer and our business, prospects, financial condition and operating results may be adversely affected.

Our sales strategy involves a comprehensive plan forcontinue to operate in the pilot and roll-out of our electric vehicles, as well as the ongoing replacement of existing commercial vehicles with our electric vehicles, that is tailored to the individual needs of our customers. Iflong term, even if we are unableable to developaddress the immediate and execute fleet integration strategies or fleet management support services that meet our customers’ unique circumstances with minimal disruption to their businesses, our customers may not realize the economic benefits they expect from our electric vehicles. If this were to occur, our customers may not order additional vehicles from us, which could adversely affect our business, prospects, financial conditionshort-term liquidity needs described in Liquidity and operating results.

Capital Resources; Going Concern and in these Risk Factors.


We currently do not have and do not expect to have a significant number of long-term supply contracts with guaranteed pricing which exposes and will expose us to fluctuations in component, materials and equipment prices. Substantial increases in these prices would increase our operating costs and could adversely affect our business, prospects, financial condition and operating results.

position, results of operations, cash flows or liquidity.


Because we currently do not have and do not expect to have long-term supply contracts with guaranteed pricing, we are and will be subject to fluctuations in the prices of the raw materials, parts and components and equipment we use in the production of our vehicles. Substantial increases in the prices for such raw materials, components and equipment would increase our operating costs and could reduce our margins if we cannot recoup the increased costs through increased vehicle prices. Any attempts to increase the announced or expected prices of our vehicles in response to increased costs could be viewed negatively by our customers and could adversely affect our business, prospects, financial condition and operating results.

position, results of operations, cash flows or liquidity.


If we are unable to scale our operations at our Union City, IN facility in an expedited manner from our limited low volume production to high volume production, our business, prospects, financial conditionposition, results of operations, cash flows and operating resultsliquidity will be adversely affected.


We are currently assembling our ordersvehicles at our Union City, IN facility which has been acceptable for our historical orders. To satisfy increased demand, we will need to quickly scale operations in our Union City, IN facility as well as scale our supply chain including access to batteries. Such a substantial and rapid increase in operations will be extremely difficult and willmay strain our management capabilities. Our business, prospects, financial conditionposition, results of operations, cash flows and operating resultsliquidity could be adversely affected if we experience
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disruptions in our supply chain, if we cannot obtain materials of sufficient quality at reasonable prices or if we are unable to scale our Union City, IN facility.


We depend upon key personnel and need additional personnel. The loss of key personnel or the inability to attract additional personnel may adversely affect our business and results of operations.


Our success depends on the continuing services of our CEO, Stephen Burnsexecutive leadership team and top management. On May 19, 2017, Mr. Burns and the Company entered into an Executive Retention Agreement whereby Mr. Burns was retained as Chief Executive Officer in consideration of an annual salary of $325,000. Further, the Company entered Executive Retention Agreements with Duane Hughes as President and Chief Operating Officer, Paul Gaitan as Chief Financial Officer and Julio Rodriguez as Chief Information Officer. The loss of any of these individuals could have a material and adverse effect on our business operations. Additionally, the success of our operations will largely depend upon our ability to successfully attract and maintain other competent and qualified key management personnel. As with any company with limited resources, there can be no guarantee that we will be able to attract such individuals or that the presence of such individuals will necessarily translate into profitability for our company.Company. Our inability to attract and retain key personnel may materially and adversely affect our business operations. Any failure by our management to effectively anticipate, implement, and manage the changes required to sustain our growth would have a material adverse effect on our business financial condition, and results of operations.



We face intense competition. Some of our competitors have substantially greater financial or other resources, longer operating histories and greater name recognition than we do and could use their greater resources and/or name recognition to gain market share at our expense or could make it very difficult for us to establish market share.


Companies currently competing in the fleet logistics market offering alternative fuel medium-duty trucks include General Motors, Ford Motor Company and Freightliner. There are also a number of new, well capitalized entrants into the market place. Ford and Freightliner are currently selling alternative fuel fleet vehicles including hybrids.hybrids and General Motors' subsidiary Brightdrop has recently brought a medium duty electric delivery van to market. General Motors, Ford and Freightliner have substantially more financial resources, established market positions, long-standing relationships with customers and dealers, and who have more significant name recognition, technical, marketing, sales, financial and other resources than we do. Although we believe that HorseFly, our unmanned aerial system (UAS)(“UAS”), is unique in the marketplace in that it currently does not have any competitors when it comes to a UAS that works in combination with a truck, there are better financedbetter-financed competitors in this emerging industry, including Google and Amazon. While we are seeking to partner with existing delivery companies to improve their efficiencies in the last mile of delivery, ourThese competitors are seeking to redefine the delivery model using drones from a central location requiring extended flight patterns. Our competitors’ new aerial delivery model would essentially eliminate traditional package delivery companies. Our model is focused on coupling our delivery drone with delivery trucks supplementing the existing model and providing shorter term flight patterns. Google and Amazon have significantly more significant financial resources, established market positions, long-standing relationships with customers, more significant name recognition and a larger scope of resources including technical, marketing and sales than we do.

The market for personal VTOL (vertical takeoff and landing) aircraft is new, rapidly evolving, characterized by rapidly changing technologies, price competition, additional competitors, evolving government regulation and industry standards, frequent new vehicle announcements and changing consumer demands and behaviors. The market is highly competitive, and the SureFly design is competing with experimental aircraft from large original equipment manufacturers, or OEMs, small OEMs, other aviation related companies, technology companies and entrepreneurs. Currently, there are several VTOL aircraft being developed that have some similarity to SureFly, including eHang and Volocopter. Many of our competitors are, in some ways, more advanced than we are.


The resources available to our competitors to develop new products and introduce them into the marketplace exceed the resources currently available to us. As a result, our competitors may be able to compete more aggressively and sustain that competition over a longer period than we can. This intense competitive environment may require us to make changes in our products, pricing, licensing, services, distribution, or marketing to develop a market position. Each of these competitors has the potential to capture significant market share in our target markets, which could have an adverse effect on our position in our industry and on our business and operating results.

If we are unable to keep up with advances in electric vehicle technology, we This competition could have a negative impact on revenues, margins and/or a market share, any of which may suffer a decline inadversely affect our competitive position.

There are companies in the electric vehicle industry that have developed or are developing vehiclesbusiness, financial condition and technologies that compete or will compete with our vehicles. We cannot assure that our competitors will not be able to duplicate our technology or provide products and services similar to ours more efficiently. If for any reason we are unable to keep pace with changes in electric vehicle technology, particularly battery technology, our competitive position may be adversely affected. We plan to upgrade or adapt our vehicles and introduce new models to continue to provide electric vehicles that incorporate the latest technology. However, there is no assurance that our research and development efforts will keep pace with thoseresults of our competitors.

operations.


Our electric vehicles compete for market share with vehicles powered by other vehicle technologies that may prove to be more attractive than ours.


Our target market currently is serviced by manufacturers with existing customers and suppliers using proven and widely accepted fossil fuel technologies. Additionally, our competitors are working on developing technologies that may be introduced in our target market. If any of these alternative technology vehicles can provide lower fuel costs, greater efficiencies, greater reliability or otherwise benefit from other factors resulting in an overall lower total cost of ownership, this may negatively affect the commercial success of our vehicles or make our vehicles uncompetitive or obsolete.



We currently have a limited number of customers, with whom we do not have long-term agreements, and expect that a significant portion of our future sales will be from a limited number of customers. The loss of any of these customers could materially harm our business.

A significant portion of our projected future revenue is expected to be generated from a limited number of fleet customers. Additionally, much of our business model is focused on building relationships with a few large fleet customers. Currently, we have no contracts with customers that include long-term commitments or minimum volumes that ensure future sales of vehicles. As such, a customer may take actions that negatively affect us for reasons that we cannot anticipate or control, such as reasons related to the customer’s financial condition, changes in the customer’s business strategy or operations or as the result of the perceived performance or cost-effectiveness of our vehicles. The loss of or a reduction in sales or anticipated sales to our most significant customers would have a material adverse effect on our business, prospects, financial condition and operating results.

Changes in the market for electric vehicles could cause our products to become obsolete or lose popularity.


The modern electric vehicle industry is in its infancy and has experienced substantial change in the last few years. To date,Although a significant number of suppliers entered the electric vehicle industry in recent years, demand for electric vehicles has been slower than forecasted by industry experts. As a result, growth in the electric vehicle industry depends on many factors outside our control, including, but not limited to:

●continued development of product technology, especially batteries;
●the environmental consciousness of customers;
●the ability of electric vehicles to successfully compete with vehicles powered by internal combustion; engines
●limitation of widespread electricity shortages; and
●whether future regulation and legislation requiring increased use of non-polluting vehicles is enacted.


•continued development of product technology, especially batteries;
•perceptions about electric vehicle quality, safety, design, performance and cost;
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•perceptions about the total cost of ownership of electric vehicles, including the initial purchase price and operating and maintenance costs;
•the environmental consciousness of customers;
•the ability of electric vehicles to successfully compete with vehicles powered by internal combustion engines;
•the availability of other alternative fuel vehicles, including plug-in hybrid electric vehicles; and
•the availability of tax and other governmental incentives to purchase and operate electric vehicles or future regulation requiring increased use of nonpolluting vehicles.

We cannot assume that growth in the electric vehicle industry will continue. Our business will suffer if the electric vehicle industry does not grow or grows more slowly than it has in recent years or if we are unable to maintain the pace of industry demands.

President Trump’s administration may create regulatory uncertainty for the alternative energy sector and may materially harm our business, financial condition and operating results.

President Trump’s administration, may create regulatory uncertainty in the alternative energy sector. During the election campaign, President Trump made comments suggesting that he was not supportive of various clean energy programs and initiatives designed to curtail global warming. Since taking office, President Trump has released his America First Energy Plan which relies on fossil fuels, cancelled U.S. participation in the Paris Climate Agreement and signed several executive orders relating to oil pipelines. It remains unclear what specifically President Trump would or would not do with respect to these programs and initiatives, and what support he would have for any potential changes to such legislative programs and initiatives in the Unites States Congress, regardless of the fact that both the House of Representatives and Senate are controlled by the Republican Party. If President Trump and/or the United States Congress take action or publicly speak out about the need to eliminate or further reduce legislation, regulations and incentives supporting alternative energy or take action to further support the use of fossil fuels, such actions may result in a decrease in demand for alternative energy in the United States and may materially harm our business, financial condition and operating results.

The unavailability, reduction, elimination or adverse application of government subsidies, incentives and regulations could have an adverse effect on our business, prospects, financial condition and operating results.

We believe that, currently, the availability of government subsidies and incentives including those available in New York, California and Chicago is an important factor considered by our customers when purchasing our vehicles, and that our growth depends in part on the availability and amounts of these subsidies and incentives. Any reduction, elimination or discriminatory application of government subsidies and incentives because of budgetary challenges, policy changes, the reduced need for such subsidies and incentives due to the perceived success of electric vehicles or other reasons may result in the diminished price competitiveness of the alternative fuel vehicle industry.



Certain regulations and programs that encourage sales of electric vehicles could be eliminated or applied in a way that adversely impacts sales of our commercial electric vehicles, either currently or at any time in the future. For example, the U.S. federal government and many state governments are experiencing political change and facing fiscal crises, which could result in the elimination of programs, subsidies and incentives that encourage the purchase of electric vehicles. If government subsidies and incentives to produce and purchase electric vehicles were no longer available to us or to our customers, or the amounts of such subsidies and incentives were reduced, our business and results of operations would be adversely affected.

We may be unable to keep up with changes in electric vehicle technology and, as a result, may suffer a decline in our business and competitive position.


Our current products and the new products we are developing under our strategic roadmap are designed for use with, and are dependent upon, existing electric vehicle technology. As technologies change, we plan to upgrade or adapt our products to continue to provide products with the latest technology. However, our products may become obsolete or our research and development efforts may not be sufficient to adapt to changes in or to create the necessary technology. Thus, our potential inability to adapt and develop the necessary technology may harm our business and competitive position.


The failure of certain key suppliers to provide us with the necessary components of our products according to our schedule and at price, quality levels and volumes acceptable to us could have a severe and negative impact upon our business.


We have secured supply agreements for our critical components, including our batteries. However, the agreements are dependent on volume to ensure that they are available at a competitive price. Further, werely and will rely on a small group ofvarious suppliers to provide us withcritical components forand materials used in our products.vehicles, including our battery packs. However, we have a limited number of definitive supply agreements. Changes in business conditions, pandemics, wars, including the conflicts in Ukraine and Israel and resulting sanctions, and other factors beyond our control or which we do not presently anticipate could negatively affect our ability to receive components. If thesecomponent suppliers become unwilling or unable to provide components, or if we are unable to meet certain volume requirements in our existing supply agreements, there are a limited number of alternative suppliers who could provide them and the price for them could be substantially higher. Changes in business conditions, wars, governmental changes, and other factors beyond our control or which we do not presently anticipate could negatively affect our ability to receive components from our suppliers. Further, it could be difficult to find replacement components if our current suppliers fail to provide the parts needed for these products. A failure by our major suppliers to provide these components could severely restrict our ability to manufacture our products and prevent us from fulfilling customer orders in a timely fashion.


Continued disruption of supply, shortage of materials or increases in costs, in particular for battery packs or microchips, could harm our business.

Our ability to manufacture our vehicles depends on the continued supply of battery packs, including the competent battery cells, used in our products. We have in the past experienced a battery pack supply chain constraint as a result of our existing supplier's inability to keep up with volume requirements. We continue to work with our current supplier to overcome these supply constraints and have also begun collaborating with an additional supplier, subject to appropriate testing, to further expand our battery pack options.

Furthermore, due to the COVID-19 pandemic and increased demand for consumer products, a global shortage of microchips has been reported since early 2021, and the impact to us is yet unknown. As a result, our ability to source semiconductor chips may be adversely affected. Impacts of the shortage may result in increased delivery lead times, delays in the production of our vehicles, and increased costs to source available semiconductor chips.

Product liability or other claims could have a material adverse effect on our business.


The risk of product liability claims, product recalls, and associated adverse publicity is inherent in the manufacturing, marketing, and sale of electricalelectric vehicles. Although we have product liability insurance for certain of our consumer and commercial products, that insurance may be inadequate to cover all potential product claims. We also carry liability insurance on our products. Any product recall or 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. We may not be able to secure additional product liability insurance coverage on acceptable terms or at reasonable costs when needed. A successful product liability claim against us could require us to pay a substantial monetary award. Moreover, a product recall, such as the one initiated by the Company in 2021, could generate substantial negative publicity about our products and business and inhibit or prevent commercialization of other future product candidates. We cannot provide assurance that such claims and/or recalls will not be made in the future.

We may have to devote substantial resources to implementing a retail product distribution network.

Dealers are often hesitant to provide their own financing to contribute to our product distribution network. Thus, we anticipate that we may have to provide financing or other consignment sale arrangements for dealers. A capital investment such as this presents many risks, foremost among them being that we may not realize a significant return on our investment if the network is not profitable. Our inability to collect receivables from dealers could cause us to suffer losses. Additionally, the amount of time that our management will need to devote to this project may divert them from performing other functions necessary to assure the success of our business.We recently established a non-exclusive distribution agreement with Ryder to lower this risk.


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Regulatory requirements may have a negative impact upon our business.

While our vehicles are subject to substantial regulation under federal, state, and local laws, we believe that our vehicles are or will be materially in compliance with all applicable laws. However, to the extent the laws change, or if we introduce new vehicles in the future, some or all of our vehicles may not comply with applicable federal, state, or local laws. Further, certain federal, state, and local laws and industrial standards currently regulate electrical and electronics equipment. Although standards for electric vehicles are not yet generally available or accepted as industry standards, our products may become subject to federal, state, and local regulation in the future. Compliance with these regulations could be burdensome, time consuming, and expensive.

Our products are subject to environmental and safety compliance with various federal and state regulations, including regulations promulgated by the EPA, NHTSA, FAA and various state boards, and compliance certification is required for each new model year. The cost of these compliance activities and the delays and risks associated with obtaining approval can be substantial. The risks, delays, and expenses incurred in connection with such compliance could be substantial.



Our success may be dependent on protecting our intellectual property rights.


We rely on trade secret protections to protect our proprietary technology as well as several registered patents and one patent application.applications. Our patents and patent applications relate to the vehicle chassis assembly, vehicle header and drive module, and manifold for electric motor drive assembly. Our existing patent applications relates to theassembly, onboard generator drive system for electric vehicles and the delivery drone, and the manned multicopter.drone. Our success will, in part, depend on our ability to obtain additional trademarks and patents. We are working on obtainingregistering additional patents and trademarks registered with the United States Patent and Trademark Office but have not finalized any as of this date.Office. Although we have entered into confidentiality agreements with our employees and consultants, we cannot be certain that others will not gain access to these trade secrets. Others may independently develop substantially equivalent proprietary information and techniquestechnologies or otherwise gain access to our trade secrets.

Therefore we may be subject to disputes with our employees over ownership of any new technologies or enhancements such employees help to develop.


We may be exposed to liability for infringing upon the intellectual property rights of other companies.

Our success will, in part, depend on our ability to operate without infringing on the proprietary rights of others. Although we have conducted searches and are not aware of any patents and trademarks which our products or their use might infringe, we cannot be certain that infringement has not or will not occur. We could incur substantial costs, in addition to the great amount of time lost and negative publicity, in defending any patent or trademark infringement suits or in asserting any patent or trademark rights, in a suit with another party. In the event that a claim relating to intellectual property is asserted against us, we may need to seek licenses to such intellectual property which could result in significant costs, including substantial licensing fees or royalties.

Our business may be adversely affected by union activities.


Although none of our employees are currently represented by a labor union, it is common throughout the automotive industry for many employees at automotive companies to belong to a union, which can result in higher employee costs and increased risk of work stoppages. Our employees may join or seek recognition to form a labor union, or we may be required to become a union signatory. Our production facility in Union City, Indiana was purchased from Navistar. Prior employees of Navistar were union members and our future work force at this facility may be inclined to vote in favor of forming a labor union. Furthermore, we are directly or indirectly dependent upon companies with unionized work forces, such as parts suppliers and trucking and freight companies, and work stoppages or strikes organized by such unions could have a material adverse impact on our business, financial condition or operating results. If a work stoppage occurs, it could delay the manufacture and sale of our trucks and have a material adverse effect on our business, prospects, operating results or financial condition. The mere fact that our labor force could be unionized may harm our reputation in the eyes of some investors and thereby negatively affect our stock price.investors. Consequently, the unionization of our labor force could negatively impact our company’s health.

We may be exposed to liability for infringing upon the intellectual property rights of other companies.

Our success will, in part, depend on our ability to operate without infringing on the proprietary rights of others. Although we have conducted searches and are not aware of any patents and trademarks which our products or their use might infringe, we cannot be certain that infringement has not or will not occur. We could incur substantial costs, in addition to the great amount of time lost, in defending any patent or trademark infringement suits or in asserting any patent or trademark rights, in a suit with another party.

company.


Our electric vehicles make use of lithium-ion battery cells, which, if not appropriately managed and controlled, have occasionally been observed to catch fire or vent smoke and flames. If such events occur in our electric vehicles, we could face liability associated with our warranty, for damage or injury, adverse publicity and a potential safety recall, any of which would adversely affect our business, prospects, financial condition and operating results.


The battery packs in our electric vehicles use lithium-ion cells, which have been used for years in laptop computers and cell phones. On occasion, if not appropriately managed and controlled,or subjected to environmental stresses, lithium-ion cells can rapidly release the energy they contain by venting smoke and flames in a manner that can ignite nearby materials. Highly publicized incidents of electric vehicles, laptop computers and cell phones bursting into flames have focused consumer attention on the safety of these cells. These events also have raised questions about the suitability of these lithium-ion cells for automotive applications. There can be no assurance that a field failure of our battery packs will not occur, which would damage the vehicle or lead to personal injury or death and may subject us to lawsuits. Furthermore, there is some risk of electrocution if individuals who attempt to repair battery packs on our vehicles do not follow applicable maintenance and repair protocols. Any such damage or injury would likely lead to adverse publicity and potentially a safety recall. Any such adverse publicity related to the suitability of lithium-ion cells for automotive applications, the social and environmental impacts of mineral mining or procurement associated with the constituents of lithium-ion cells, or any future incident involving lithium-ion cells, such as a vehicle or other fire could adversely affect our reputation, business, prospects, financial condition and operating results.

Our facilities



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We face risks associated with security breaches through cyber-attacks, cyber intrusions, or otherwise, which could be damaged or adversely affected aspose a resultrisk to our systems, networks and services.

We face risks associated with cyber-attacks, including hacking, viruses, malware, denial of disastersservice attacks, ransomware or other unpredictable events. Any prolongeddata security breaches. The risk of a security breach or disruption, inparticularly through cyber-attacks or cyber intrusion, including by computer hackers, foreign governments and cyber terrorists, has generally increased as the number, intensity, and sophistication of attempted attacks and intrusions around the world have increased. Our business requires the continued operation of information systems and network infrastructure. In the event of a cyber-attack that we were unable to defend against or mitigate, we could have our operations and the operations of our facilitycustomers and others disrupted. We could also have our financial and other information systems and network infrastructure impaired, property damaged and customer and employee information stolen; experience substantial loss of revenues, response costs and other financial loss; and be subject to increased regulation, litigation, penalties and damage to their reputation. While we maintain cyber insurance providing coverages, such insurance may not cover all costs associated with the consequences of personal and confidential proprietary information being compromised. A security breach or other significant disruption involving computer networks and related systems could cause substantial costs and other negative effects, including litigation, remediation costs, costs to deploy additional protection strategies, compromising of confidential information, and reputational damage adversely affecting investor confidence. As a result, in the event of a material cyber security breach, our results of operations could be materially, adversely affected.

Risks Related to Owning Our Common Stock

We are currently out of compliance with the Nasdaq’s continuing listing requirements and if we fail to satisfy all such applicable Nasdaq continued listing requirements, our common stock may be delisted from Nasdaq, which could have an adverse impact on the liquidity and market price of our common stock, and our plan to regain compliance with these requirements may have an adverse effect on the Company and its stockholders.

Our common stock is currently listed on The Nasdaq Capital Market, which has qualitative and quantitative continued listing requirements, including corporate governance requirements, public float requirements and a $1.00 minimum closing bid price requirement. Our common stock price has been and may in the future be below the minimum bid price for continued listing on Nasdaq. On September 22, 2023, we received notice from Nasdaq indicating that the closing bid price for our common stock had fallen below the minimum bid price for continued listing for 30 consecutive trading days and was no longer in compliance with the minimum bid requirement. In order to regain compliance, the closing bid price of our common stock must be equal to or above the minimum bid price for a period of 10 consecutive trading days prior to March 20, 2024. In the event we fail to meet this requirement by such date, we may be eligible for an additional grace period of another 180 days, so long as it meets the applicable market value of publicly held shares requirement and other applicable listing standards for the Nasdaq Capital Market, other than the minimum bid price requirement, on the trading date prior to the deadline, and informs Nasdaq of its intent to cure this deficiency. If we fail to meet these requirements or fail to satisfy any other continued listing requirements, Nasdaq may take steps to delist our common stock. Delisting would likely have an adverse effect on the liquidity of our common stock, decrease the market price of our common stock, result in the potential loss of confidence by investors, suppliers, customers, and employees, and fewer business development opportunities, and adversely affect our business, prospects, financial condition and operating results.

ability to obtain financing for our continuing operations.


We engineer and perform subassemblyintend to regain compliance by effecting a reverse split of our electric vehicles in a facility in Loveland, Ohio and do final assembly at our facility in Union City, Indiana. Any prolonged disruption incommon stock (the “Reverse Split”) following the operations of either facility, whether due to technical, information systems, communication networks, accidents, weather conditions or other natural disaster, or otherwise, whether short or long-term, would adversely affect our business, prospects, financial condition and operating results.

We are subject to significant corporate regulation as a public company and failure to comply with all applicable regulations could subject us to liability or negatively affect our stock price.

As a publicly traded company, we are subject to a significant body of regulation, including the Sarbanes-Oxley Act of 2002. While we have developed and instituted a corporate compliance program based on what we believe are the current best practices in corporate governance and continue to update this program in response to newly implemented or changing regulatory requirements, we cannot provide assurance that we are or will be in compliance with all potentially applicable corporate regulations. In connection with management’s assessment2024 Annual General Meeting of our internal control over financial reporting as required under Section 404 of the Sarbanes-Oxley Act of 2002, we identified material weaknesses pertaining to the lack of established adequate financial reporting activities and the lack of established proper accounting and financing reporting oversight.stockholders. We cannot provide assurance that, in the future, our management will not find additional material weakness in connection with its annual review of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act. We also cannot provide assurance that we will be able to remediate existing weaknesses and any such additional weakness identified;effect the Reverse Split only if our failurestockholders vote to do so would prevent our management from concludingapprove it. It is possible that our internal control over financial reporting asstockholders will not approve the Reverse Split, and we may not be able to regain compliance with the NASDAQ continuing listing requirements if we do not effect the Reverse Split. The Reverse Split also presents certain other risks to the Company and its stockholders, including the risk of a decline in the aggregate market value of our outstanding common stock.


In addition, for many companies, the company’s common stock price declines following a reverse split, resulting in a resulting in a reduction of the endvalue of our fiscal year is effective. If we failthe company’s common stock on an aggregate basis and, accordingly, a decline in the value of common stockholders’ investment in the Company as compared to comply with anythe value of these regulations, we could be subjectsuch investment prior to the reverse split.

We have identified a range of regulatory actions, fines or other sanctions or litigation. If we must disclose any material weakness in our internal control over financial reporting, our stock price could decline.


Risks Related to Owning Our Common Stock

If we fail to continue to meet the listing standards of NASDAQ, our common stock may be delisted, which could have a material adverse effect on the liquidity of our common stock.

Our common stock is currently listed on the Nasdaq Capital Market. The NASDAQ Stock Market LLC has requirements that a company must meet in order to remain listed on NASDAQ. In particular, NASDAQ rules require us to maintain a minimum bid price of $1.00 per share of our common stock. If the closing bid price of our common stock were to fall below $1.00 per share for 30 consecutive trading days or we do not meet other listing requirements, we would fail to be in compliance with NASDAQ’s listing standards. There can be no assurance that we will continue to meet the minimum bid price requirement, or any other requirement in the future. If we fail to meet the minimum bid price requirement, The NASDAQ Stock Market LLC may initiate the delisting process with a notification letter. If we were to receive such a notification, we would be afforded a grace period of 180 calendar days to regain compliance with the minimum bid price requirement. In order to regain compliance, shares of our common stock would need to maintain a minimum closing bid price of at least $1.00 per share for a minimum of 10 consecutive trading days. In addition, we may be unable to meet other applicable NASDAQ listing requirements, including maintaining minimum levels of stockholders’ equity or market values of our common stock in which case, our common stock could be delisted. If our common stock were to be delisted, the liquidity of our common stock would be adversely affected and the market price of our common stock could decrease.

The trading of our shares of common has been relatively thin and there is no assurance that a liquid market for our shares of common stock will develop.

Our common stock has traded on the Nasdaq Capital Market, under the symbol “WKHS”, since January 2016. Since that date, our common stock has been relatively thinly traded. There can be no assurance that we will be able to successfully develop a liquid market for our common shares. The stock market in general, and early stage public companies in particular, has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of such companies.reporting. If we are unable to develop a market for our common shares, youremediate the material weakness, or if we identify additional material weaknesses in the future or otherwise fail to maintain an effective system of internal controls, we may not be able to sell youraccurately or timely report our financial condition or results of operations, which may adversely affect our business.


As more fully described in Item 9A. Controls and Procedures, of this Annual Report on Form 10-K, we have identified a material weakness that existed as of December 31, 2023 related to our review of third-party valuation deliverables regarding our
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convertible debt and warrant liability. As a result of this material weakness, management concluded that our disclosure controls and procedures and internal control over financial reporting were not effective as of December 31, 2023.

Unless and until this material weakness has been remediated, or if new material weaknesses arise in the future, material misstatements could occur and go undetected in our interim or annual consolidated financial statements, and we may be required to restate our financial statements. In addition, we may experience delays in satisfying our reporting obligations or to comply with Securities and Exchange Commission rules and regulations, which could result in, among other things, regulatory or enforcement actions, securities litigation, limitations on our ability to access capital markets, debt rating agency downgrades or rating withdrawals, or loss in confidence of our investors, any one of which could adversely affect the valuation of our common shares at prices you considerstock and our business prospects. We can give no assurance that the measures we have taken and plan to be fairtake in the future will remediate the material weakness identified or at times that are convenient for you, or at all.

any additional material weaknesses will not arise in the future due to a failure to implement and maintain adequate internal control over financial reporting.


Our stock price and trading volume may be volatile, which could result in substantial losses for our stockholders.


The equity trading markets may experience periods of volatility, which could result in highly variable and unpredictable pricing of equity securities. The market price of our common stock could change in ways that may or may not be related to our business, our industry or our operating performance and financial condition. In addition, the trading volume in our common stock has been low and may fluctuate and cause significant price variations to occur. We have experienced significant volatility in the price of our stock. In addition, the stock markets in general can experience considerable price and volume fluctuations.


We have not paid cash dividends in the past and have no immediate plans to pay cash dividends.


We plan to reinvest all of our earnings, to the extent we have earnings, in order to develop our products, deliver on our orders and cover operating costs and to otherwise become and remain competitive. We do not plan to pay any cash dividends with respect to our securities in the foreseeable future. We cannot assure youcommon stockholders that we would, at any time, generate sufficient surplus cash that would be available for distribution to the holders of our common stock as a dividend. Therefore, youcommon stockholders should not expect to receive cash dividends on our common stock.



Shares eligible for future sale may adversely affect the market for our common stock.

Of the 41,828,474 shares of our common stock outstanding as of March 8, 2018, approximately 33.3 million shares are held by “non-affiliates” and are freely tradable without restriction pursuant to Rule 144. In addition, our Registration Statement on Form S-3 for purposes of registering the resale of 1,033,717 shares of common stock and 1,833,193 shares of common stock issuable upon exercise of stock purchase warrants has been declared effective. Any substantial sale of our common stock pursuant to Rule 144 or pursuant to any resale prospectus may have a material adverse effect on the market price of our common stock.

Shareholders

Stockholders may experience future dilution as a result of future equity offerings.

financings.


In order to raise additional capital, we may in the future offer additional shares of our common stock, including under our ATM Agreement and ELOC, or other securities convertible into or exchangeable for our common stock at prices that may not be the same as the price per share in our prior offerings. We may sell shares or other securities in any future offering at a price per share that is lower than the price per share paid by historical investors, which would result in those newly issued shares being dilutive. In addition, investors purchasing shares or other securities in the future could have rights superior to existing stockholders, which could impair the value of existing shareholders.stockholders. The price per share at which we sell additional shares of our common stock, or securities convertible or exchangeable into common stock, in future transactions may be higher or lower than the price per share paid by our historical investors.


In addition, the expected terms of a Possible Financing may be dilutive to investors. Among other things, these terms may include convertibility of a debt instrument or preferred instrument into common stock at a discount to current or historical market prices, which may result in substantial dilution to our existing investors, particularly if immediately before any such conversion our stock price is below the price per share paid by historical investors. Other possible terms, such as original issue discount, common stock-settled redemption premiums or default penalties and substantial warrant coverage, could also have a dilutive effect, especially if our common stock price remains lower than the price paid by our historical investors.

Our charter documents and Nevada law may inhibit a takeover that stockholders consider favorable.


Provisions of our certificate of incorporation and bylaws and applicable provisions of Nevada law may delay or discourage transactions involving an actual or potential change in control or change in our management, including transactions in which stockholders might otherwise receive a premium for their shares, or transactions that our stockholders might otherwise deem to be in their best interests. The provisions in our certificate of incorporation and bylaws:

●limit who may call stockholder meetings;
●do not provide for cumulative voting rights; and
●provide that all vacancies may be filled by the affirmative vote of a majority of directors then in office, even if less than a quorum.


•limit who may call stockholder meetings;
•do not provide for cumulative voting rights; and
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•provide that all vacancies may be filled by the affirmative vote of a majority of directors then in office, even if less than a quorum.

There are limitations on director/officer liability.


As permitted by Nevada law, our certificate of incorporation limits the liability of our directors and officers for monetary damages for breach of a director’s or officer’s fiduciary duty except for liability in certain instances. As a result of our charter provision and Nevada law, shareholdersstockholders may have limited rights to recover against directors or officers for breach of fiduciary duty. In addition, our certificate of incorporation provides that we shall indemnify our directors and officers to the fullest extent permitted by law.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.


ITEM 1C. CYBERSECURITY

We utilize an internal cross-departmental approach to addressing cybersecurity risk, including input from employees, Senior Management, and our Board of Directors. A cross functional Senior Management Cybersecurity Steering Committee devotes resources to cybersecurity and risk management to adapt to the changing cybersecurity landscape and respond to emerging threats in a timely and effective manner. Our cybersecurity risk management program is based on the National Institute of Standards and Technology (“NIST”) framework, which organizes cybersecurity risks into five categories: identify, protect, detect, respond, and recover. We regularly assess the threat landscape and take a holistic view of cybersecurity risks, with a layered cybersecurity strategy based on prevention, detection, and mitigation. Our information technology (“IT”) team reviews enterprise risk management-level cybersecurity risks annually, and risks are incorporated into the Enterprise Risk Management Committee framework. In addition, we have a set of Company-wide policies and procedures concerning cybersecurity matters, which include several IT Security policies as well as other policies that directly or indirectly relate to cybersecurity, which address topics related to encryption standards, antivirus protection, remote access, multifactor authentication, confidential information and the use of the internet, social media, email, and networked devices. These policies go through an internal review process and are approved by appropriate members of management.

The Company’s Director of Cybersecurity in cooperation with the Chief Information Officer is responsible for developing and implementing our information security program and reporting on cybersecurity matters to the Company’s internal Cybersecurity Steering Committee. Our Director of Cybersecurity has over 20 years of experience leading cybersecurity oversight and holds cybersecurity certifications such as the CISSP (“Certified Information Systems Security Professional”).

We periodically perform simulations to test employees and provide any necessary remedial training. All employees are required to complete cybersecurity training at least once a year and have access to more frequent cybersecurity training online. We may also require employees in certain roles to complete additional role-based, specialized cybersecurity training. We continue to expand investments in IT security, taking a multi-layered security approach, which includes additional end-user training, improving security defenses, network segmentation, identifying and protecting critical assets, strengthening monitoring, and alerting, and leveraging industry experts where available.

We regularly test defenses by performing simulations and drills at both a technical level (including through penetration tests) and by reviewing our operational policies and procedures with third-party experts. At the management level, our IT security team monitors alerts and meets to discuss threat levels, trends, and remediation. Our IT team also regularly collects data on cybersecurity threats and risk areas and conducts a periodic risk assessment. Further, we conduct external penetration tests and maturity testing to assess our processes and procedures and the threat landscape. These tests and assessments are useful tools for maintaining a robust cybersecurity program to protect our investors, customers, employees, vendors, and intellectual property.

In addition to assessing our own cybersecurity preparedness, we also consider and evaluate cybersecurity risks associated with the use of third-party service providers. Our Internal Audit team conducts an annual review of third-party hosted applications with a specific focus on any sensitive data shared with third parties. In collaboration with our Internal Audit team, the internal business owners of the hosted applications are required to document user access reviews at least annually and provide from the vendor a System and Organization Controls (“SOC”) 1 or SOC 2 report.

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The Audit Committee and the Board actively participate in discussions with management and amongst themselves regarding cybersecurity risks. The Audit Committee’s semi-annual cybersecurity review also includes review of recent enhancements to the Company’s defenses and management’s progress on its cybersecurity strategic roadmap. In addition, the Cybersecurity Steering Committee receives quarterly cybersecurity reports, which include a review of key performance indicators, test results and related remediation, and may discuss recent threats and how the Company is managing those threats.

We face a number of cybersecurity risks in connection with our business. Although such risks have not materially affected us, including our business strategy, results of operations or financial condition, to date, we have, from time to time, experienced threats to our data and systems, including malware, phishing, and other types of cyber-attacks. For more information about the cybersecurity risks we face, see the risk factors described in Part I, Item 1A, Risk Factors in this Annual Report on Form 10-K.

ITEM 2. PROPERTIES


We operate facilities in Ohio, Indiana and Michigan. Our principal offices arecorporate headquarters and research and development facility is located at 100 Commerce Drive, Loveland,in the Greater Cincinnati area in Ohio 45140, which include 7,500 square feet in office space and 37,500 square feet in manufacturing/development space. We pay $11,951 in monthly mortgage and our loanprimary manufacturing facility is located in Union City, Indiana. We also operate an engineering and technical design center in Wixom, Michigan and an engineering, technical design and production facility for 10 years with a balloon payment.

We are currently leasing office space at 119 Northeast Drive, Loveland, Ohio 45140. The leased office space is 5,810 square feet of office spaceour drone systems in a 255,392 square foot building. We pay $4,500 per month and the agreement is for 12 months, commencing July 10, 2017. After 12 months, the agreement is renewable monthly.

The following table sets forth the location, approximate size and primary use of our principal owned, leased and licensed facilities:

LocationApproximate Size (Building) in Square FeetPrimary UseOwned, Lease or LicensedLease/License Expiration Date (if applicable)
Loveland, Ohio45,000Administration, Research and Development, ManufacturingOwnedN/A
Union City, Indiana250,000ManufacturingOwnedN/A
Loveland, Ohio5,810

Administration

LeaseJuly, 2018

Mason, Ohio.

We believe our facilities are in good operating condition and that our facilities are adequate for all present and near term uses.

ITEM 3. LEGAL PROCEEDINGS

In May 2017, Autokinetics, Inc. (“AK”) filed


For a complaint against the Company in the Circuit Court for the Countydescription of Oakland, State of Michigan (File No. 2017-158748-CB). AK claims Breach of Contractcertain material legal proceedings, please see Note 15, Commitments and Unjust Enrichment/Quantum Meruit and is seeking damages in the amount of $2,098,550. In June 2017, the Company filed an Answer as well as a Counterclaim against AK and J. Bruce Emmons, President of AK, for Breach of Contract, Unjust Enrichment, Promissory Estoppel, Conversion and Statutory Conversion. The Company intends to vigorously defend against this action and pursue all available legal remedies. The Company believes it has substantial legal and factual defensesContingencies, to the plaintiff’s claims.

In November 2017, Jeffrey Esfeld filedconsolidated financial statements included elsewhere in this Annual Report on Form 10-K. See also Management's Discussion and Analysis of Financial Condition and Results of Operations - Overview for a complaint against the Company in the Superior Courtdiscussion of the State of Washington, County of King seeking unpaid wages and commissions. The case has been removed to the Federal District Court for the Western District of Washington (File No. 17-2-29157-9 SEA). The Company intends to vigorously defend against this action and pursue all available legal remedies. The Company believes it has substantial legal and factual defenses to the plaintiff’s claims.

certain regulatory matters.

ITEM 4. MINE SAFETY DISCLOSURES

None.


Not applicable.

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

On January 4, 2016 the Company was approved by Nasdaq Capital Market and our

Our common stock is now quotedtraded on Nasdaqthe NASDAQ Capital Market under the symbol “WKHS”. Our common stock was previously quoted on the OTCQB under the symbol “TTSO” from July 14, 2009 through May 24, 2010 and then under the symbol “AMPD” from May 24, 2010 to April 16, 2015 when the Company was renamed Workhorse Group Inc. The following table sets forth the range of high and low prices per share of our common stock for each period indicated.

Quarter Ended 2017  2016  2015 
March 31 High $7.29  $10.73  $1.40 
  Low $1.90  $4.43  $1.09 
June 30 High $4.89  $11.41  $3.90 
  Low $1.90  $6.40  $1.90 
September 30 High $3.82  $9.34  $6.10 
  Low $2.60  $5.79  $1.75 
December 31 High $3.24  $8.52  $9.35 
  Low $2.43  $6.37  $3.40 

On December 9, 2015, the Company filed a Certificate of Change with the State of Nevada to effect a reverse stock split of its outstanding and authorized shares of common stock at a ratio of 1 for 10 (the “Reverse Stock Split”). Fractional shares that resulted from the Reverse Stock Split were rounded up to the next highest number. The Reverse Stock Split was approved by the Board of Directors of the Company. The effective date of the Reverse Stock Split was December 11, 2015. At the effective time, every ten shares of common stock issued and outstanding were automatically combined into one share of issued and outstanding common stock, without any change in the par value. In addition, the authorized shares of common stock were reduced from 500,000,000 to 50,000,000. The above market prices reflect such Reverse Stock Split. On August 7, 2017, the shareholders of the Company voted to increase the authorized shares of common stock to 100,000,000 and the Certificate of Amendment amending the Articles of Incorporation was filed with the State of Nevada on August 8, 2017.

Holders of our Common Stock

As of March 8, 2018, there wereFebruary 1, 2024, we had approximately 327 stockholders150 shareholders of record of our common stock.record. This number does not include shares held by brokerage clearing houses, depositoriespersons whose stock is in nominee or others in unregistered form. The stock transfer agent for our securities is Empire Stock Transfer, Inc., 1859 Whitney Mesa Drive, Henderson, Nevada 89014.

Dividends

The Company has“street name” accounts through banks, brokers and other financial institutions.

Dividend Policy
We have never declared or paid any cash dividends on itsour common stock. The CompanyWe currently intendsintend to retain future earnings, if any, to finance the expansion of itsour business. As a result, the Company doeswe do not anticipate paying any cash dividends in the foreseeable future.


Stock Performance Graph

This performance graph shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the Exchange Act), or incorporated by reference into any filing of Workhorse under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

The following graph shows a comparison from January 1, 2012 through December 31, 2017, of the cumulative total return for our common stock, the NASDAQ Composite Index, and a group of peer group companies similarly situated. Such returns are based on historical results and are not intended Any future determination to suggest future performance. Data for The NASDAQ Composite Index and the peer group assumes an investment of $100 on January 1, 2011 and reinvestment of dividends. We have never declared or paiddeclare cash dividends will be made at the discretion of our Board of Directors, subject to applicable laws, and will depend on our financial condition, results of operations, capital stock nor do we anticipate paying any such cash dividends in the foreseeable future.

Securities Authorized for Issuance Under Equity Compensation Plans

The following table sets forth the aggregate informationrequirements, general business conditions and other factors that our Board of our equity compensation plans in effect as of December 31, 2017:

Plan Number of Securities to be Issued upon Exercise of Outstanding Options and Rights  Weighted Average Exercise Price of Outstanding Options and Rights  Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (excluding securities reflected in first column 
          
Equity Compensation Plans approved by security holders - 2010
Stock Incentive Plan		  158,200  $4.20   - 
             
Equity Compensation Plans approved by security holders - 2011
Stock Incentive Plan		  22,500  $7.00   - 
             
Equity Compensation Plans approved by security holders - 2012
Stock Incentive Plan		  2,175,357  $7.70   - 
             
Equity Compensation Plans approved by security holders - 2013
Stock Incentive Plan		  500,000  $2.81   - 
             
Equity Compensation Plans approved by security holders - 2014
Stock Incentive Plan		  3,700,000  $2.50   - 
             
Equity Compensation Plans approved by security holders - 2016
Stock Incentive Plan		  500,000  $6.37   0 
             
Equity Compensation Plans approved by security holders - 2017
Stock Incentive Plan		  5,000,000  $5.01   3,562,971 
   12,056,057       3,562,971 

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Directors may deem relevant.


Unregistered

Recent Sales of EquityUnregistered Securities

On January 10, 2017, the Company entered into a Securities Purchase Agreement with Joseph T. Lukens (“Lukens”) providing for the sale by the Company to Lukens and Use of a 6% Convertible Debenture in the aggregate amount of $2,000,000 (the “Lukens Debenture”) in consideration of $2,000,000. The financing closed on January 10, 2017. On January 27, 2017, the Company and Lukens entered into a Conversion Agreement pursuant to which Lukens agreed to convert his outstanding 6% Convertible Debenture in the principal amount of $2,000,000 plus interest into shares of common stock of the Company at the offering price of the Company’s public offering.

Proceeds


During the year ending December 31, 2017, no warrants were exercised.

During the yearquarter ended December 31, 2017, employees and members of2023, the Board of Directors exercised options into 964,525Company issued 228,650 shares of common stock of the Company. During the year ended December 31, 2017, the Company granted options to acquire 1,900,000 shares ofits common stock to employees and members ofMitsubishi as payment for services rendered in connection with the Board of Directors.

In November 2017, Prefix Corporation converted an existing Accounts Payable Liability of $1,034,539 into 272,247 shares of Common Stock at a price per share of $3.80. In addition,Stables by Workhorse program, relying on the Company issued Prefix Corporation 130,000 shares of common stock valued at $3.80 per share for modeling and mule services as well as consulting services associated with USPS support, component sourcing and integration services needed for the chassis sub-assembly contractor. 

The offers, sales, and issuances of the securities described above were deemed to be exempt from registrationexemption set forth under the Securities Act in reliance on Section 4(a)(2) of the Securities Act or Regulation D promulgated thereunder as transactionsAct.

Purchases of Equity Securities by an issuer not involving a public offering. The recipientsthe Issuer

During the quarter ended December 31, 2023, no shares of securities in each of these transactions acquiredour common stock were repurchased by the securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the securities issued in these transactions. Each of the recipients of securities in these transactions was an accredited or sophisticated person and had adequate access, through employment, business or other relationships, to information about us.

Company.

ITEM 6. SELECTED FINANCIAL DATA

YEARS ENDED DECEMBER 31, 2017  2016  2015 
OPERATING SUMMARY         
Sales $10,846,460  $6,414,800  $139,980 
Net loss $(42,239,231) $(19,555,868) $(9,426,853)
Basic and diluted loss per share $(1.09) $(0.78) $(0.55)
Shares used in per share calculation  38,755,796   25,201,261   17,293,394 
             
FINANCIAL POSITION SUMMARY            
Total assets $16,118,857  $10,239,793  $14,641,728 
Cash and cash equivalents $4,069,477  $469,570  $7,677,163 
Total current assets $10,310,840  $3,916,668  $10,905,369 
Total current liabilities $11,919,855  $4,334,390  $18,424,863 
Net working capital $(1,609,015) $(417,722) $(7,519,494)
Stockholders’ equity (deficit) $2,489,121  $3,816,974  $(3,783,135)
Common stock outstanding  41,529,181   27,578,864   18,204,923 
             
CASH FLOW SUMMARY            
Net cash used by operations $(38,662,541) $(19,034,163) $(8,220,232)
Net cash used by investing activities $(143,355) $(528,095) $(65,226)
Net cash provided by financing activities $42,405,803  $12,354,665  $15,520,363 
Net increase (decrease) in cash and equivalents $3,599,907  $(7,207,593) $7,234,905 

Note: Share and per share data adjusted for reverse stock split

[RESERVED]

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


The following discussion and analysis should be read in conjunction with ourthe consolidated financial statements and the related notes that appearincluded elsewhere in this Annual Report on Form 10-K

10-K.

Overview and 20172023 Highlights

We are a technology company


During 2023, we were focused on providing sustainableour goals of launching new vehicle platforms, increasing our vehicle production and cost-effective solutionscapacity, increasing the affordability of our vehicles, and developing plans for our next generation of products. We continue to focus on product quality, manufacturing capacity and operational planning, as well as engineering and design to enable increased deliveries and deployments of our products and future revenue growth. In addition to our ongoing production ramp in 2023, we intend to continue to generate demand and brand awareness by demonstrating our vehicles’ performance and functionality. During the period, we began executing our revised strategic product roadmap for our electric vehicle delivery offerings. The foundation of this plan is the development of a new truck chassis platforms, the W56, which entered production during the year.

Commercial Vehicles

In 2023, we launched the production of two new delivery EVs, the W750 and W56, highlighting our continued success in executing our revised strategic product roadmap for our electric vehicle delivery offerings. The foundation of this plan is the development of the W56 truck chassis platform. The W56 is our first fully-designed, purpose-built Class 5/6 model chassis platform built from the ground up, is an EV-space leading vehicle which provides a unique blend of high reliability, quality, and serviceability. The zero-emission delivery work truck is designed to meet the challenging demands of the commercial transportation sector. Asvehicle industry, supporting benchmark payload capacity of up to approximately 10,000 pounds and with a range of up to 150 miles. The W56 step van also offers a large 1,000+ cubic foot cargo box with lowered step-in and wide cabin door for easier entry and exit. During 2023, we were focused on bringing our existing W56 vehicles into full compliance with Federal Motor Safety Vehicle Standards (“FMVSS”), which we achieved. Our product roadmap also includes the WNext platform, which will be our second generation, low floor, advanced content offering and is expected to begin production in late 2025 or 2026.

In 2023, we continued producing and selling the W4 CC and delivered the first units of the W750, despite unforeseen production and supply issues affecting the W4 CC and W750 vehicles, which have been resolved. The W4 CC is a Class 4 vehicle, under the Workhorse brand and with Workhorse after sales and support service, providing us with an American manufacturer,accelerated time-to-market for customers seeking delivery of electric vehicles. We also launched and started selling the step van version, known as the W750, which has approximately 750 cubic foot capacity and will feature up to 150 miles of all-electric range, with a payload capacity of five thousand pounds.

Aero

During 2023, we designentered our third program with the NRCS to demonstrate our ability to provide small UAS DaaS to support NRCS efforts. We started this program as a small pilot in 2021. After over two years of working with the NRCS, farmers and build high performance battery-electric vehiclesranchers, we have developed data products that help underserved farmers and aircraft that make movementranchers providing LiDar data to stakeholders in reports they can use to increase the efficiency of people and goods more efficient and less harmful to the environment.their land. As part of the pilot program, we offer small UAS services, including monitoring via drone, data procurement and analytics, allowing expedited information delivery, increased safety, cost-effective, and increase fidelity of the data gathered, creating a more efficient procedure.

In 2023, we developed and launched the production of two product lines of small UAS. During the first quarter of 2024, we have made the decision to fully transition from a design and manufacturing drone business to DaaS. This transition resulted in, among other things, our solution,stopping production and development of both product lines and the termination of employees who performed the related work.

Certified Dealer Program

During 2023, we continued to add dealers to our Certified Dealer Program, expanding the official network of verified dealers trained to safely repair and maintain the electric components of our vehicles into new states to support our customers. The Certified Dealer Program allows us to establish a comprehensive training program enabling dealers to safely assist customers with vehicle maintenance in addition to providing strategies for vehicle deployment into their fleets. To ensure high quality vehicle maintenance, Workhorse certified dealers have also develop cloud-based, real-time telematics performance monitoring systemsmade investments in electric vehicle charging infrastructure,
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tooling, and building out spare parts inventory. The Certified Dealer Program is designed to provide a strong foundation of safety and reliability in our vehicles for both our dealers and end customers. Our California dealers are eligible to participate in the CARB HVIP as a result of our recent approval by CARB to participate as an intermediate-stage manufacturer.

Vehicle Credits and Certifications

During 2023, we became certified and obtained several state and federal voucher and tax credit incentive programs supporting the sale of our EV products. All of our MY 2023/2024 Class 4 - 6 products received approval under the New York Truck Voucher Incentive Program (“NYTVIP”) with voucher amounts ranging from $100,000 - $125,000 for eligible vehicles.

We also received IRS approval as a qualified manufacturer for the Commercial Clean Vehicle Credit as defined in 30D(d)(3) of the Internal Revenue Code. With this approval, Workhorse customers are eligible to receive up to a $40,000 credit for deliveries of all Workhorse vehicles in 2023 and beyond.

During 2023, CARB approved Workhorse's application to participate in the HVIP with its W4CC and W750 work trucks. Workhorse received this approval as part of a first-of-its-kind program that enableallows vehicle modifiers to list their vehicles directly with HVIP. Workhorse will be the first company to participate in the program. These Workhorse vehicles are listed on the HVIP website and we have our own manufacturer's pool for the trucks. We additionally received approval for the W56 Step Van to participate in the HVIP program in late Q4 of 2023 and, as such, all Workhorse vehicles are now eligible for the program.

Stables by Workhorse

During 2023, we continued to electrify the fleet of vehicles being used to operate the FedEx delivery route in the greater Cincinnati area of Ohio known as Stables by Workhorse. The electrification of the fleet will provide us with firsthand data on of the challenges and benefits of independent fleet operators experience while executing last-mile delivery operations. The initiative also provides valuable insights into how our customers can plan for and manage the transition to optimize energyEV, including how to develop adequate charging infrastructure, training and route efficiency. Althoughmaintenance services.

Securities Litigation and Shareholder Derivative Litigation

On July 24, 2023, the U.S. District Court for the Central District of California entered an order granting final approval of the Stipulation of Settlement entered into by the parties to the Securities Litigation on January 13, 2023. Pursuant to the Stipulation of Settlement, in exchange for a release of all claims and dismissal with prejudice of the Securities Class Action, the Company agreed to create a settlement fund with an escrow agent (the “Settlement Fund”), consisting of $15 million in cash and $20 million in shares of common stock of the Company (the “Settlement Shares”) from which class members would receive payment.

On June 21, 2023, the State District Court of Nevada granted final approval of the settlement of the Shareholder Derivative Litigation. Under the terms of the settlement, the Company will receive $12.5 million of the $15.0 million described above from the Company’s directors and officers insurers and will, in turn, deliver the $12.5 million in connection with the settlement of the Securities Litigation. The Company has also agreed to adopt various corporate governance changes. The parties agreed to a $4.0 million fee to the derivative plaintiffs’ attorneys, $3.5 million of which is payable by the D&O insurers and $0.5 million of which was payable by the Company.

During the third quarter of 2023, we operateissued 25.4 million shares of common stock in settlement of our previously disclosed securities class action litigation, pursuant to the stipulation of settlement. For further information regarding the Shareholder Derivative Litigation and the settlement thereof, please see Note 15, “Commitments and Contingencies – Legal Proceedings – Shareholder Derivative Litigation” included in Item 8 of this Annual Report on Form 10-K.

High Trail Securities Purchase Agreement and Amendment

On December 27, 2023 (the “Closing Date”), the Company consummated the transactions contemplated by the previously disclosed securities purchase agreement (the “Securities Purchase Agreement”) entered into with High Trail Special Situations LLC (the “Investor”) on December 12, 2023. On the Closing Date the Company issued and sold in a registered public offering by the Company directly to the Investor (the “Offering”) a (i) green senior secured convertible note for the principal amount of $20.0 million (the “Note”) that is convertible into common stock and (ii) warrant (the “Warrant”) to purchase 25,601,639 shares of common stock. The Note was issued pursuant to an indenture (the “Base Indenture”) and supplemental indenture (the
23

“Supplemental Indenture” and together with the Base Indenture, the “Indenture”) that the Company entered into with U.S. Bank Trust Company, National Association, as trustee, on the Closing Date.

The Securities Purchase Agreement permits, but does not require, the Company to issue up to $20.0 million of additional pari passu notes (the “Additional Note”) on substantially the same terms as the Notes, on the terms and subject to the conditions set forth in the Securities Purchase Agreement. If the Company issues any Additional Note, it will also be required to issue warrants (“Additional Warrants”) on substantially the same terms as the Warrant, on the terms and subject to the conditions set forth in the Securities Purchase Agreement.

The Note was issued with original issue discount of 12.5%, resulting in $17.5 million of proceeds to the Company before fees and expenses. The Note’s stated maturity date is October 1, 2026, and the Note provides that the Investor may, at its option, require us to redeem up to 12.5% of the original principal amount of the Note in cash on the 1st and 15th of each month beginning on January 1, 2024. Accordingly, we expect that the full principal amount of the Note will be recorded on our balance sheet as a single unit through ourshort-term liability. The Note will be a senior secured obligation of the Company and rank senior to all unsecured debt of the Company. The Company’s obligations under the Note will be guaranteed by all of its subsidiaries, we approach our development through two divisions, Automotive and Aviation. Our core products, under development and/or in manufacture, arepursuant to a certain subsidiary guaranty entered into on the last mile step and cargo vans,Closing Date between the W-15 pickup truck, the delivery droneCompany, each of its subsidiaries and the manned multicopter, SureFly.

Workhorse electric delivery vans are currentlyInvestor in productionits capacity as collateral agent (the “Collateral Agent”) (the “Guaranty”). The Note will initially be secured by substantially all the assets of the Company and areits subsidiaries, pursuant to a security agreement entered into between the Company, each of its subsidiaries and the Collateral Agent (the “Security Agreement”). The Note will not bear interest, other than default interest, if any.


The Note is convertible into common stock at a conversion price equal to $0.5178 (the “Conversion Price”), subject to customary adjustments for certain corporate events. The Investor may also elect to receive redemption payments in use by our customers on U.S. roads. Our delivery customers include companies such as UPS, FedEx Express, Alpha Baking and WB Mason. Data from our in-house developed telematics system demonstrates our vehiclesthe form of common stock on the road are averaging approximately a 500% increaseconversion terms provided in fuel economy as comparedthe Note. Subject to conventional gasoline-based truckscertain conditions, the Company can require the Investor to convert the Note at any time if the Daily VWAP (as defined below) of the same sizeCompany’s common stock exceeds 175% of the Conversion Price on each of the immediately preceding 20 consecutive trading days.

The Investor also may require us to redeem the Note in cash in full upon (i) a change of control or other fundamental change at the Company, as described in the Note, at a premium equal to the greater of (a) 115% of the Conversion Value (as defined below) and duty cycle.

(b) 105% of the outstanding principal amount of the Note, plus any accrued and unpaid default interest, or (ii) an event of default under the terms of the Note at a premium equal to the greater of (a) 115% of the Conversion Value and (b) 115% of the outstanding principal amount of the Note, plus any accrued and unpaid default interest. As used herein, “Conversion Value” means the outstanding principal amount of the Note, plus any accrued and unpaid default interest, divided by the Conversion Price multiplied by the highest daily volume weighted average price for our common stock (the “Daily VWAP”) in the 30 trading days preceding the applicable triggering event.


The Note contains customary affirmative and negative covenants, including certain limitations on debt, liens, restricted payments, asset transfers, changes in the business and transactions with affiliates. It also requires the Company to at all times maintain minimum liquidity of the lesser of (i) $10.0 million and (ii) the then aggregate outstanding principal amount under the Notes and any Additional Notes in a deposit account under the control of the collateral agent. Further, it requires the Company to reserve unissued shares for issuance upon conversion or exercise of all Notes and Warrants, and any Additional Notes and Additional Warrants, if issued, in a number equal to the sum of (A) the greater of (i) 150% of (x) the principal amount outstanding under all Notes and any Additional Notes plus all interest accruable on such outstanding principal amount through the Maturity Date divided by the Daily VWAP for our common stock on such applicable determination date and (ii) the maximum number of shares issuable upon the full conversion of all Notes then outstanding and (B) the maximum number of shares issuable upon the full exercise of the Warrants and any Additional Warrants then outstanding. In addition, the Note requires that the Company have cash and cash equivalents of at least (x) $25.0 million on December 31, 2023, (y) $13.5 million on January 31, 2024, and (z) of $20.0 million on February 29, 2024. In the event of a default or event of default under the Note, the Note would accrue default interest at a rate of 15.0% per annum (“Default Interest”) until such default is cured and all outstanding Default Interest has been paid. In addition, in the event we consummate a sale and leaseback transaction with respect to the real property where our Union City plant is located, the Investor may, at its option, require us to use up to half of the proceeds we receive in such a sale leaseback transaction to redeem outstanding principal under the Note.

The exercise price per share of common stock under the Warrant, which has since been cancelled, as discussed below, was $0.4492, which was equal to 115% of the Nasdaq Minimum Price on the date of the Securities Purchase Agreement, subject to adjustments for certain corporate events. The Warrant was immediately exercisable and expires three years after the Closing Date. The Investor had a purchase right that allows the Investor to participate in transactions in which the Company issues or
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sells certain securities or other property to holders of the Company’s common stock (the “Purchase Rights”). The Purchase Rights allowed the Investor to acquire, on the terms and conditions applicable to such Purchase Rights, the aggregate Purchase Rights which the Investor would have been able to acquire if the Investor held the number of shares of common stock acquirable upon exercise of the Warrant. In the event of a Fundamental Transaction (as defined in the Warrant) that is not a change of control or corporate event as described in the Warrant, the surviving entity would have been required to assume the Company’s obligations under the Warrant. In addition, if the Company had engaged in certain transactions that result in the holders of the common stock receiving consideration, a holder of the Warrant would have had the option to either (i) exercise the Warrant prior to the consummation of such transaction and receive the consideration to be issued or distributed in connection with such transaction or (ii) cause the Company to repurchase the Warrant for its then Black-Scholes Value.

In addition to improved fuel economy, we anticipatethe $7.5 million principal amount of the Note previously redeemed by the Company on the Partial Redemption Dates (as defined in the Note) provided in the Note, on February 29, 2024, the Company entered into a First Amendment to Green Senior Secured Convertible Note Due 2026 (the “Note Amendment”) with the Holder pursuant to which (i) the Company redeemed $10.0 million principal amount of the Note using funds in a controlled account that had been pledged as collateral securing the Company’s obligations under the Note, thereby reducing the outstanding principal amount of the Note to $2.5 million, and (ii) the parties amended the Note to remove February 15, 2024 and March 1, 2024 as Partial Redemption Dates, permit the Company to prepay the Note at its option, subject to certain conditions, and delete the minimum liquidity covenant. In connection with the Note Amendment, the Company entered into a letter agreement (the “Exchange Agreement”) whereby the Company exchanged the Warrant with the Holder for a total of 8.5 million shares of common stock, whereupon the Warrant was cancelled (the “Exchange”). The Exchange was made pursuant to the exemption registration provided under Section 3(a)(9) of the Securities Act.

Lincoln Park Capital Purchase Agreement

On December 12, 2023, the Company entered into a purchase agreement (the “Purchase Agreement” or the “ELOC”) with Lincoln Park Capital Fund, LLC (the “Purchaser”) (each, a “Party”, and together, the “Parties”), which provides that, upon the terms and subject to the conditions and limitations set forth therein, the Company may sell to the Purchaser up to $50.0 million of shares (the “Purchase Shares”) of common stock over the 24-month term of the Purchase Agreement. Concurrently with entering into the Purchase Agreement, the Company also entered into a registration rights agreement with the Purchaser, pursuant to which it agreed to provide the Purchaser with certain registration rights related to the shares issued under the Purchase Agreement (the “Registration Rights Agreement”).

For a period of up to 24 months after the satisfaction of the conditions set forth in the Purchase Agreement, the Company has the right, but not the obligation, on any business day selected by the Company (the “Purchase Date”), provided that on such day the closing sale price per-share of the common stock is above the Floor Price, as defined in the Purchase Agreement, to require the Purchaser to purchase up to 1.0 million shares of common stock (the “Regular Purchase Amount”) at the Purchase Price (as defined below) per purchase notice (each such purchase, a “Regular Purchase”) provided, however, that the performancelimit on the Regular Purchase Amount will be increased to (i) 1.25 million, if the closing sale price of our vehicles on-route will reduce long-term vehicle maintenance expense by approximately 50% as comparedthe common stock on the applicable Purchase Date is not below $0.40 and (ii) 1.5 million shares, if the closing sale price of the common stock on the applicable Purchase Date is not below $0.50. The purchase price for Regular Purchases (the “Purchase Price”) shall be equal to fossil-fueled trucks.

In March97.5% of 2013, we purchased the former Workhorse Custom Chassis assembly plantlower of (i) the lowest Sale Price (as defined in Union City, Indiana from Navistar International (NAV: NYSE). With this acquisition, we acquired the capabilityPurchase Agreement) on the Purchase Date (as defined in the Purchase Agreement) for such Regular Purchase and (ii) the arithmetic average of the three (3) lowest Closing Sale Prices (as defined in the Purchase Agreement) for the common stock during the ten (10) consecutive business days ending on the business day immediately preceding such Purchase Date for such Regular Purchase (in each case, to be appropriately adjusted for any reorganization, recapitalization, non-cash dividend, stock split, reverse stock split or other similar transaction that occurs on or after the date of the Purchase Agreement). The Company shall have the right to submit a Regular Purchase notice to the Purchaser as often as every business day. A Regular Purchase notice is delivered to the Purchaser after the market has closed (i.e., after 4:00 P.M. Eastern Time) so that the Purchase Price is always fixed and known at the time the Company elects to sell shares to the Purchaser.


In addition to Regular Purchases and provided that the Company has directed a Regular Purchase in full, the Company in its sole discretion may require the Purchaser on each Purchase Date to purchase on the following business day (“Accelerated Purchase Date”) up to the lesser of (i) three (3) times the number of shares purchased pursuant to such Regular Purchase or (ii) an Original Equipment Manufacturer (OEM)amount equal to (A) the Accelerated Purchase Share Percentage (as defined in the Purchase Agreement) multiplied by (B) the total number (or volume) of Class 3-6 commercial-grade, medium-duty truck chassis,shares of common stock traded on the Principal Market (as defined in the Purchase Agreement) during the period on the applicable Accelerated Purchase Date (as defined in the Purchase Agreement) beginning at the Accelerated Purchase Commencement Time (as defined in the Purchase Agreement) for such Accelerated Purchase and ending at the Accelerated Purchase Termination Time (as defined in the Purchase Agreement) for such Accelerated Purchase (the
25

“Accelerated Purchase”) at a purchase price equal to the lesser of 97% of (i) the closing sale price on the Accelerated Purchase Date, or (ii) the Accelerated Purchase Date’s volume weighted average price (the “Accelerated Purchase Price”).

The Company may also direct the Purchaser, on any business day on which an Accelerated Purchase has been completed, to make additional purchases upon the same terms as an Accelerated Purchase (an “Additional Accelerated Purchase”).

The purchase price of Regular Purchases, Accelerated Purchases and Additional Accelerated Purchases and the minimum closing sale price for a Regular Purchase will be adjusted for any reorganization, recapitalization, non-cash dividend, stock split or other similar transaction occurring during the business days used to compute the purchase price. The aggregate number of shares that the Company can sell to the Purchaser (including the Commitment Shares) at or below the price of $0.3906 per share under the Purchase Agreement may in no case exceed 52,151,507 shares (subject to adjustment as described above) of common stock (which is equal to approximately 19.99% of the shares of the common stock outstanding immediately prior to the execution of the Purchase Agreement) (the “Exchange Cap”), unless shareholder approval is obtained to issue Purchase Shares above the Exchange Cap, in which case the Exchange Cap will no longer apply, in accordance with Nasdaq Capital Market rules.

The Purchase Agreement contains customary representations, warranties, covenants, closing conditions, indemnification and termination provisions. The Company is not permitted to make sales under the Purchase Agreement during the pendency of certain “Suspension Events,” including the unavailability of an effective registration statement for the sale of Purchase Shares by the Company or the Purchaser.

The Purchase Agreement may be terminated by the Company at any time, at its sole discretion, without any cost or penalty, by giving one business day’s notice to the Purchaser to terminate the Purchase Agreement. The Purchaser has covenanted not to cause or engage in any manner whatsoever, any direct or indirect short selling or hedging of the common stock. In connection with the execution of the Purchase Agreement, the Company issued 3,775,105 shares of common stock to the Purchaser as a fee for its commitment to purchase shares of common stock under the Purchase Agreement (the “Commitment Shares”).

There are no restrictions on future financings, rights of first refusal, participation rights, penalties or liquidated damages in the Purchase Agreement or Registration Rights Agreement, other than a prohibition (with certain limited exceptions) on entering into specified Variable Rate Transactions (as defined in the Purchase Agreement) for the period specified in the Purchase Agreement.

The issuance of the Purchase Shares and Commitment Shares have been registered pursuant to the Company’s effective shelf registration statement on Form S-3 (File No. 333-273357) (the “Registration Statement”), and the related base prospectus included in the Registration Statement, as supplemented by a prospectus supplement to be marketed underfiled on or around the Workhorse® brand. All Workhorse last mile delivery vans are assembledCommencement Date (as defined in the Union City assembly facility.

From our development modelingPurchase Agreement).


The Purchase Agreement and Registration Rights Agreement contain customary representations and warranties, covenants and indemnification provisions that the parties made to, and solely for the benefit of, each other in the context of all of the terms and conditions of such agreements and in the context of the specific relationship between the parties thereto. The provisions of the Purchase Agreement and the existing performanceRegistration Rights Agreement, including any representations and warranties contained therein, are not for the benefit of our electric vehicles on American roads,any party other than the parties thereto and are not intended as documents for investors and the public to obtain factual information about the current state of affairs of the parties thereto. Rather, investors and the public should look to other disclosures contained in the Company’s annual, quarterly and current reports it may file with the Securities and Exchange Commission.

Investment in Tropos Technologies, Inc

We have a minority ownership investment in Tropos Technologies, Inc. (“Tropos”) which was obtained during the third quarter of 2022 in exchange for a cash payment of $5.0 million and a $5.0 million contribution of non-cash consideration representing a deposit from Tropos for future assembly services under an Assembly Services Agreement. During the third quarter of 2023, we estimatedetermined that our E-GEN Range-Extended Electric delivery vans will save over $150,000investment in fuelTropos was impaired based on the economic conditions and maintenance savings overuncertainties that have significantly affected Tropos' performance and financial position. The impairment charge recognized for our investment is $10.0 million, which represents the 20-year lifedifference between the original cost of the vehicle. Dueinvestment and its fair value as of the impairment assessment date. Despite the impairment, we continued to the positive return-on-investment, we place a premium price for our vehicles when selling to major fleet buyers. We expect that fleet buyers will be able to achieve a four-year or better return-on-investment (without government incentives), which we believe justifies the higher acquisition cost of our vehicles.

We believe that we are the only medium-duty battery-electric OEM in the U.S.perform assembly services.



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Management Opportunities, Challenges, Risks and we will be introducing additional light-duty electric and range-extended electric vehicles in late 2018 and 2019.

Our goal is to2024 Outlook


We continue to increase salesseek opportunities to grow the business organically, and production, while executing on our cost-down strategy to a point that will enable us to achieve gross margin profitability of the last mile-delivery van platform. As a key strategy, we have begun development of the Workhorse N-GEN platform, which has been accelerated from our development efforts on the USPS NGDV program.

The Workhorse N-GEN electric cargo van platform will be available in multiple size configurations, 500, 700by expanding relationships with existing and 1,000 cubic feet. We intend to initiate the launch with the 500 cubic foot configuration where it is designed to compete with the Sprinter, Transit and RAM gasoline/diesel trucks in the commercial sector with an emphasis on last-mile delivery and other service-oriented businesses, such as telecom. This ultra-low floor platform incorporates state-of-the-art safety features, economy and performance: we expect these vehicles to achieve a fuel economy of approximately 60 MPGe, and offer fleet operators the most favorable total cost-of-ownership of any comparable vehicle available today.new customers. We believe we are well positioned to take advantage of long-term opportunities and continue our efforts to bring product innovations to market.


Recent Trends and Market Conditions

We continue to monitor macroeconomic conditions to remain flexible and to optimize and evolve our business as appropriate, and we will have to accurately project demand and infrastructure requirements globally and deploy our production, workforce and other resources accordingly. For more detailed descriptions of the first American OEMimpact and risks to market a U.S. builtour business, please see certain risk factors described in Part I, Item 1A, Risk Factors in this Annual Report on Form 10-K.

Market Demand. Sales performance during 2023 was down largely due to slower-than-anticipated industry wide electric cargo van,vehicle adoption rates and early indicationslack of fleet interestgovernment subsidies and incentives available to our dealers as well as slower than expected roll-out of additional power to electric grids and the resulting effect on roll-outs of electric vehicle charging infrastructure, nationwide. However, we expect adoption rates to accelerate through 2024 driven by more stringent state and federal emissions requirements and continued government subsidies and incentives that will continue to reduce cost barriers for EV ownership, including the approval for our W56 platform for the HVIP program through CARB, providing an $85,000 base voucher per W56 vehicle purchased.

Commodities. Prices for commodities remain volatile, and we expect to experience price increases for base metals and raw materials that are significant.used in batteries for electric vehicles (e.g., lithium, cobalt, and nickel) as well as steel, aluminum and other material inputs. Global demand and differences in output across sectors have generated divergence in price movements across different commodities. We expect the N-GEN trucksnet impact on us overall will be supported byhigher material costs.

Inflation. Inflation continues to impact our Ryder Systems partnership.

Asoperations, resulting from both supply and demand imbalances as economies continue to face constraints as well as the impact on the availability and cost of energy and other commodities as a direct result of the USPS awardongoing conflicts in Ukraine and development efforts, Workhorse has begun developmentIsrael. We are seeing a near-term impact on our business due to inflationary pressure. In an effort to dampen inflationary pressures, central banks have continued to raise interest rates which will likely raise the Workhorse W-15, a medium- and light-duty pickup truck platform aimed at commercial fleets. The W-15 pickup truck powertrain is a smaller versioncost of its sister vehicle,any financing the medium-duty battery electric powertrain, and will have two purpose-built variants, a W-15 work truck (pickup) and an N-GEN cargo van. Either of these two variants will appeal to delivery fleets, utility companies, telecom companies, municipalities and more.

Our HorseFly Delivery Drone is a custom designed, purpose-built drone that is fully integrated in our electric trucks. HorseFly is an octocopter designed with a maximum gross weight of 30 lbs., a 10 lb. payload and a maximum air speed of 50 mph. It is designed and built to be rugged and consisting of redundant systems to further meet the FAA’s required rules and regulations.

SureFly is our entry into the emerging VTOL market. It is designed to be a two-person, 400-pound payload aircraft with a hybrid internal combustion/electric power generation system. Our approachCompany may undertake in the design is to build the safestfuture.


The following section provides a narrative discussion of our financial condition and simplest way to fly rotary wing aircraftresults of operations. The comments should be read in the world. We believe it is a practical answer to personal flight, as well as, commercial transportation segments, including air taxi series, agricultureconjunction with our Consolidated Financial Statements and beyond.

The FAA to-date has granted three separate Workhorse Inc. Aerospace team an Experimental Airworthiness Certifications, registered as N834LW, for the aircraft. These certifications come after an extensive design review and inspectionrelated Notes thereto included in Part II of the aircraft with each renewed certificate.

We continue to leverage our knowledge of high-voltage battery packs, electric motor controls, software and range extending generators to design a multicopter that can carry a pilot and passenger.

this Annual Report on Form 10-K.

Results of Operations

Our condensed consolidated statementstatements of operations data forfinancial information is as follows:
For the Years Ended December 31,
20232022
Sales, net of returns and allowances$13,094,752 $5,023,072 
Cost of sales38,350,545 37,672,308 
Gross loss(25,255,793)(32,649,236)
Operating expenses
Selling, general and administrative55,574,740 73,220,088 
Research and development24,467,933 23,213,540 
Total operating expenses80,042,673 96,433,628 
Loss from operations(105,298,466)(129,082,864)
Interest expense, net(8,731,247)(1,837,882)
Other (loss) income(10,000,000)13,646,528 
Loss before for income taxes(124,029,713)(117,274,218)
Benefit from income taxes(110,524)— 
Net loss$(123,919,189)$(117,274,218)

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Revenue
Sales increased $8.1 million in the period presented follows:

  Years Ended
December 31,		 
  2017  2016 
       
Sales $10,846,460   6,414,800 
         
Cost of Sales  24,516,863   13,578,262 
Gross loss  (13,670,403)  (7,163,462)
         
Operating Expenses        
Selling, general and administrative  10,328,211   6,202,569 
Research and development  18,060,180   6,145,801 
Total operating expenses  28,388,391   12,348,370 
         
Interest expense, net  180,437   44,036 
         
Net loss $(42,239,231) $(19,555,868)
         
Basic and diluted loss per share $(1.09) $(0.78)
         
Weighted average number of common shares outstanding  38,755,796   25,201,261 

Revenue

Sales for the yearsyear ended December 31, 20172023 as compared to the year ended December 31, 2022, primarily due to an increase in W4 CC volumes. The W750 and 2016 were $10.8W56 products, which launched in 2023, Stables by Workhorse and drones as a service also contributed to the increase.

Cost of Sales
Cost of sales includes direct and indirect materials, labor costs, manufacturing overhead, including depreciation costs of tooling and machinery, shipping and logistics costs, and reserves for estimated warranty expenses. Cost of sales also includes charges to write down the carrying amount of tooling and machinery when it exceeds the fair value of the asset or asset group, charges to write down the carrying value of our inventory when it exceeds its estimated net realizable value and to provide for obsolete and on-hand inventory in excess of forecasted demand.
Cost of sales increased $0.7 million in the year ended December 31, 2023 as compared to the year ended December 31, 2022. The increase was primarily due to increased production and $6.4 million, respectively, wereoverhead costs to support higher sales volumes related to deliverynew vehicle platforms and an increase in employee compensation and related expenses compared to 2022 levels. This increase was partially offset by a decrease in inventory reserves, adjustments and disposals, which was driven by the disposition of the production vehicles for UPS and other customers.

C-Series inventory in 2022.

Selling, General and Administrative Expenses

Selling, general and administrative (“SG&A”) expenses generally consist primarily of personnel and facilities costs related to our development including,sales, marketing, sales, executive, finance, human resources, information technology and legal organizations as well as fees for professional legal and contract services.

services and litigation settlements.

SG&A expenses during year ended December 31, 2017 were $10.3decreased $17.6 million an increase from $6.2 million forin the year ended December 31, 2016.2023 as compared to the year ended December 31, 2022. The decrease was driven by a $25.2 million decrease in expenses attributable to the securities and derivative litigation settlements and legal expenses recognized in the same period last year. This decrease was partially offset by a $3.0 million increase in employee compensation and related expenses, including non-cash stock-based compensation expense, a $2.1 million increase in professional and other services expenses, a $0.9 million impairment of our SG&A expenses consisted primarily of employee salariesleased Aero facility and benefits, consulting and investor relations, due to the increased activitya $0.6 million increase in the period.

corporate insurance expenses.


Research and Development Expenses

Research and development (“R&D”) expenses consist primarily of personnel costs for our teams in engineering and research, manufacturing engineering and manufacturing test organizations, prototyping expense, and contract and professional services.

R&D expenses duringincreased $1.3 million in the year ended December 31, 2017 were $18.1 million,2023 as compared to the year ended December 31, 2022.
The increase was primarily driven by an increase of $1.4 million in employee compensation and related expenses and a $0.8 million increase in development expenses for new products. These increases were partially offset by a $1.4 million decrease in consulting expenses.
Other Loss (Income)

Other loss for the year ended December 31, 2023 was $10.0 million as compared to $13.6 million other income for the year ended December 31, 2022. Other loss in the current period represents the impairment of our investment in Tropos. Other income in the prior year represents proceeds from $6.1the sale of C-Series inventory that was previously fully reserved.
Interest Expense, Net

Net interest expense for the year ended December 31, 2023 was $8.7 million as compared to $1.8 million for the year ended December 31, 2016. The R&D expenses consisted2022. Net interest expense in the current year was driven by a fair value adjustment of our convertible notes and warrants of $8.3 million and $2.1 million fees paid in connection with the Securities Purchase Agreement and Equity Line of Credit Purchase Agreement (“ELOC”), offset by interest earned on cash balances in our money market investment accounts. Net interest expense in the prior year was primarily in employee salaries and benefits, consulting and materials related to the start$1.4 million of the Next Generation Delivery Vehicles (NGDVs), and Pick-up truck projects and the manned Multicopter.

Interest Expenses

Ourfair value adjustments, $0.3 million of contractual interest expense, is incurred primarily fromand $0.4 million of loss on conversion of our mortgage onformer convertible notes, which were exchanged for shares of our common stock during 2022.

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Provision for Income Tax

For the 100 Commerce Drive, Loveland, Ohio property mentioned before inyears ended December 31, 2023 and 2022, the Long-Term Debt note to the financial statements.

Interest expenses duringCompany has taxable losses and therefore no provision for income tax has been recorded. During the year ended December 31, 2017 were $180 thousand, an increase from $44 thousand2023, we did receive $(0.1) million for the return of a prior year tax provision.

Liquidity and Capital Resources; Going Concern
We had $13.1 million of sales for the year ended December 31, 2016.

Liquidity and Capital Resources

Cash Requirements

From inception, we have financed our operations primarily through sales of equity securities. We have utilized this capital to date in our research and development of five truck-based platforms (i.e., E-GEN, E-100, W-15 Pickup Truck, USPS Prototype and N-GEN) and two aviation platforms (HorseFly and SureFly) designing building and delivering our vehicles to our customer base and for working capital purposes.


2023.As of December 31, 2017,2023, we had approximately $4.1total working capital of $40.5 million, including $35.8 million in cash, cash equivalents and short-term investments, as compared to approximately $0.5 million asrestricted cash, and accumulated deficit of $751.6 million. During the year ended December 31, 2016, an increase2023, we incurred a loss from operations of $3.6 million. The change was primarily attributable$105.3 million and used $123.0 million of cash in operating activities.


Our ability to increasedcontinue as a going concern is contingent upon successful execution of management’s intended plan over the next twelve months to improve the Company’s liquidity and manage working capital requirements.A vital component of such plan is the consummation of a financing activity. On January 10, 2017,in the immediate future to address these requirements in the short term.

Accordingly, the Company entered intois in the process of negotiating with potential financing sources for a Securities Purchase Agreement with Joseph T. Lukens (“Lukens”) providing forfinancing transaction that would make liquidity available both in the sale byshort term and over time. The Company intends to consummate a Possible Financing in the near future.

Although the terms of a Possible Financing remain under negotiation, the Company currently expects that any such financing would have a cost of capital materially higher than the cost of capital of its existing financing arrangements and a substantial potentially dilutive equity component, whether through a conversion feature, significant warrant coverage or both.A Possible Financing may also contain terms that limit the Company’s ability to Lukenssell common stock under its ATM Agreement and ELOC Agreement and to incur new debt.

There is no assurance that any Possible Financing will be available on any terms. If we are not able to complete a Possible Financing or find another source of a 6% Convertible Debentureliquidity in the aggregate amountimmediate future, we may be unable to continue our operations or may need to substantially reduce them.

Our ability to continue as a going concern is contingent upon successful execution of $2,000,000 (the “Lukens Debenture”) in consideration of $2,000,000. The financing closed on January 10, 2017. On January 27, 2017,management’s intended plan over the Company and Lukens entered into a Conversion Agreement pursuantnext twelve months to which Lukens agreed to convert his outstanding 6% Convertible Debenture in the principal amount of $2,000,000 plus interest into shares of common stock of the Company at the offering price ofimprove the Company’s public offering. In February 2017,liquidity and working capital requirements. We have made significant progress executing on our revised strategic product roadmap for our electric vehicle offerings, and we expect to generate additional sales within the Company completed an underwritten public offering of 6,500,000 shares ofnext twelve months which will help support our operations. Additionally, management plans to reduce its common stock at a public offering price of $3.00 per share. In addition,discretionary spend related to non-contracted capital expenditures and other expenses. However, if the underwriters have exercised an optionexpected sales are not generated and management is not able to purchase ancontrol capital expenditures and other expenses, we will continue to incur substantial operating losses and negative cash flows from operations. There can be no assurance that we will be successful in implementing our plans or acquiring additional 975,000 shares of common stock at the public offering price, less the underwriting discounts and commissions.  The net proceeds were $20.5 million. On June 22, 2017, the Company entered into an at the market issuance sales agreement with Cowen and Company, LLC under which the Company may offer and sell, from time to time at its sole discretion, shares of its common stock having an aggregate offering price of up to $25,000,000 through Cowen as its sales agent. The net proceeds from the activity in 2017 under the sale agreement was $3.5 million. On December 26, 2017, as part of its initial efforts to spin-off SureFly, the Company entered into a Securities Purchase Agreement with several existing institutional investors pursuant to which the company issued original issue discount Senior Secured Notes in the aggregate principal amount of $5,750,000 in consideration of gross proceeds of $5,000,000 paid by the Spin-Off Investors.

We believefunding, that our existingprojections of our future capital resources and access to capital through our sales agreement with Cowenneeds will prove accurate, or that any additional funding would be sufficient to support our current and projected funding requirements, into the second quarter of 2018. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect. Because of the numerous risks and uncertainties associated with the development of our business and research and development activities, including risks and uncertainties that could impact the rate of progress of our development activities, we are unable to estimate with certainty the amounts of increased capital outlays and operating expenditures.

Through December 31, 2018, we expect that we will need funding to be usedcontinue operations in our research and development activities, inventory funding and working capital. The additional funding will allow us to continue to deliver vehicles associated with existing and expected orders, further develop our N-GEN platform resulting in a “production ready vehicle” and further develop our W-15 Pickup Truck resulting in a “production intent vehicle”. Unless and until we are able to generate a sufficient amount of revenue, reduce our costs and/or enter a strategic relationship, we expect to finance future cash needs through public and/or private offerings of equity securities and/or debt financings. We do not currently have any committed future funding. To the extent we raise additional capital by issuing equity securities, our stockholders could at that time experience substantial dilution. Any debt financing that we are able to obtain may involve operating covenants that restrict our business.

years.


Our future funding requirements will depend upon many factors, including, but not limited to:

●our ability to acquire or license other technologies or compounds that we may seek to pursue;
●our ability to manage our growth;
●competing technological and market developments;
●the costs and timing

•our ability to produce our current generation of vehicles at required scale and to sell such vehicles to customers;
•our ability to acquire or license other technologies we may seek to pursue;
•our ability to manage our growth and operational expenses; and
•competing technological and market developments.

To the extent revenues from operations are insufficient to meet our liquidity requirements, our ability to continue as a going concern will be dependent on effectively raising capital through private or public placement of our equity securities, including the continued use of the ATM Agreement (as further described below), for which there can be no assurance we will be successful in such efforts. We will also rely on debt financing or other sources of capital funding such as through the sale of assets to obtain sufficient financial resources to fund our operating activities.If we are unable to maintain sufficient financial resources, our business, financial condition and results of operations, as well as our ability to continue to develop, produce and market our new vehicle programs and satisfy our obligations as they become due, will be materially and adversely affected. This could affect future vehicle program production and sales. Failure to obtain additional financing will have a material, adverse impact on our business operations. There can be no assurance that we will be able to obtain the financing needed to
29

achieve our goals on acceptable terms or at all. Additionally, any equity or equity linked financings would likely have a dilutive effect on the holdings of our existing stockholders. The Company’s current level of cash and cash equivalents are not sufficient to execute our business plan. For the foreseeable future, we will incur significant operating expenses, capital expenditures and working capital funding that will deplete our cash on hand.

Our ability to obtain additional financing is extremely limited under current market conditions including the significant amount of capital required, the Nasdaq Listing Requirements, the market price of our stock and potential dilution from the issuance of any additional securities. If we are unable to identify other sources of funding, we may need to further adjust our operations, including and up to filing a voluntary petition for relief under the Bankruptcy Code. If this were to occur, the value available to our various stakeholders, including our creditors and stockholders, is uncertain and trading prices for our securities may bear little or no relationship to the actual recovery, if any, by holders of our securities in bankruptcy proceedings, if any.

As a result of obtaining, enforcing and defending our patent and other intellectual property rights; and
●expenses associated with any unforeseen litigation.

Insufficient funds may require us to delay, scale back or eliminate some or all of the matters discussed above, including our research or development programs, limitlosses, current liquidity level and our projected capital needs, substantial doubt exists about the Company’s ability to continue as a going concern over the next twelve months from the date of issuance of the accompanying consolidated financial statements. The consolidated financial statements do not include any adjustments to the carrying amounts and classification of assets, liabilities, and reported expenses that may be necessary if the Company were unable to continue as a going concern.

Under the ATM Agreement, we may offer and sell shares of our common stock having an aggregate sales activities, limit or cease production or negatively impact our operations.

Forprice of up to $175.0 million, in amounts and at times determined by management. During the yearsyear ended December 31, 20172023, we issued 89.3 million shares under the ATM Agreement for net proceeds of $63.5 million. During the year ended December 31, 2022, we issued 4.9 million shares under the ATM Agreement for net proceeds of $12.9 million. As of December 31, 2023 we had approximately $85.6 million available through the issuance of shares of common stock under the ATM Agreement.

On December 12, 2023, the Company entered into a securities purchase agreement (the “Securities Purchase Agreement”) under which the Company issued $20.0 million principal amount of green senior convertible notes and 2016,warrants to purchase 25,601,639 shares of common stock. The convertible notes were issued with an original issue discount of 12.5%. The Company paid fees in connection with the Securities Purchase Agreement of $0.6 million, resulting in net proceeds of $16.9 million.

If consummated, a Possible Financing could impose significant restrictions on our ability to sell shares of our common stock under the ATM Agreement and the ELOC Agreement.
On December 12, 2023, the Company also entered into an equity line of credit purchase agreement (the “ELOC Purchase Agreement”) with Lincoln Park Capital Fund, LLC (the “Purchaser”) under which the Company may sell to the Purchaser up to $50.0 million of shares of common stock over the 24-month term of the ELOC Purchase Agreement. During the year ended December 31, 2023, the Company did not sell any shares of common stock pursuant to the ELOC Purchase Agreement.
For the year ended December 31, 2023, we maintained an investment portfolio primarily in a bank money market funds, U. S. treasury bills, government-sponsored enterprise securities, and corporate bonds and commercial paper.fund. Cash in excess of immediate requirements is invested with regard to liquidity and capital preservation. Wherever possible, we seek to minimize the potential effects of concentration and degrees of risk. We will continue to monitor the impact of the changes in the conditions of the credit and financial markets to our investment portfolio and assess if future changes in our investment strategy are necessary.

Summary of Cash Flows

  2017  2016 
       
Net cash used in operating activities $(38,662,541) $(19,034,163)
Net cash used in investing activities $(143,355) $(528,095)
Net cash provided by financing activities $42,405,803  $12,354,665 

For the Years Ended December 31,
20232022
Net cash used in operating activities$(123,024,049)$(93,818,664)
Net cash used in investing activities(18,687,451)(20,019,519)
Net cash provided by financing activities78,281,114 11,467,090 


Cash Flows from Operating Activities

Our cash flows from operating activities are affected by our cash investments to support the business in research and development, manufacturing, selling, general and administration. Our operating cash flows are also affected by our working capital needs to support fluctuations in inventory, personnel expenses, accounts payable and other current assets and liabilities.



30

During the years ended December 31, 2023 and 2022, net cash used in operating activities was $123.0 million and $93.8 million, respectively. The increase in net cash used in operations was primarily attributable to an increase in spend related to initial inventory builds as we continue to ramp up our production of the W4 CC, W750 and W56 vehicle programs.
Cash Flows from Investing Activities
Cash flows used in investing activities and their variability across each period related primarily to capital expenditures to upgrade our administrative, research, and production facilities, which were $18.7 million for the year ended December 31, 2023 and $17.5 million for the year ended December 31, 2022. Cash flows used in investing activities for the year ended December 31, 2022 also included a $5.0 million cash payment made in connection with our investment in Tropos, which is described in Note 5, Contract Manufacturing Services and Investment in Tropos.
Cash Flows from Financing Activities
During the year ended December 31, 2017 and 2016, cash used in operating activities was $38.7 million and $19.0 million, respectively. The decrease in operating cash flows in 2017 as compared to 2016 was mainly due to an increase in net losses.

Cash Flows from Investing Activities

Cash flow from investing activities primarily relates to capital expenditures to support our future growth in operations.

During the years ended December 31, 2017 and 2016, cash used by investing activities was $143 thousand and $528 thousand, respectively. The decrease in cash used by investing activities during the year is mainly due to reduced capital spending.

Cash Flows from Financing Activities

During the years ended December 31, 2017 and 2016,2023, net cash provided by financing activities was $42.4$78.3 million and $12.4compared to $11.5 million respectively. Cash flows fromin 2022. Net cash provided by financing activities during the year ended December 31, 2017 consisted mainly of $37.0 million of proceeds fromin 2023 was primarily attributable to the issuance of common stock and $4.8under our ATM Agreement which provided net proceeds of approximately $62.2 million, compared to net proceeds of senior secured notes as partapproximately $12.9 million in the prior year.

Cash Requirements
From time to time in the ordinary course of the initial efforts to spin-off SureFly.

Credit Facility

Presentlybusiness, we have no revolving Credit Facility established. There is no guarantee that we will be able to enter into an agreementagreements with vendors for the purchase of components and raw materials to establish a linebe used in the manufacture of credit or that ifour products. However, due to contractual terms, variability in the precise growth curves of our development and production ramps, and opportunities to renegotiate pricing, we generally do enter intonot have binding and enforceable purchase orders under such agreement that it willcontracts beyond the short term, and the timing and magnitude of purchase orders beyond such period is difficult to accurately project.

We currently expect our capital expenditures to upgrade our manufacturing equipment and tooling to be on favorable terms.

between $5.0 and $10.0 million in 2024.

Off-Balance Sheet Arrangements

The Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

Federal Tax Credit Qualification by

Critical Accounting Estimates
We consider an accounting estimate to be critical if: (1) the IRS

The Company has been qualified byaccounting estimate requires us to make assumptions about matters that were highly uncertain at the IRS for a vehicle federal tax credit of up to $7,500. The Company joins a list of plug-in electric drive motor vehicle manufacturers, including Ford Motor Company, General Motors Corporation, Tesla, Toyota,time the accounting estimate was made, and 13 EV manufacturers in all, qualifying purchasers for up to a $7,500 tax credit when purchasing an electric vehicle.

Additionally, many states offer additional sales tax exemptions and zero emission tax credits of up to $5,000 that can also be applied to the purchase.

California Air Resources Board Approval

On February 20, 2013 the California Air Resource Board (CARB) approved the Company’s E-100 all-electric commercial truck for sale(2) changes in the stateestimate that are reasonably likely to occur from period to period, or use of California. Most other states use this approval for sale of vehicles in their state.

30

Critical Accounting Policies and Estimates

The following accounting principles and practices of the Company are set forth to facilitate the understanding of data presenteddifferent estimates that we reasonably could have used in the current period, would have a material impact on our financial condition or results of operations.

There are other items within our financial statements that require estimation but are not deemed critical as defined above.
The consolidated financial statements:

Nature of operations

Westatements are a technology company focused on providing sustainable and cost-effective solutions to the commercial transportation sector. As an American manufacturer we design and build high performance battery-electric electric vehicles and aircraft that make movement of people and goods more efficient and less harmful to the environment. As part of our solution, we also develop cloud-based, real-time telematics performance monitoring systems that enable fleet operators to optimize energy and route efficiency. Although we operate as a single unit through our subsidiaries, we approach our development through two divisions, Automotive and Aviation. Our core products, under development and/orprepared in manufacture, are the medium duty step van, the light duty pickup, the delivery drone and the manned multicopter.

Use of estimates

The preparation of financial statements in conformityaccordance with accounting principles generally accepted in the United StatesU.S. (“GAAP”). The preparation of Americathe consolidated financial statements in conformity with GAAP requires managementus to make estimates and assumptions that affect certain reported amounts and disclosures. We base our estimates on historical experience, as appropriate, and on various other assumptions that we believe to be reasonable under the circumstances. Accordingly, actual results could differ from those estimates.

Property We evaluate our estimates and depreciation

Propertyassumptions on an ongoing basis. To the extent that there are material differences between these estimates and equipmentactual results, our future financial statement presentation, financial condition, results of operations and cash flows may be affected.

Inventory Valuation
Nature of Valuation: Inventories are stated at the lower of cost or net realizable value. We write-down inventory for any excess or obsolete inventories or when we believe the net realizable value of inventories is recorded at cost. Depreciation is provided onless than the straight-linecarrying value.
31

Assumptions and accelerated methods overApproach Used: We review our inventory to determine whether its carrying value exceeds the net amount realizable upon the ultimate sale of the inventory. This requires us to determine the estimated useful livesselling price of our inventory based on market conditions. Once inventory is written-down, a new, lower cost basis for that inventory is established and subsequent changes in facts and circumstances do not result in the restoration or increase in that newly established cost basis. The following are key assumptions we used in establishing inventory reserves:

•Business projections: We make assumptions about the demand for our products in the marketplace. These assumptions drive our planning assumptions for volume, mix, and pricing. A change in our planned production volumes can materially impact the estimate of excess and obsolete inventories.

•Economic projections: Assumptions regarding general economic conditions are included in and affect our assumptions regarding sales and pricing estimates for our vehicles. Additionally, these assumptions affect our ability to sell inventories on hand in the open market. These assumptions include sales volume, inflation, and prices of raw materials. A change in economic conditions can materially impact the estimate of the respectivenet realizable value of inventories.

Should our estimates of future inventory usage or selling prices change, additional and potentially material increases to this reserve may be required. A small change in our estimates may result in a material charge to our reported financial results. Refer to Note 2, Inventory, to the consolidated financial statements for information regarding inventory valuation.
Fair Value of Warrant Liability
Nature of Estimates Required: We accounted for the warrant in accordance with the guidance contained in topic ASC 480, Distinguishing Liabilities from Equity, (“ASC 480”), under which the warrant is required to be accounted for as a liability. Accordingly, the Company classified the warrant as a liability at fair value upon issuance and will adjust the instrument to fair value at each reporting period until settled or the contract expires. The change in fair value of the warrant will be recognized in our statement of operations.
Assumptions and Approach Used: The fair value is determined using a Black-Scholes option pricing model, which is widely used for valuing warrants. The significant assumptions used in the model are as follows:

•Volatility: The volatility used in the Black-Scholes option pricing model was estimated based on historical prices for the Company’s common stock with a look-back period equal to the time difference between the issuance date and maturity date for the Warrant. A significant increase in the volatility of the market price of the Company’s common stock, in isolation, would result in a significantly higher fair value; and a significant decrease in volatility would result in a significantly lower fair value.
A change in assumptions used to estimate the fair value of the warrant could materially affect our financial condition and results of operations. Refer to Note 7, Debt ,and Note 10, Fair Value Measurements, to the consolidated financial statements regarding the warrant.

Fair Value of Convertible Notes
Nature of Estimates Required: As permitted under ASC 825, Financial Instruments, (“ASC 825”), we elected the fair value option to account for our convertible notes. We record changes in fair value of the convertible notes in Interest expense in the consolidated statements of operations, and changes in fair value of the convertible notes attributable to credit risk in Other comprehensive loss. The primary reason for electing the fair value option is for simplification and cost-benefit considerations of accounting for the convertible notes (the hybrid financial instrument) at fair value in its entirety versus bifurcation of the embedded derivatives.
Assumptions and Approach Used: The fair value is determined using a binomial lattice valuation model, which is widely used for valuing convertible notes. The significant assumptions used in the model are as follows:

•Volatility: The volatility used in the binomial lattice valuation model was estimated based on historical prices for the Company’s common stock with a look-back period of one year. A significant increase in the volatility of the market price of the Company’s common stock, in isolation, would result in a significantly higher fair value; and a significant decrease in volatility would result in a significantly lower fair value.

32

•Credit spread: The credit spread used in the binomial lattice model was estimated based on a synthetic credit rating assessed for the Company in the valuation as of the issuance date. Generally, as the credit spread increases, the fair value decreases, and conversely, as the credit spread decreases, the fair value of the convertible notes increases.
A change in assumptions used to estimate the fair value of the convertible notes could materially affect our financial condition and results of operations. Refer to Note 7, Debt, and Note 10, Fair Value Measurements, to the consolidated financial statements for information regarding the convertible notes.

Impairment of Long-Lived Assets

Asset groups are tested at the level of the smallest identifiable group of assets that generate cash inflows that are largely independent of the cash inflows from other assets or groups of assets.

Income taxes

As no taxable income Asset groupings for impairment analysis are reevaluated when events occur, such as changes in organizational structure and management reporting.


Nature of Estimates Required: We test our long-lived asset groups when changes in circumstances indicate their carrying value may not be recoverable. Events that trigger a test for recoverability include material adverse changes in projected revenues or expenses, present cash flow losses combined with a history of cash flow losses and a forecast that demonstrates significant continuing losses, significant negative industry or economic trends (including a substantial shift in consumer preference), a current expectation that a long-lived asset group will be disposed of significantly before the end of its useful life, a significant adverse change in the manner in which an asset group is used or in its physical condition, or when there is a change in the asset grouping. In addition, investing in new, emerging products or services may require substantial upfront investment, which may result in initial forecasted negative cash flows in the near term. In these instances, near-term negative cash flows on their own may not be indicative of a triggering event for evaluation of impairment. In such circumstances, we also conduct a qualitative evaluation of the business growth trajectory, which includes updating our assessment of when positive cash flows are expected to be generated, confirming whether established milestones are being achieved, and assessing our ability and intent to continue to access required funding to execute the plan. If this evaluation indicates a triggering event has occurred, a test for recoverability is performed.

When a triggering event occurs, a test for recoverability is performed, comparing projected undiscounted future cash flows to the carrying value of the asset group. If the undiscounted forecasted cash flows are less than the carrying value of the assets, the asset group’s fair value is measured relying primarily on a discounted cash flow method. To the extent available, we will also consider third-party valuations of our long-lived assets that were prepared for other business purposes. An impairment charge is recognized for the amount by which the carrying value of the asset group exceeds its estimated fair value. When an impairment loss is recognized for assets to be held and used, the adjusted carrying amounts of those assets are depreciated over their remaining useful life.

Assumptions and Approach Used: The fair value of an asset group is determined from the dateperspective of this mergera market-participant considering, among other things, appropriate discount rates, valuation techniques, the most advantageous market, and assumptions about the highest and best use of the asset group.

We measure the fair value of an asset group based on market prices (i.e., the amount for which the asset could be sold to December 31, 2017 cumulative deferred tax assetsa third party) when available. When market prices are not available, we generally estimate the fair value of approximately $19.6 millionthe asset group using the income approach and/or the market approach. The income approach uses cash flow projections. Inherent in our development of cash flow projections are fully reserved,assumptions and no provisionestimates derived from a review of our operating results, business plan forecasts, expected growth rates, and cost of capital, similar to those a market participant would use to assess fair value. We also make certain assumptions about future economic conditions and other data. Many of the factors used in assessing fair value are outside the control of management, and these assumptions and estimates may change in future periods.

Changes in assumptions or liabilityestimates can materially affect the fair value measurement of an asset group and, therefore, can affect the test results. The following are key assumptions we use in making cash flow projections:

•Business projections: We make assumptions about the demand for federal or state income taxes has beenour products in the marketplace. These assumptions drive our planning assumptions for volume, mix, and pricing.

•Long-term growth rate: A growth rate is used to calculate the terminal value of the business and is added to the present value of the debt-free interim cash flows. The growth rate is the expected rate at which an asset group’s earnings stream is projected to grow beyond the planning period.

33

•Discount rate: When measuring possible impairment, future cash flows are discounted at a rate that is consistent with a weighted-average cost of capital that we anticipate a potential market participant would use. Weighted-average cost of capital is an estimate of the overall risk-adjusted pre-tax rate of return expected by equity and debt holders of a business enterprise.

•Economic projections: Assumptions regarding general economic conditions are included in and affect our assumptions regarding industry sales and pricing estimates for our vehicles. These macroeconomic assumptions include, but are not limited to, industry sales volumes, inflation, interest rates, and prices of raw materials (e.g., commodities).

During 2023, we identified triggering events related to certain asset groups. In each situation in which we experienced a triggering event during the year, we tested our long-lived assets for impairment using our internal economic and business projections, and determined that the carrying values of the long-lived assets were recoverable. If, in future quarters, our economic or business projections were to change as a result of an update to our plans, a deterioration of the economic or business environment, a significant adverse change in the extent or manner in which a long-lived asset is being used, or an expectation that a long-lived asset group will be disposed of significantly before the end of its useful life, we would undertake additional testing, as appropriate, which could result in an impairment of long-lived assets.
Recent Accounting Pronouncements
See Note 12, Recent Pronouncements, to the consolidated financial statements. Carryover amounts are:

Approximate net operating loss 
($ millions)		 Carryover to be used against taxable income
generated through year
   
3.6 2030
6.7 2031
3.9 2032
4.7 2033
6.1 2034
9.0 2035
18.7 2036
40.8 2037

Research and development costs

Research and development costs are expensed as they are incurred. Research and development expense incurred was approximately $18.1 million and $6.1 million for the years ended December 31, 2017 and 2016, respectively, consisting of consulting, payroll and payroll taxes, engineering, purchased supplies, legal fees, parts and small tools.

statements included elsewhere in this Annual Report on Form 10-K.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The primary objective of our investment activities is to preserve principal while at the same time maximizing the income we receive from our investments without significantly increasing risk. Some of the securities in which we invest may have market risk. This means that a change in prevailing interest rates may cause the fair value amount of the investment to fluctuate. For example, if we hold a security that was issued with a fixed interest rate at the then-prevailing rate and the prevailing interest rate later rises, the market value amount of our investment will decline. To minimize this risk, we maintain our portfolio of cash equivalents and short-term investments in a variety of securities, including money market funds and government and non-government debt securities and the maturities of each of these instruments is less than one year. In 2017,2023, we maintained an investment portfolio primarily in money market funds, U. S. treasury bills, government-sponsored enterprise securities, and corporate bonds and commercial paper.funds. Due to the primarily short-term nature and low interest rate yields of these investments, we believe we do not have a material exposure to interest rate risk and market risk arising from our investments. Therefore, no quantitative tabular disclosure is provided.

We have operatedtransact business primarily in the United States. Accordingly, we have not had any significant exposure to foreign currency rate fluctuations.

31

For further information about our equity investments, please refer to Note 5, Contract Manufacturing Services and Investment in Tropos, of the Notes to Consolidated Financial Statements included in Part II of this Annual Report on Form 10-K.
34

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

TABLE OF CONTENTS

F-2
F-2
Consolidated Financial Statements:
F-4
F-4
F-5
F-5
F-6
F-6
F-7
F-7
F-8
F-8

F-1F-9


F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the

Board of Directors and
Stockholders of Shareholders
Workhorse Group Inc.

Adverse


Opinion on Internal Control over Financial Reporting

We have audited Workhorse Group, Inc.’s (the Company’s) internal control over financial reporting as of December 31, 2017, based on criteria established inInternal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, because of the effect of the material weaknesses described in the following paragraph on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of December 31, 2017, based on criteria established inInternal Control—Integrated Framework (2013) issued by COSO.

A material weakness is a control deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. The following material weaknesses have been identified and included in management’s assessment:

●The Company has not established adequate financial reporting monitoring activities to mitigate the risk of accounting errors.

●The lack of a fully implemented automated financial reporting system caused over reliance on manual entries.

These material weaknesses were considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2017 financial statements, and this report does not affect our report dated March 14, 2018, on those financial statements.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets and the related consolidated statements of operations, stockholders’ equity (deficit), and cash flows of the Company, and our report dated March 14, 2018, expressed an unqualified opinion, with an emphasis of a matter paragraph due to substantial doubt about the Company’s ability to continue as a going concern.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Cincinnati, Ohio

March 14, 2018

RESULTS THROUGHREMARKABLE RELATIONSHIPS

F-2
statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and
Stockholders of Workhorse Group, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Workhorse Group Inc. (a Nevada corporation) and subsidiaries (the Company)“Company”) as of December 31, 20172023 and 2016, and2022, the related consolidated statements of operations, comprehensive loss, stockholders’ equity, (deficit), and cash flows for each of the two years in the two-year period ended December 31, 2017,2023, and the related notes (collectively referred to as the financial statements)“financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20172023 and 2016,2022, and the results of its operations and its cash flows for each of the two years in the two-year period ended December 31, 2017,2023, in conformity with accounting principles generally accepted in the United States of America.

We


Going concern
The accompanying financial statements have also audited,been prepared assuming that the Company will continue as a going concern. As discussed in accordanceNote 1 to the financial statements, the Company incurred a net loss of $123.9 million and used $123.0 million of cash in operating activities during the year ended December 31, 2023, and as of that date, the Company had total working capital of $40.5 million, including $25.8 million of cash and cash equivalents, and an accumulated deficit of $751.6 million. These conditions, along with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB),other matters as set forth in Note 1, raise substantial doubt about the Company’s internal control overability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The financial reporting asstatements do not include any adjustments that might result from the outcome of December 31, 2017, based on criteria established inInternal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 14, 2018, expressed an adverse opinion.

this uncertainty.


Basis for Opinion

opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOBPublic Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.


We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.


Critical audit matters
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Inventory Reserve

As described further in Note 1 to the consolidated financial statements, adjustments are made to inventory for any excess or obsolete inventories or when the net realizable value of inventories is less than the carrying value. The Company reviews inventory to determine whether its carrying value exceeds the net amount realizable upon the ultimate sale of the inventory. This requires the Company to determine the estimated selling price of inventory based on planned usage and market conditions. We identified the inventory reserve as a critical audit matter.

F-2

The principal considerations for our determination that the inventory reserve represents a critical audit matter is that the assessment of the valuation of inventory is complex and includes estimates of business and economic forecasts. The estimates are subjective and require the Company to consider significant assumptions such as market demand for their vehicles, planning assumptions for volume, mix and pricing, and how economic conditions might affect the ability to meet those sales projections, all of which are subject to significant uncertainty and therefore, require significant auditor judgment.

Our audit procedures related to the inventory reserve included the following, among others:

•We obtained management’s inventory reserve analysis, tested its mathematical accuracy, and tested the completeness and accuracy of the relevant data used in the analysis.
•We evaluated the appropriateness of management’s sales forecast, considering both positive and negative factors, including historical trends, as it relates to those sales projections.
•We obtained relevant industry outlook data and evaluated whether management’s analysis appropriately considered the relevant data.
•We evaluated the sensitivity of excess and obsolete inventory reserve percentages applied to defined categories of on-hand raw materials and evaluated consistency and appropriateness of reserve percentages applied along with other inputs and assumptions used throughout the analysis.
•We evaluated the appropriateness of the estimated selling prices of finished goods and ensured those selling prices, less costs to sell, exceeded the cost of on-hand inventory.

/s/ GRANT THORNTON LLP
We have served as the Company's auditor since 2018.
Cincinnati, Ohio
March 12, 2024
F-3

Workhorse Group Inc.
Consolidated Balance Sheets
December 31,
20232022
Assets
Current assets
Cash and cash equivalents$25,845,915 $99,276,301 
Restricted cash10,000,000 — 
Accounts receivable, less allowance for credit losses of $0.2 million and zero at December 31, 2023 and 2022, respectively4,470,209 2,079,343 
Other receivable— 15,000,000 
Inventory, net45,408,192 8,850,142 
Prepaid expenses and other current assets8,101,162 14,152,481 
Total current assets93,825,478 139,358,267 
Property, plant and equipment, net37,876,955 21,501,095 
Investment in Tropos— 10,000,000 
Lease right-of-use assets9,795,981 11,706,803 
Other assets176,310 176,310 
Total Assets$141,674,724 $182,742,475 
Liabilities
Current liabilities:
Accounts payable$12,456,272 $10,235,345 
Accrued liabilities and other4,862,740 46,207,431 
Deferred revenue, current4,714,331 3,375,000 
Warranty liability1,902,647 2,207,674 
Current portion of lease liability3,560,612 1,285,032 
Warrant liability5,605,325 — 
Current portion of convertible notes20,180,100 — 
Total current liabilities53,282,027 63,310,482 
Deferred revenue, long-term— 2,005,000 
Lease liability, long-term5,280,526 8,840,062 
Total Liabilities58,562,553 74,155,544 
Commitments and contingencies
Stockholders’ Equity
Series A preferred stock, par value of $0.001 per share, 75,000,000 shares authorized, zero shares issued and outstanding at December 31, 2023 and 2022— — 
Common stock, par value of $0.001 per share, 450,000,000 and 250,000,000 shares authorized, 285,980,843 and 165,605,355 shares issued and outstanding at December 31, 2023 and 2022, respectively285,981 165,605 
Additional paid-in capital834,394,441 736,070,388 
Accumulated deficit(751,568,251)(627,649,062)
Total stockholders' equity83,112,171 108,586,931 
Total Liabilities and Stockholders' Equity$141,674,724 $182,742,475 


See accompanying notes to the consolidated financial statements.
F-4

Workhorse Group Inc.
Consolidated Statements of Operations
For the Years Ended December 31,
20232022
Sales, net of returns and allowances$13,094,752 $5,023,072 
Cost of sales38,350,545 37,672,308 
Gross loss(25,255,793)(32,649,236)
Operating expenses
Selling, general and administrative55,574,740 73,220,088 
Research and development24,467,933 23,213,540 
Total operating expenses80,042,673 96,433,628 
Loss from operations(105,298,466)(129,082,864)
Interest expense, net(8,731,247)(1,837,882)
Other (loss) income(10,000,000)13,646,528 
Loss before income taxes(124,029,713)(117,274,218)
Benefit from income taxes(110,524)— 
Net loss$(123,919,189)$(117,274,218)
Net loss per share of common stock
Basic & Diluted$(0.60)$(0.74)
Weighted average shares used in computing net loss per share of common stock
Basic & Diluted207,293,249 158,576,305 


See accompanying notes to the consolidated financial statements.
F-5

Workhorse Group Inc.
Consolidated Statements of Comprehensive Loss
For the Years Ended December 31,
20232022
Net loss$(123,919,189)$(117,274,218)
Other comprehensive income
Change in fair value of convertible notes attributable to credit spread— 1,402,500 
Comprehensive loss$(123,919,189)$(115,871,718)

See accompanying notes to the consolidated financial statements.
F-6

Workhorse Group Inc.
Consolidated Statements of Stockholders’ Equity
Common StockSeries A
Preferred Stock		Additional
Paid-in
Capital		Accumulated
Deficit		Accumulated Other Comprehensive LossTotal
Stockholders’
Equity
Number
of Shares		AmountNumber
of Shares		Amount
Balance as of December 31, 2021151,915,455 $151,916 — $— $686,318,201 $(510,374,844)$(1,402,500)$174,692,773 
Issuance of common stock under ATM Agreement4,889,986 4,890 — — 12,879,353 — — 12,884,243 
Issuance of common stock for service providers244,035 244 — — 599,738 — — 599,982 
Issuance of common stock for equity incentive awards*722,213 721 — — (560,358)— — (559,637)
Conversion of convertible notes7,833,666 7,834 — — 25,373,243 — — 25,381,077 
Stock-based compensation— — — — 11,460,211 — — 11,460,211 
Net loss for the year ended December 31, 2022— — — — — (117,274,218)— (117,274,218)
Other comprehensive income— — — — — — 1,402,500 1,402,500 
Balance as of December 31, 2022165,605,355 165,605 — — 736,070,388 (627,649,062)— 108,586,931 
Issuance of common stock under ATM Agreement89,256,062 89,256 — — 63,553,863 — — 63,643,119 
Settlement of securities litigation25,380,711 25,381 — — 19,974,619 — — 20,000,000 
Issuance of common stock under ELOC Purchase Agreement3,775,105 3,775 — — 1,470,781 — — 1,474,556 
Issuance of common stock for service providers344,997 345 — — 399,655 — — 400,000 
Issuance of common stock for equity incentive awards*1,618,613 1,619 — — (497,000)— — (495,381)
Stock-based compensation— — — — 13,422,135 — — 13,422,135 
Net loss for the year ended December 31, 2023— — — — — (123,919,189)— (123,919,189)
Balance as of December 31, 2023285,980,843 $285,981 — $— $834,394,441 $(751,568,251)$— $83,112,171 

* Net of tax payments related to shares withheld for option exercises and vested stock.


See accompanying notes to the consolidated financial statements.
F-7

Workhorse Group Inc.
Consolidated Statements of Cash Flows
For the Years Ended December 31,
20232022
Cash flows from operating activities:
Net loss$(123,919,189)$(117,274,218)
Adjustments to reconcile net loss to net cash used in operations:
Depreciation4,063,175 1,945,212 
Change in fair value of convertible notes and warranty liability, and loss on conversion to common stock8,285,425 1,769,857 
Deferred revenue(180,000)500,000 
Gain on sale of property, plant & equipment— 379,406 
Stock-based compensation13,422,135 11,460,211 
Impairment of investment in Tropos10,000,000 — 
Reserve of inventory and prepaid purchases8,798,690 17,716,995 
Non-cash lease expense1,506,310 1,092,473 
Other non-cash items(1,934,310)599,982 
Effects of changes in operating assets and liabilities:
Accounts receivable(349,512)(16,929,567)
Inventory(39,294,091)(16,629,172)
Prepaid expenses and other current assets(890,626)(9,665,250)
Other assets— (84,401)
Accounts payable and accrued liabilities(2,227,029)33,676,050 
Warranty liability(305,027)(2,376,242)
Net cash used in operating activities(123,024,049)(93,818,664)
Cash flows from investing activities:
Capital expenditures(18,687,451)(17,496,795)
Investment in Tropos— (5,000,000)
Proceeds from sale of property, plant & equipment— 2,477,276 
Net cash used in investing activities(18,687,451)(20,019,519)
Cash flows from financing activities:
Proceeds from convertible notes17,500,000 — 
Proceeds from issuance of common stock62,155,939 12,884,243 
Exercise of warrants and options and restricted share award activity(495,381)(559,637)
Payments on finance lease(879,444)(857,516)
Net cash provided by financing activities78,281,114 11,467,090 
Change in cash, cash equivalents and restricted cash(63,430,386)(102,371,093)
Cash, cash equivalents and restricted cash, beginning of the year99,276,301 201,647,394 
Cash, cash equivalents and restricted cash, end of the year$35,845,915 $99,276,301 


See accompanying notes to the consolidated financial statements.
F-8

Workhorse Group Inc.
Notes to Consolidated Financial Statements
1.    OVERVIEW AND SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
Overview
Workhorse Group Inc. (“Workhorse”, the “Company”, “we”, “us”, or “our”) is an American technology company with a vision to pioneer the transition to zero-emission commercial vehicles. We design, develop, manufacture and sell fully electric ground and air-based electric vehicles.
Basis of Presentation

The consolidated financial statements include the accounts of Workhorse Group Inc. and its subsidiaries, with all intercompany transactions and balances having been eliminated. The Company prepared the consolidated financial statements in accordance with United States generally accepted accounting principles (“GAAP”) and the rules and regulations of the United States Securities and Exchange Commission (the “SEC”) and, in the Company's opinion, reflect all adjustments, including normal recurring items that are necessary.
Going Concern and Liquidity

The accompanying consolidated financial statements have been prepared assumingin accordance with GAAP applicable to a going concern. The going concern basis of presentation assumes that the Company will continue as a going concern. As described in Note 1 tooperation one year after the date these consolidated financial statements are issued and will be able to realize assets and discharge its liabilities and commitments in the Company has not had positive cash flows from operations and has incurred significant net losses which have caused a significant accumulated deficit. These conditions raise substantial doubt about its ability to continue as a going concern. Management’s plans regarding those matters are also described in Note 1.normal course of business. The consolidated financial statements do not include any adjustments to the carrying amounts and classification of assets, liabilities, and reported expenses that might result frommay be necessary if the outcomeCompany were unable to continue as a going concern.

Pursuant to the requirements of this uncertainty. Our opinionthe Financial Accounting Standard Board's (“FASB”) Accounting Standards Codification (“ASC”) Topic 205-40, Presentation of Financial Statements - Going Concern (“ASC 205-40”), management must evaluate whether there are conditions and events, considered in aggregate, that raise substantial doubt about the Company's ability to continue as a going concern for one year after the date these consolidated financial statements are issued. In accordance with ASC 205-40, management’s analysis can only include the potential mitigating impact of management’s plans that have not been fully implemented as of the issuance date if (a) it is not modified with respect toprobable that matter.

We have served asmanagement’s plans will be effectively implemented on a timely basis, and (b) it is probable that the plans, when implemented, will alleviate the relevant conditions or events that raise substantial doubt about the Company’s auditor since 2007.

Cincinnati, Ohio

March 14, 2018

RESULTS THROUGHREMARKABLE RELATIONSHIPS

F-3
ability to continue as a going concern.

Workhorse Group, Inc.

Consolidated Balance Sheets

December 31, 2017 and 2016

  2017  2016 
Assets      
       
Current assets:      
Cash and cash equivalents $4,069,477  $469,570 
Accounts receivable  1,013,423   628,700 
Lease receivable current  45,300   98,400 
Inventory  4,236,506   2,464,835 
Prepaid expenses and deposits  946,134   255,163 
   10,310,840   3,916,668 
         
Property, plant and equipment, net  5,596,013   6,002,631 
Lease receivable long-term  212,004   320,494 
         
  $16,118,857  $10,239,793 
         
Liabilities and Stockholders' Equity (Deficit)        
         
Current liabilities:        
Accounts payable $5,539,864  $3,121,518 
Accrued liabilities  1,126,675   802,240 
Accounts payable, related parties  54,914   101,339 
Customer deposits  54,405   - 
Shareholder advances  -   229,772 
Current portion of long-term debt  381,497   79,521 
   7,157,355   4,334,390 
         
Principal amount of notes payable  5,750,000   - 

Less unamortized discount and debt issuance costs

  987,500   - 
Notes payable less unamortized discount and debt issuance costs  4,762,500   - 
         
Long-term debt  1,709,881   2,088,429 
Stockholders' equity (deficit):        
Series A preferred stock, par value of $.001 per share 75,000,000 shares authorized, 0 shares issued and outstanding at December 31, 2017 and December 31, 2016  -   - 
Common stock, par value of $.001 per share 100,000,000 shares authorized, 41,529,181 shares issued and outstanding at December 31, 2017 and 50,000,000 shares authorized, 27,578,864 shares issued and outstanding at December 31, 2016  41,529   27,579 
Additional paid-in capital  107,760,036   66,862,608 
Accumulated deficit  (105,312,444)  (63,073,213)
   2,489,121   3,816,974 
         
  $16,118,857  $10,239,793 

See accompanying notes to the consolidated financial statements.

F-4

Workhorse Group, Inc.
Consolidated Statements of Operations
For the Years Ended December 31, 2017 and 2016

  2017  2016 
       
Sales $10,846,460   6,414,800 
         
Cost of Sales  24,516,863   13,578,262 
Gross loss  (13,670,403)  (7,163,462)
         
Operating Expenses        
Selling, general and administrative  10,328,211   6,202,569 
Research and development  18,060,180   6,145,801 
Total operating expenses  28,388,391   12,348,370 
         
Interest expense, net  180,437   44,036 
         
Net loss $(42,239,231) $(19,555,868)
         
Basic and diluted loss per share $(1.09) $(0.78)
         
Weighted average number of common shares outstanding  38,755,796   25,201,261 

See accompanying notes to the consolidated financial statements.

F-5

Workhorse Group, Inc.
Consolidated Statement of Stockholders’ Equity (Deficit)
December 31, 2017 and 2016

  Common Stock  Series A
Preferred Stock		  Additional    Total
Stockholders'		 
  Number
of Shares		  Amount  Number
of Shares		  Amount  Paid-in
Capital		  Accumulated
Deficit		  Equity
(Deficit)		 

Balance as of December 31, 2015		  18,204,923  $18,205  $          -  $       -  $39,716,005  $(43,517,345) $(3,783,135)
Issuance of common stock and fulfillment of stock subscriptions available  3,883,593   3,884           11,371,398   -   11,375,282 
Stock options and warrants exercised  5,472,166   5,472           14,955,671       14,961,143 
Conversion of accounts payable  18,182   18           19,982       20,000 
Share based compensation for the year ended December 31, 2016                  799,552       799,552 
Net loss from operations, the year ended December 31, 2016                      (19,555,868)  (19,555,868)
Balance as of December 31, 2016  27,578,864  $27,579  $-  $-  $66,862,608  $(63,073,213) $3,816,974 
Issuance of common stock  12,966,712   12,967           37,029,501       37,042,468 
Stock options and warrants exercised  581,358   581           906,598       907,179 
Issuance of Common Stock in exchange for future services  130,000   130           493,870       494,000 
Conversion of accounts payable  272,247   272           1,034,267       1,034,539 
Share based compensation for the year ended December 31, 2017                  1,433,192       1,433,192 
Net loss from operations, the year ended December 31, 2017                      (42,239,231)  (42,239,231)
Balance as of December 31, 2017  41,529,181  $41,529  $-  $-  $

107,760,036

  $(105,312,444) $2,489,121 

See accompanying notes to the consolidated financial statements.

F-6

Workhorse Group, Inc.

Consolidated Statements We had sales of Cash Flows

For Years Ended December, 2017 and 2016

  2017  2016 
       
Cash flows from operating activities:      
Net loss $(42,239,231) $(19,555,868)
Adjustments to reconcile net loss from operations to cash used by operations:        
Depreciation  549,973   381,823 
Stock based compensation  1,433,192   799,552 
Write down of inventory  -   78,917 
Effects of changes in operating assets and liabilities:        
Accounts receivable  (223,133)  (1,047,594)
Inventory  (1,771,671)  (2,464,835)
Prepaid expenses and deposits  (196,971)  622,489 
Accounts payable and accrued liabilities  3,777,320   2,449,556 
Accounts payable, related parties  (46,425)  (298,203)
Customer deposits  54,405   - 
         
Net cash used by operations  (38,662,541)  (19,034,163)
         
Cash flows from investing activities:        
Capital expenditures  (143,355)  (528,095)
         
Net cash used by investing activities  (143,355)  (528,095)
         
Cash flows from financing activities:        
Proceeds from notes payable  4,762,500   - 
Proceeds from advances  26,732   - 
Payments on long-term debt  (76,572)  - 
Conversion of note payable  -   (2,724,550)
Shareholder advances, net of repayments  -   118,072 
Issuance of common and preferred stock  37,042,468   - 
Exercise of warrants and options  650,675   14,961,143 
         
Net cash provided by financing activities  42,405,803   12,354,665 
         
Change in cash and cash equivalents  3,599,907   (7,207,593)
         
Cash at the beginning of the period  469,570   7,677,163 
Cash at the end of the period $4,069,477  $469,570 

Supplemental disclosure$13.1 million, incurred a net loss of non-cash activities:

During$123.9 million and used $123.0 million of cash in operating activities during the year ended December 31, 2017, a vendor converted an existing accounts payable liability2023. As of $1,034,539 into common stock. In addition, the company issued $494,000 in common stock in exchange for future services with modeling and mule services as well as future consulting services.

During the year ended December 31, 2017, converted $256,504 of shareholder advances into common stock.

See accompanying notes to the consolidated financial statements.

F-7

Workhorse Group, Inc.

Notes to Consolidated Financial Statements

1.SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES

The following accounting principles and practices are set forth to facilitate the understanding of data presented in the financial statements:

Nature of operations and principles of consolidation

Workhorse Group Inc. (Workhorse,2023, the Company we, us or our) is a technology company focused on providing sustainablehad total working capital of $40.5 million, including $25.8 million of unrestricted cash and cost-effective solutions to the commercial transportation sector. Ascash equivalents, and an American manufacturer we design and build high performance battery-electric electric vehicles and aircraft that make movementaccumulated deficit of people and goods more efficient and less harmful to the environment. As part of the Company’s solution, it also develops cloud-based, real-time telematics performance monitoring systems that enable fleet operators to optimize energy and route efficiency. Although the Company operates as a single unit through its subsidiaries, it approaches its development through two divisions, Automotive and Aviation. The Company’s core products, under development and/or in manufacture, are the medium duty step van, the light duty pickup, the delivery drone and the manned multicopter.

Workhorse, formerly known as Title Starts Online, Inc. and AMP Holding Inc., was incorporated in the State of Nevada in 2007 with $3,100 of capital from the issuance of common shares to the founding shareholder. On August 11, 2008 the Company received a Notice of Effectiveness from the U.S. Securities and Exchange Commission, and on September 18, 2008, the Company closed a public offering in which it accepted subscriptions for an aggregate of 200,000 shares of its common stock, raising $50,000 less offering costs of $46,234. With this limited capital the Company did not commence operations and remained a “shell company” (as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended).

On December 28, 2009, the Company entered into and closed a Share Exchange Agreement with the Shareholders of Advanced Mechanical Products, Inc. (n/k/a AMP Electric Vehicles, Inc.) (AMP) pursuant to which the Company acquired 100% of the outstanding securities of AMP in exchange for 14,890,904 shares of the Company’s common stock. Considering that, following the merger, the AMP Shareholders control the majority of the outstanding voting common stock of the Company, and effectively succeeded the Company’s otherwise minimal operations to those that are AMP.  AMP is considered the accounting acquirer in this reverse-merger transaction.  A reverse-merger transaction is considered and accounted for as a capital transaction in substance; it is equivalent to the issuance of AMP securities for net monetary assets of the Company, which are de minimus, accompanied by a recapitalization. Accordingly, goodwill or other intangible assets have not been recognized in connection with this reverse merger transaction.  AMP is the surviving entity and the historical financials following the reverse merger transaction will be those of AMP.  The Company was a shell company immediately prior to the acquisition of AMP pursuant to the terms of the Share Exchange Agreement.  $751.6 million.


As a result of our recurring losses from operations, accumulated deficit, projected capital needs, and delays in bringing our vehicles to market and lower than expected market demand, substantial doubt exists regarding our ability to continue as a going concern within one year after the issuance date of the accompanying consolidated financial statements. Our ability to continue as a going concern is contingent upon successful execution of management’s intended plan over the next twelve months to improve the Company’s liquidity and working capital, which includes, but is not limited to:

•Generating revenue by increasing sales of our vehicles and other services.
•Reducing expenses and limiting non-contracted capital expenditures.
•Raising capital to fund operations through the issuance of debt or equity securities, including through our At-the-Market Sales Agreement (“ATM Agreement”), the sale of assets, or other strategic transactions.

It is essential that we have access to capital as we bring our existing line of vehicles to market, scale up production and sales of such acquisition,vehicles and continue to develop our next generation of vehicles. There is no assurance that we will be successful in implementing management’s plans to generate liquidity to fund these activities or other aspects of our short and long-term strategy, that our projections of our future capital needs will prove accurate or that any additional funding would be available or sufficient to continue operations in future periods.

F-9

To the Companyextent revenues from operations are now focusedinsufficient to meet our liquidity requirements, our ability to continue as a going concern will be dependent on effectively raising capital through private or public placement of our equity securities, including the design, marketing andcontinued use of the ATM Agreement (as further described below), for which there can be no assurance we will be successful in such efforts. We will also rely on debt financing or other sources of capital funding such as through the sale of vehicles with an all-electric powertrain and battery systems.  Consequently, we believe that acquisition has caused the Companyassets to cease to be a shell company as it now has operations.  The Company formally changed its name to AMP Holding Inc. on May 24, 2010.

Since the acquisition, the Company has devoted the majority of itsobtain sufficient financial resources to the developmentfund our operating activities. If we are unable to maintain sufficient financial resources, our business, financial condition and results of an all-electric drive system capable of moving heavy large vehicles ranging from full size SUV’s up to and including Medium Duty Commercial trucks.  Additionally, in February 2013, the Company formed a new wholly owned subsidiary, AMP Trucks Inc., an Indiana corporation. On March 13, 2013 AMP Trucks Inc. closed on the acquisition of an asset purchase of Workhorse Custom Chassis, LLC. The assets included in this transaction included: the Workhorse brand, access to the dealer network of 440 dealers nationwide, intellectual property, and all physical assets which included the approximately 250,000 sq. ft. of facilities on 47 acres of land in Union City, Indiana.  This acquisition allows the Company to position itself as a medium duty OEM capable of producing new chassis with electric, propane, compressed natural gas, and hybrid configurations,operations, as well as gasoline drive systems.  

On April 16, 2015our ability to continue to develop, produce and market our new vehicle programs and satisfy our obligations as they become due, will be materially and adversely affected. This could affect future vehicle program production and sales. Failure to obtain additional financing will have a material, adverse impact on our business operations. There can be no assurance that we will be able to obtain the Company filed Articlesfinancing needed to achieve our goals on acceptable terms or at all. Additionally, any equity or equity linked financings would likely have a dilutive effect on the holdings of Merger with the Secretary of State of the State of Nevada to change the name from “AMP Holding Inc.” to “Workhorse Group Inc.”. The Company believed that this change will allow investors, customers and suppliers to better associate the Company with the Workhorse brand, which is well known in the market.

The consolidated financial statements include Workhorse Group Inc. and its wholly owned subsidiaries, together referred as “The Company”. Intercompany transactions and balances are eliminated in consolidation.

our existing stockholders. The Company’s wholly owned subsidiaries include Workhorse Technologies Inc., Workhorse Motor Works Inc, Workhorse Properties Inc.,current level of cash and Surefly, Inc.which held no assets or liabilities at year end December 31, 2017.

F-8

Basis of presentation

The consolidated financial statements have been prepared on a going concern basis, which contemplatescash equivalents are not sufficient to execute our business plan. For the realization of assetsforeseeable future, we will incur significant operating expenses, capital expenditures and liquidation of liabilities in the normal course of business.  However, the Company has limited revenues and has negative working capital and stockholders’ deficits.funding that will deplete our cash on hand. These conditions raise substantial doubt aboutregarding the Company’s ability of the Company to continue as a going concern.

In viewconcern for a period of at least one year from the date of issuance of these matters, continuation as a going concern is dependent upon the continued operations of the Company, which, in turn, is dependent upon the Company’sconsolidated financial statements.


Our ability to meet its financial requirements, raiseobtain additional financing is extremely limited under current market conditions including the significant amount of capital required, the Nasdaq Listing Requirements, the market price of our stock and successfully carry out its future operations.  The financial statements do not includepotential dilution from the issuance of any adjustmentsadditional securities. If we are unable to identify other sources of funding, we may need to further adjust our operations and seek protection by filing a voluntary petition for relief under the Bankruptcy Code. If this were to occur, the value available to our various stakeholders, including our creditors and stockholders, is uncertain and trading prices for our securities may bear little or no relationship to the amount and classificationactual recovery, if any, by holders of assets and liabilities that may be necessary, should the Company not continue as a going concern.

The Company has continued to raise capital.  Management believes the proceeds from these offerings, future offerings, and the Company’s anticipated revenue, provides an opportunity to continue as a going concern.  If additional funding is required, the Company plans to obtain working capital from either debt or equity financing from the saleour securities in bankruptcy proceedings, if any.

Use of common, preferred stock, and/or convertible debentures. Obtaining such working capital is not assured. The Company is currently in a production ramp up mode and placing greater emphasis on manufacturing capability.

Estimates

The preparation of financial statements in conformity with generally accepted accounting principlesGAAP requires management to make estimates and assumptions that affect the reported amounts reportedof assets, liabilities, revenues, costs and expenses and related disclosures in the financial statements and accompanying notes. Actual results could differ from these estimates.

The estimates used for, but not limited to, sales return reserves, income taxes, the collectability of accounts receivable, inventory valuation, warranties, leases, fair value of long-lived assets and fair value of financial instruments.

Reclassifications
Certain reclassifications were made to the prior year financial statementsperiod balances have been reclassified to conform to the current year presentation. These reclassifications had no effectperiod presentation in the consolidated financial statements and the accompanying notes.
Cash and Cash Equivalents
Cash and cash equivalents are defined as short-term, highly-liquid investments with original maturities of three months or less.
Restricted Cash
Cash and cash equivalents subject to contractual restrictions and not readily available are classified as restricted cash. Our restricted cash is comprised primarily of cash held to service certain payments under secured debt facilities. In addition, restricted cash includes cash held as collateral for real estate leases. We record restricted cash in the consolidated balance sheets and determine current or non-current classification based on previously reported results of operation or stockholders’ deficit.

Financial instruments

The carrying amounts of financial instruments including cash, inventory, accounts payable and short-term debt approximate fair value becausethe expected duration of the relatively short maturityrestriction.

Our total cash, cash equivalents, and restricted cash, as presented in the consolidated statements of these instruments.

cash flows, was as follows:

December 31,
20232022
Cash and cash equivalents$25,845,915 $99,276,301 
Restricted cash10,000,000 — 
Total as presented in the consolidated statements of cash flows$35,845,915 $99,276,301 
Accounts receivable

Receivable and Allowance for Credit Losses

Accounts receivable consistprimarily consists of collectible amounts that are due and payable from our customers for productsthe sale of vehicles, parts, and services rendered. The Company carries its accounts receivable at invoice amount lessservices. We evaluate the collectability of receivables each reporting period and record an allowance for doubtful accounts. Oncredit losses to
F-10

present the net amount expected to be collected on our receivables. Additions to the allowance are charged to bad debt expense reported in selling, general and administrative expense.
Concentration of Risk
Credit Risk
Financial instruments that potentially subject us to a periodic basis, the Company evaluates its accounts receivableconcentration of credit risk consist of cash and establishes an allowance for doubtful accounts based on a history of past write-offscash equivalents, restricted cash, and collections and current credit conditions. The Company generally does not require collateral for accounts receivable. During 2017Our cash balances are primarily on deposit at high credit quality financial institutions or invested in money market funds. These deposits are typically in excess of insured limits. As of December 31, 2023, no entity represented 10% or more of our total receivables balance. As of December 31, 2022, one entity represented 10% or more of our total receivables balance.
Supply Risk
We are dependent on our suppliers, including single source suppliers, and 2016, salesthe inability of these suppliers to one customer approximated 98%deliver necessary components of our products in a timely manner at prices, quality levels and 91% of net sales, respectively.

Lease Receivable

The Company’s leasing activities consist of the leasing of trucks which are classified as direct financing leases.  Revenue is recognized at the inception of the lease.  The leasesvolumes acceptable to us, or our inability to efficiently manage these components from these suppliers, could have a term of eight years.  Future payments to be receivedmaterial adverse effect on the leasesour business, prospects, financial condition and operating results.

Inventories
Inventories are as follows:

 2018 $45,300 
 2019  36,240 
 2020  36,240 
 2021  36,240 
 2022  36,240 
 Thereafter  67,044 
   $257,304 

Inventory

Inventory is stated at the lower of cost or market.net realizable value. Inventory cost includes cost of raw material, labor and overhead. Manufactured inventories are valued at standard cost, which approximates actual costs on a first-in, first-out basis. We record inventory write-downs for excess or obsolete inventories based on assumptions about current and consistfuture demand forecasts. If inventory on-hand is in excess of raw materials, workour future demand forecast, the excess amounts are written-off.

We also review our inventory to determine whether its carrying value exceeds the net amount realizable upon the ultimate sale of the inventory. This requires us to determine the estimated selling price of our vehicles less the estimated cost to convert the inventory on-hand into a finished product. Once inventory is written-down, a new, lower cost basis for that inventory is established and subsequent changes in processfacts and finished goods.

circumstances do not result in the restoration or increase in that newly established cost basis.

Should our estimates of future inventory usage or selling prices change, additional and potentially material increases to this reserve may be required. A small change in our estimates may result in a material charge to our reported financial results.
Property, plantPlant and equipment, net

Equipment, Net

Property, plant and equipment, net, is statedincluding leasehold improvements, are recognized at cost less accumulated depreciation. Major renewals and improvements are capitalized while replacements, maintenance and repairs, which do not improve or extendDepreciation is generally computed using the straight-line method over the estimated useful lives of the respective assets, as follows:

Buildings and improvements15 - 39 years
Land improvements15 years
Equipment and vehicles3 - 7 years
Tooling5 years
Computer equipment and software3 - 5 years

Leasehold improvements are expensed. Whendepreciated on a straight-line basis over the shorter of their estimated useful lives or the term of the related leases.

Upon the retirement or sale of our property, plant and equipment, is retired or otherwise disposed of, athe cost and associated accumulated depreciation are removed from the consolidated balance sheets, and the resulting gain or loss is realizedreflected on the consolidated statements of operations. Maintenance and repair expenditures are expensed as incurred while major improvements that increase the functionality, output or expected life of an asset are capitalized and depreciated ratably over the identified useful life.

F-11

Impairment of Long-Lived Assets

We review long-lived assets, such as property, plant, and equipment, for potential impairment whenever events or changes in circumstances indicate the carrying amount of an asset or asset group may not be fully recoverable. Events that trigger a test for recoverability include material adverse changes in projected revenues and expenses, present cash flow losses combined with a history of cash flow losses or a forecast that demonstrates significant continuing losses, significant negative industry or economic trends, a current expectation that a long-lived asset group will be disposed of significantly before the end of its useful life, a significant adverse change in the manner in which an asset group is used or in its physical condition, or when there is a change in the asset grouping. When an indicator of impairment is present, the Company assesses the risk of impairment based on an estimate of the undiscounted cash flows at the lowest level for which identifiable cash flows exist against the carrying value of the asset group. Impairment exists when the carrying value of the asset group exceeds the estimated future undiscounted cash flows generated by those assets. The Company records an impairment charge for the difference between the net bookcarrying value of the asset group and its estimated fair market value. Depending on the proceeds realized thereon. Depreciation is calculated using the straight-line method, based upon the followingasset, estimated useful lives:

Buildings:15 - 30 years
Leasehold improvements:7 years
Software:  3 - 6 years
Equipment:  5 years
Vehicles and prototypes: 3 - 5 years 

F-9

Common stock

On April 22, 2010, the directors of the Company approved a forward stock split of the common stock of the Company on a 14:1 basis.  On May 12, 2010, the stockholders of the Company voted to approve the amendment of the certificate of incorporation resulting in a decrease of the number of shares of common stock.   Management filed the certificate of amendment decreasing the authorized shares of common stock with the State of Nevada on September 8, 2010. On February 11, 2015, the Company filed a certificate of amendment to its articles of incorporation to increase the authorized shares of common stock to 50,000,000.

On December 9, 2015, the Company filed a Certificate of Amendment to its Certificate of Incorporation to implement a one-for-ten reverse split of the Corporation’s issued and outstanding common stock (the “Reverse Stock Split”), as authorized by the stockholders of the Company. The Reverse Stock Split became effective at the open of trading on December 11, 2015 (the “Effective Date”). As of the Effective Date, every ten shares of issued and outstanding common stock were combined into one newly issued share of common stock. No fractional shares were issued in connection with the Reverse Stock Split. Total cash payments made by the Company to stockholders in lieu of fractional shares was not material.

On August 7, 2017, the shareholders of the Company voted to increase the authorized shares of common stock to 100,000,000 and the Certificate of Amendment amending the Articles of Incorporation was filed with the State of Nevada on August 8, 2018.

All references in the financial statements and MD&A to number of common shares, price per share and weighted average shares of common stock have been adjusted to reflect the Reverse Stock Split on a retroactive basis for all prior periods presented, unless otherwise noted, including reclassifying an amount equal to the reduction in parfair market value of common stock to additional paid in capital.

The capital stock of the Company is as follows:

Preferred Stock - The Company has authorized 75,000,000 shares of preferred stock with a par value of $.001 per share. These shares may be issued in series with such rights and preferences as may be determined either by use of a discounted cash flow model or by reference to estimated selling values of assets in similar condition.


During 2023, we identified triggering events related to certain asset groups. In each situation in which we experienced a triggering event during the Boardyear, we tested our long-lived assets for impairment using our internal economic and business projections, and determined that the carrying values of Directors. There are no sharesthe long-lived assets were recoverable. If, in future quarters, our economic or business projections were to change as a result of preferred stock outstanding.

Common Stock - The Company has authorized 100,000,000 sharesan update to our plans, a deterioration of common stock withthe economic or business environment, a par value of $0.001 per share as of December 31, 2017.  

Revenue recognition / customer deposits

Itsignificant adverse change in the extent or manner in which a long-lived asset is the Company’s policybeing used, or an expectation that revenuesa long-lived asset group will be recognizeddisposed of significantly before the end of its useful life, we would undertake additional testing, as appropriate, which could result in accordance with SEC Staff Bulletin (SAB) No. 104, “Revenue Recognition”.  Under SAB 104, product revenues (or service revenues) are recognized when persuasive evidencean impairment of an arrangement exists, delivery has occurred (or service has been performed), the sales price is fixed and determinable, and collectability is reasonably assured.

Income taxes

As no taxable income has occurred from the date of this merger to December 31, 2017 cumulative deferred tax assets of approximately $19.6 million are fully reserved, and no provision or liability for federal or state income taxes has been included in the financial statements.  Carryover amount are:

 Approximate net operating loss
($ millions)		 Carryover to be used against taxable
income generated through year
    
 3.6 2030
 6.7 2031
 3.9 2032
 4.7 2033
 6.1 2034
 9.0 2035
 18.7 2036
 40.8 2037

F-10

Research and development costs

The Company expenses research and development costs as they are incurred. Research and Development costs were approximately $18.1 million and $6.1 million forlong-lived assets. For the years ended December 31, 20172023 and 2016, respectively, consisting2022, we have recognized no impairments of long-lived assets.

Capitalization of Software Costs
We capitalize costs incurred in the development of internal use software, during the application development stage to property, plant and equipment, net on the consolidated balance sheets. Costs related to preliminary project activities and post-implementation activities are expensed as incurred. Such costs are amortized on a straight-line basis over their estimated useful life of three to five years.

We evaluate the useful lives of these assets on an annual basis, and we test for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets. For the years ended December 31, 2023 and 2022, we have recognized no impairments of capitalized software costs.
Investment
As permitted under ASC 321, Equity Securities, werecorded our investment in Tropos, an equity investment without a readily determinable fair value, at cost minus impairment. We assessed our investment for impairment each reporting period to determine if the fair value of the investment declined below its cost basis and if the impairment was other-than-temporary.
For the years ended December 31, 2023 and 2022, we have recognized impairment losses of $10.0 million and zero, respectively. For additional information regarding the investment and related impairment, see to Note 5, Contract Manufacturing Services and Investment in Tropos.

Warranty Liability
We generally provide a manufacturer's warranty on all new vehicles we sell. We record a warranty liability for the products sold by us, which includes our best estimate of the projected costs to repair or replace items under warranties and recalls if identified. The amount of warranty liability accrued reflects management’s best estimate of the nature, frequency, and costs of future claims. Historically, the cost of fulfilling the warranty obligations has principally involved replacement parts, towing and transportation costs, labor and sometimes travel for any field retrofit campaigns. Our estimates are based on historical experience, the extent of pre-production testing, the number of units involved and the extent of features/components included in product models.

F-12

Although we believe the estimates and judgments discussed herein are reasonable, actual results could differ and we may be exposed to increases or decreases in our warranty liability accrual that could be material. Accrued warranty activity consisted of the following:
December 31,
20232022
Balance, beginning of year$2,207,674 $4,583,916 
Accrual for warranty(1)
766,112 (987,701)
Warranty costs incurred(1,071,139)(1,388,541)
Balance, end of year$1,902,647 $2,207,674 

(1)The decrease to the warranty liability accrual in 2022 primary relates to a decreased volume of vehicles covered under warranty as well as a lower liability per vehicle as compared to 2021.

Fair Value Measurements
The Company follows the accounting guidance in ASC Topic 820 for its fair value measurements of financial assets and liabilities measured at fair value on a recurring basis. A three-level valuation hierarchy, based upon observable and unobservable inputs, is used for fair value measurements. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions based on the best evidence available. These two types of inputs create the following fair value hierarchy: Level 1 – Quoted prices for identical instruments in active markets; Level 2 – Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-derived valuations whose significant inputs are observable; and Level 3 – Instruments whose significant inputs are unobservable.
Income Taxes
We account for income taxes under a method that requires deferred income tax assets and liabilities to be recognized using enacted tax rates for the effect of temporary differences between the book and tax bases of recorded assets and liabilities. Authoritative guidance also requires deferred income tax assets, which include state tax credit carryforwards, operating loss carryforwards and deductible temporary differences, be reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred income tax assets will not be realized.
We evaluate the likelihood of realizing our deferred income tax assets by assessing our valuation allowance and by adjusting the amount of such allowance, if necessary. The factors used to assess the likelihood of realization include our forecast of future taxable income, the projected reversal of temporary differences and available tax planning strategies that could be implemented to realize the net deferred income tax assets.
We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities. The determination is based on the technical merits of the position and presumes that each uncertain tax position will be examined by the relevant taxing authority that has full knowledge of all relevant information. Although management believes the estimates are reasonable, no assurance can be given that the final outcome of these matters will not be different than what is reflected in the historical income tax provisions and accruals.
Revenue Recognition
The following table disaggregates our revenue by major source:

Years Ended
December 31,
20232022
Vehicles$11,327,702 $4,385,975 
Services, parts and accessories1,767,050 637,097 
Total revenues$13,094,752 $5,023,072 

F-13

Vehicles
Revenue is recognized when obligations under the terms of a contract with our customer are satisfied; generally this occurs when we transfer control of our vehicles. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services. For the majority of vehicles, we transfer control and recognize a sale when we ship the product from our manufacturing facility to our customer (dealers and distributors). The amount of consideration we receive and revenue we recognize varies with changes in incentives and return rights we offer to our customers. When we give our dealers the right to return eligible vehicles, we estimate the expected returns based on an analysis of historical experience, current market conditions, and other measures. We receive cash equal to the invoice price for most vehicle sales and we do not have any material significant payment terms as payment is received at or shortly after the point of sale.
Sales and other taxes we collect concurrent with revenue-producing activities are excluded from revenue. The expected costs associated with our base warranties and field service actions are recognized as expense when the products are sold (see Note 6, Accrued Liabilities and Other Current Liabilities). We have elected to recognize the cost for freight and shipping when control over vehicles, parts, or accessories has transferred to the customer as an expense in Cost of sales.

Services, Parts and Accessories
Services, parts and accessories revenue consists of non-warranty after-sales vehicle services, body shop and parts, and assembly services. It also includes revenue generated from operating our Stables by Workhorse route, Drones As A Service, and other service revenue. We recognize revenue related to sales of service, parts and other accessories when we transfer control of the items. For the majority of vehicles, parts, and accessories, we transfer control and recognize a sale when we ship the product from our manufacturing facility to our customer (dealers and distributors). We recognize service revenue upon the transfer of control to the customer, which is generally when at the time the service is completed.
For the year ended December 31, 2023, two entities represented 10% or more of our total revenues. For the year ended December 31, 2022, one entity represented 10% or more of our total revenues.

Deferred Revenue

Deferred revenue related to our Assembly Services Agreement withTropos Technologies, Inc. consisted of the following:

Year Ended December 31,
20232022
Deferred revenue, beginning of period$5,380,000 $— 
Additions— 5,380,000 
Net changes in liability(485,669)— 
Revenue recognized(180,000)— 
Deferred revenue, end of period$4,714,331 $5,380,000 
Less: current portion4,714,331 3,375,000 
Long-term deferred revenue, end of period$— $2,005,000 
See Note 5, Contract Manufacturing Services and Investment in Tropos, for further discussion of deferred revenue.

Cost of Sales
Cost of sales include direct and indirect materials, labor costs, manufacturing overhead, including depreciation costs of tooling and machinery, shipping and logistics costs, and reserves for estimated warranty expenses. Cost of sales also includes charges to write down the carrying value of our inventory when it exceeds its estimated net realizable value and to provide for obsolete and on-hand inventory in excess of forecasted demand.
Research and Development Costs
Research and development costs consist primarily of personnel costs for our teams in engineering and research, prototyping expense, and contract and professional services.

Basicservices, and diluted loss per share

Basic loss per share is computed by dividing net loss available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period.  For all periods, all of the Company’s common stock equivalents were excluded from the calculation of diluted loss per common share because they were anti-dilutive, due to the Company’s net losses.

Stock based compensation

The Company accounts for its stock-based compensation in accordance with “Share-Based Payments” (codified in FASB ASC Topic 718 and 505).  The Company recognizes in its statement of operations the grant-date fair value of stock options and warrants issued to employees and non-employees.  The fair value is estimated on the date of grant using a lattice-based valuation model that uses assumptions concerning expected volatility, expected term, and the expected risk-free rate of return.  For the awards granted, the expected volatility was estimated by management as 50% based on a range of forecasted results.  The expected term of the awards granted was assumed to be the contract life of the option or warrant (one, two, three, five or ten years as determined in the specific arrangement).  The risk-free rate of return was based on market yields in effect on the date of each grant for United States Treasury debt securities with a maturity equal to the expected term of the award.

Related party transactions

Certain stockholders and stockholder family members have advanced funds or performed services for the Company.  These servicesamortized equipment expense. R&D costs are believed to be at market rates for similar services from non-related parties.  Related party accounts payable are segregated in the balance sheet.

Subsequent events

The Company evaluates events and transactions occurring subsequent to the date of the consolidated financial statements for matters requiring recognition or disclosure in the consolidated financial statements. The accompanying consolidated financial statements consider events through March 14, 2018, the date on which the consolidated financial statements were available to be issued.

2.INVENTORY

As of December 31, 2017 and 2016, inventory consisted of the following:

   2017  2016 
 Finished Goods $-  $212,884 
 Work in Process  1,416,324   987,665 
 Parts  2,820,182   1,264,286 
   $4,236,506  $2,464,835 

F-11

3.PROPERTY, PLANT AND EQUIPMENT, NET

As of December 31, 2017 and 2016, property, plant and equipment consisted of the following:

 2017  2016 
 Land $700,000  $700,000 
 Buildings  5,900,000   5,900,000 
 Leasehold Improvements  19,225   19,225 
 Software  86,050   57,587 
 Equipment  829,742   808,512 
 Vehicles and prototypes  156,567   62,905 
    7,691,584   7,548,229 
 Less accumulated depreciation  (2,095,571)  (1,545,598)
   $5,596,013  $6,002,631 

4.DEBT

Notes payable at December 31, 2017 consisted of the following:

   Principal  Unamortized Discount and Debt Issuance Costs 
 Senior Secured Notes, due June 30, 2018 (discount is based on imputed interest rate of 26%) $5,750,000  $987,500 

The debt issuance costs of $237,500 and the unamortized discount of $750,000 will be amortized into interest expense over the life of the loan. As the debt matures on June 30, 2018, the entire amount will be expensed as interest expense in 2018.

As of December 31, 2017 long-term debt consisted of the following:

  2017  2016 
        
 Secured mortgage payable to Bank for the purchase of the 100 Commerce Drive Building due in monthly installments of $11,951. The interest rate is 6.5% and the maturity date is November 1, 2026. $1,741,379  $1,767,950 
 Note payable, former building owner interest payment only due in monthly installments of $1,604 interest at 5.5%. A balloon payment of $350 thousand plus unpaid interest due August 2018.  350,000   350,000 
 Note payable to the City of Loveland paid off in May 2017  -   50,000 
    2,091,379   2,167,950 
 Less current portion  381,497   79,521 
 Long term debt $1,709,881  $2,088,429 

Aggregate maturities of long-term debt are as follows:

 2019  33,607 
 2020  35,857 
 2021  38,259 
 2022  44,344 
 2023  43,791 
 Thereafter  1,514,023 
    1,709,881 

5.SHAREHOLDER AND RELATED PARTY ADVANCES

As of December 31, 2017, the Company had no deposits that were not yet issued as common stock. As of December 31, 2016, the Company had deposits for $229,772 that were not yet issued as common stock.

6.LEASE OBLIGATIONS

The Company has a one-year lease on 119 Northeast Drive, Loveland, Ohio 45140. The monthly payment is $4,500 and the lease expires July 10, 2018.

On October 1, 2011, the Company began leasing operating facilities under an agreement expiring on September 30, 2018. The Building subject to the lease was purchased in October 2016.

Rent expense was $25,694 and $151,412incurred. R&D costs for the years ended December 31, 20172023 and 2016,2022 were $24.5 million and $23.2 million, respectively.

7.STOCK BASED COMPENSATION

Options

F-14

Advertising Costs
Advertising costs are recorded in Selling, general, and administrative in the consolidated statements of operations as they are incurred. During the years ended December 31, 2023 and 2022, advertising costs recognized were $1.2 million and $1.0 million, respectively.
Comprehensive Income (Loss)
Comprehensive income (loss) is comprised of adjustments to directors, officersthe fair value of our convertible notes due to changes in credit risk.
Stock-Based Compensation
We use the fair value method of accounting for our stock options, restricted stock awards (“RSA”) and employees

performance share units (“PSUs”) granted to employees. The fair value of stock option awards with only service conditions is estimated on the grant or offering date using the Black-Scholes option-pricing model. The Black-Scholes option-pricing model requires inputs such as the risk-free interest rate, expected term and expected volatility. These inputs are subjective and generally require significant judgment. The fair value of RSAs is measured on the grant date based on the closing fair market value of our common stock. The resulting cost is recognized over the period during which an employee is required to provide services in exchange for the awards, usually the vesting period. Stock-based compensation expense is recognized on a straight-line basis, net of actual forfeitures in the period.

The fair value of market-vested awards is based on a Monte-Carlo simulation that estimates the fair value based on the Company's stock price activity relative to a defined comparative group of companies, expected term of the award, risk-free interest rate, expected dividends, and the expected volatility of the stock of the Company and those in the comparative group. The grant date fair value per share of market-vested awards already reflects the probability of achieving the market condition, and is therefore used to record the expense on a straight-line basis over the performance period regardless of actual achievement.
For performance-based awards, stock-based compensation expense is recognizable over the expected performance achievement period of individual performance milestones when the achievement of each individual performance milestone becomes probable.
As we issue additional employee stock-based awards over time and as we incorporate additional market data related to our common stock, we may calculate significantly different volatilities and expected lives, which could materially impact the valuation of our stock-based awards and the stock-based compensation expense that we will recognize in future periods. Stock-based compensation expense is recorded in selling, general and administrative expense in the consolidated statements of operations.
Defined Contribution Plan
We have a 401(k) savings plan that is intended to qualify as a deferred salary arrangement under Section 401(k) of the Internal Revenue Code. Beginning in January 2021, we began to match 100% of each employee’s contributions up to a maximum of 6% of the employee’s eligible compensation, vested immediately. During the years ended December 31, 2023 and 2022, we recognized $1.3 million and $0.9 million, respectively, of expenses related to employer contributions for the 401(k) savings plan.
Net Loss per Share of Common Stock
Basic loss per share of common stock is calculated by dividing net loss by the weighted-average shares of common stock outstanding for the period. Potentially dilutive shares, which are based on the weighted-average shares of common stock underlying outstanding stock-based awards, warrants and convertible senior notes using the treasury stock method or the if-converted method, as applicable, are included when calculating the diluted net loss per share of common stock when their effect is dilutive.

F-15

The following table presents the potentially dilutive shares that were excluded from the computation of diluted net loss per share of common stock, because their effect was anti-dilutive:
Year Ended December 31,
20232022
Stock-based awards and equity-classified warrants9,497,133 6,159,285 
Convertible notes38,624,952 — 
Warrants1
8,500,000 — 
1Represents shares issued upon exchange of the warrants on March 1, 2024. See Note 7, Debt, and Note 16, Subsequent Events, for more information regarding the warrants.
2.    INVENTORY
Our inventory consisted of the following:
December 31,
20232022
Raw materials$32,682,324 $42,500,878 
Work in process2,892,329 25,210,131 
Finished goods(1)
18,309,829 301,645 
53,884,482 68,012,654 
Less: inventory reserves(8,476,290)(59,162,512)
Inventory, net$45,408,192 $8,850,142 

(1) Finished goods inventory includes new vehicles available for sale.

We reserve inventory for any excess or obsolete inventories or when we believe the net realizable value of inventories is less than the carrying value. During the years ended December 31, 2023 and 2022, we recorded net write-downs of $6.8 million and $19.5 million, respectively, in Cost of sales in the consolidated statements of operations. The year over year decrease to inventory reserves was primarily driven by our efforts to sell and dispose of C-Series inventory which had been fully reserved as of December 31, 2022 following the Company's decision to discontinue the program. The sale and disposal activity did not have a material impact on the Company's results of operations during the year ended December 31, 2023.

During the year ended December 31, 2022, we recognized a gain of $13.6 million, net of $0.5 million of selling costs, related to the sale of C-Series inventory. The gain on sale was recorded in Other (loss) income in the consolidated statements of operations. The selling costs of $0.5 million represent a commission paid to a related party who was a former executive of the Company.
3.    PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consisted of the following:
December 31,
20232022
Prepaid purchases$7,908,087 $34,611,649 
Less: prepaid purchases reserve(1,999,068)(22,163,338)
Prepaid purchases, net5,909,019 12,448,311 
Prepaid insurance1,283,146 1,198,769 
Other908,997 505,401 
Prepaid expenses and other current assets$8,101,162 $14,152,481 
F-16

Prepaid purchases consist of deposits made to our suppliers for non-recurring engineering costs and production parts. As of December 31, 2023 and 2022, net prepaid purchases primarily consisted of deposits for direct materials associated with our W4 CC and W750 vehicles.
The year over year decrease to prepaid purchases reserves was primarily driven by write-offs related to the C-Series vehicle program, which did not have a material impact on the Company's results of operations during the year ended December 31, 2023.
4.    PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net consists of the following:
December 31,
20232022
Land and improvements$2,130,542 $875,182 
Buildings and improvements12,677,544 8,167,736 
Equipment and vehicles23,081,818 8,183,089 
Tooling8,044,563 689,286 
Construction in progress1,104,010 9,027,020 
47,038,477 26,942,313 
Less: accumulated depreciation(9,161,522)(5,441,218)
Property, plant and equipment, net$37,876,955 $21,501,095 

Construction in progress is primarily comprised of equipment and tooling related to the manufacturing of our products, and construction and expansion of our facilities. Completed assets are transferred to their respective asset classes, and depreciation begins when an asset is ready for its intended use.

Depreciation expense during the years ended December 31, 2023 and 2022 was $4.1 million and $1.9 million, respectively.
5. CONTRACT MANUFACTURING SERVICES AND INVESTMENT IN TROPOS
We had a minority ownership investment in Tropos Technologies, Inc. (“Tropos”). The investment was obtained during the third quarter of 2022 in exchange for a cash payment of $5.0 million and a $5.0 million contribution of non-cash consideration representing a deposit from Tropos for future assembly services under an Assembly Services Agreement. The $5.0 million non-cash consideration was recorded as deferred revenue and is recognized as revenue over time as assembly service performance obligations are satisfied.
We recorded our investment at cost less impairment, if applicable. In accordance with FASB ASC Topic 321, Investments - Equity Securities, we assessed our investment for impairment at each reporting period to determine if the fair value declined below its cost basis and if the impairment is other-than-temporary.
During the third quarter of 2023, we determined that our investment in Tropos was impaired based on the economic conditions and uncertainties that have significantly affected Tropos' performance and financial position. The impairment is considered other-than-temporary as the decline in fair value of the investment is not expected to recover in the foreseeable future.
The impairment charge recognized for our investment is $10.0 million, which represents the difference between the original cost of the investment and its fair value as of the impairment assessment date. The impairment loss was recognized in Other (loss) income in the consolidated statements of operations for the year ended December 31, 2023.
The impairment of our investment did not release the Company from its obligation to perform assembly services under the agreement. Therefore, the Company continues to perform assembly services and carry the balance of deferred revenue on its consolidated balance sheets as of December 31, 2023. As of December 31, 2023 and December 31, 2022, deferred revenue related to the Assembly Services Agreement was $4.7 million and $5.4 million, respectively.
F-17

6.    ACCRUED LIABILITIES AND OTHER CURRENT LIABILITIES
Accrued liabilities and other current liabilities consisted of the following:
December 31,
20232022
Securities litigation settlement$— $35,000,000 
Compensation and related costs2,083,808 4,967,187 
Other2,778,932 6,240,244 
Accrued liabilities and other current liabilities$4,862,740 $46,207,431 
7.    DEBT
A reconciliation of the fair value of the convertible notes is as follows:
December 31,
20232022
Fair value of convertible notes, beginning of year$— $24,705,000 
Fair value of convertible notes issued during year13,695,789 — 
Change in fair value of convertible notes (1)
6,484,311 367,357 
Fair value of convertible notes exchanged for common stock— (25,072,357)
Fair value of convertible notes, end of year$20,180,100 $— 
(1)The Company maintains,recognizes changes in fair value of convertible notes for common stock in Interest expense in the consolidated statements of operations.
Green Senior Convertible Notes Due 2026
On December 12, 2023, the Company entered into a securities purchase agreement (the “Securities Purchase Agreement”) under which the Company issued, pursuant to an indenture and supplemental indenture (the “Indenture”), $20.0 million principal amount of green senior convertible notes (the “2026 Notes”) due October 1, 2026. The 2026 Notes are a senior secured obligation of the Company and ranked senior to all unsecured debt of the Company. The 2026 Notes are guaranteed by all the Company’s current subsidiaries and are secured by substantially all the assets of the Company and its subsidiaries. The 2026 Notes were issued with an original issue discount of 12.5%. In the event of a default under the Indenture, the 2026 Notes would accrue default interest at a rate of 15.0% per annum (the “Default Interest”) until such default is cured and all outstanding Default Interest has been paid. The 2026 Notes do not bear interest other than the Default Interest. The 2026 notes are convertible into 38.6 million shares of common stock at a rate of $0.5178 per share, subject to change for anti-dilution adjustments and adjustments for certain corporate events.
The Company paid fees in connection with the issuance of the 2026 Notes of $0.6 million, resulting in net proceeds of $16.9 million. We have elected to account for the 2026 Notes using the fair value option under GAAP. All direct costs related to the issuance of our convertible notes were recognized in Interest expense in the consolidated statements of operations for the year ended December 31, 2023.
The 2026 Notes contain certain covenants, including limitations on liens, additional indebtedness, investments, dividends and other restricted payments, changes in the business, transactions with affiliates, and customary events of default. The Company is also required to at all times maintain minimum liquidity of the lesser of $10.0 million and the then aggregate outstanding principal amount under the 2026 Notes in a deposit account under the control of the collateral agent. In addition, the 2026 Notes requires that the Company have cash and cash equivalents of at least $25.0 million on December 31, 2023, $13.5 million on January 31, 2024, and of $20.0 million on February 29, 2024. In the event we consummate a sale and leaseback transaction with respect to the real property where our Union City, IN plant is located, the holder of the 2026 Notes may, at its option, require us to use up to half of the proceeds we receive in such a sale leaseback transaction to redeem outstanding principal under the 2026 Notes. For additional information regarding the sale of our Union City plant, refer to Note 16, Subsequent Events, to our consolidated financial statements.
F-18

As of December 31, 2023, the contractual principal balance of the 2026 Notes was $20.0 million and the fair value was $20.2 million. During the year ended December 31, 2023, we recorded a $6.5 million fair value adjustment in Interest expense in the statements of operations related to the 2026 Notes. No fair value adjustments related to the 2026 Notes attributable to changes in credit risk were recorded during the year ended December 31, 2023. Going forward, any future fair value adjustments attributable to changes in credit risk will be recorded in Other comprehensive loss.
The estimated fair value of the 2026 Notes upon issuance on December 12, 2023 was $13.7 million. The fair value was computed using a Binomial Lattice Model which incorporates significant inputs that are not observable in the market, and thus represents a Level 3 measurement. The unobservable inputs utilized for measuring the fair value of the 2026 Notes reflect our assumptions about the assumptions that market participants would use in valuing the Note as adoptedof the issuance date and subsequent reporting period.
We determined the fair value by using the following key inputs to the Binomial Lattice Model:
Issuance DateDecember 12, 2023
Maturity DateOctober 1, 2026
Principal Balance as of the Valuation Date$20,000,000 
Risk-Free Rate (Annual)5.3 %
Implied Yield10.45 %
Volatility (Annual)80.00 %
As of December 31, 2023, the Company is in compliance with the debt terms and associated covenant under the 2026 Notes. The holder may, at its option, require the Company to redeem up to 12.5% of the original principal amount of the 2026 Notes in cash on the first and fifteenth of each month beginning January 1, 2024. Subsequent to December 31, 2023, the Company has repaid $7.5 million of the initial principal balance upon request of the holder. On February 29, 2024, the Company entered into a First Amendment to Green Senior Secured Convertible Note Due 2026 (the “2026 Notes Amendment”) with the holder. In connection with the 2026 Notes Amendment, the Company redeemed $10.0 million principal amount of the 2026 Notes, thereby reducing the outstanding principal amount of the Note to $2.5 million. Therefore, given the Company has made partial redemption payments and expects the holder to require repayment of the 2026 Notes in full within 12 months, the Company classified the 2026 Notes as current in the consolidated balance sheets.
Warrants Exercisable Prior to December 2026
On December 12, 2023, as part of the Securities Purchase Agreement, the Company issued warrants (the “2026 Warrants”) to purchase 25,601,639 shares of common stock at an exercise price of $0.4492 per share. The 2026 Warrants may be exercised by the holder immediately upon issuance and prior to December 12, 2026. No fractional shares will be issued upon exercise of the 2026 Warrants. Upon a change of control or corporate event (as defined in the warrant agreement), the holder may request that the Company repurchase the 2026 Warrants for cash in an amount equal to the Black Scholes Value (as defined in the warrant agreement). A Black Scholes Value settlement is meant to compensate the holder of the warrant for lost time value related to a forced early exercise upon the contingent event. As the 2026 Warrants are recorded at fair value and measured pursuant to a Black Scholes option pricing model, the carrying value approximates the amount that the Company would have to pay in a Black Scholes Value settlement.
The fair value of the components of the Securities Purchase Agreement was allocated between the 2026 Notes and 2026 Warrants. As of December 12, 2023 (the initial recognition) and December 31, 2023, the fair value of the 2026 Warrants was $3.8 million and $5.6 million, respectively. During the year ended December 31, 2023, we recorded a $1.8 million fair value adjustment in Interest expense in the statements of operations related to the 2026 Notes. The fair value of the 2026 Warrants was measured using the Black Scholes model approach. Significant inputs to the model at December 12, 2023 and December 31, 2023 are as follows:
F-19

Valuation AssumptionsDecember 31, 2023Initial Recognition on December 12, 2023
Stock Price$0.36$0.37
Strike Price$0.4492$0.4492
Volatility (annual)98.0 %98.0 %
Risk-Free Rate5.3 %5.3 %
Estimated time to expiration (years)33
Dividend Yield0.0 %0.0 %
4.0% Senior Secured Convertible Notes Due 2024
On October 14, 2020 the Company issued $200.0 million par value convertible notes (the “2024 Notes”) due October 14, 2024. The 2024 Notes were a senior secured obligation of the Company, and ranked senior to all unsecured debt of the Company. The 2024 Notes were guaranteed by all the Company’s current and future subsidiaries and were secured by substantially all the assets of the Company and its subsidiaries. Interest was payable quarterly beginning on January 15, 2021 at a rate of 4.0% per annum. The 2024 Notes were convertible at a rate of $35.29 per share, subject to change for anti-dilution adjustments and adjustments for certain corporate events.

In the fourth quarter of 2021, the Company entered into securities exchange agreements with certain holders of its 2024 Notes, to exchange $172.5 million in principal amount of the notes for 27.7 million shares of common stock. In the second quarter of 2022, the remaining $27.5 million in aggregate principal of the 2024 Notes was exchanged for 7.8 million shares of common stock. The number of shares issued was calculated by dividing $29.4 million, which represents 107% of the principal amount of the notes, plus $0.3 million of interest accrued on the notes, by the average of the daily volume weighted average price (“VWAP”) for the 10 days immediately preceding April 21, 2022. During the year ended December 31, 2022, the Company recognized a loss of $1.8 million, which included a $0.4 million fair value adjustment and a $1.4 million adjustment related to the amount previously recognized in Accumulated other comprehensive loss. The total loss was recorded in Interest expense in the consolidated statements of operations. During the year ended December 31, 2022, cash paid for contractual interest on the 2024 Notes was $0.3 million.
After the exchanges described above, the indenture and related security agreement under which the 2024 Notes were issued were terminated.
Floorplan Line of Credit
On August 10, 2023, we entered into a Floorplan and Security Agreement (the “Floorplan LOC”) with Mitsubishi HC Capital America, Inc. under which we obtained a revolving floorplan line of credit with a maximum borrowing limit of $5.0 million.
The intended use of the Floorplan LOC was to finance the acquisition of inventory used in production of our W4 CC and W750 vehicles. The terms of the Floorplan LOC included interest charged on the outstanding borrowings and other fees and covenants. Interest was to be charged at a variable rate based on a reference interest rate, such as the Secured Overnight Financing Rate (“SOFR”), plus 4.86%.
In connection with the Securities Purchase Agreement described above, we terminated the Floorplan and Security Agreement. During the year ended December 31, 2023, we did not draw on or incur any charges related to the Floorplan LOC.
8.    LEASES
We have entered into various operating and finance lease agreements for offices, manufacturing and warehouse facilities. We determine if an arrangement is a lease, or contains a lease, at inception and record the leases in our financial statements upon lease commencement, which is the date when the underlying asset is made available for our use by the lessor.
We have elected not to disclose in the consolidated balance sheets leases with a lease term of 12 months or less at lease inception that do not contain a purchase option or renewal term provision we are reasonably certain to exercise. All other lease right-of-use assets (“ROU”) and lease liabilities are recognized based on the present value of lease payments over the lease term at commencement date. Because most of our leases do not provide an implicit rate of return, we used our incremental
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borrowing rate based on the information available at lease commencement date in determining the present value of lease payments.
Our leases may include options to extend the lease term for up to 5 years. Some of our leases also include options to terminate the lease prior to the end of the agreed upon lease term. For purposes of calculating lease liabilities, lease terms include options to extend or terminate the lease when it is reasonably certain that we will exercise such options.
During the second quarter of 2022, we entered into a lease agreement for additional office and warehouse space. We obtained a Letter of Credit (“LOC”) in the amount of $0.5 million to secure the lease, which bears interest at five percent per annum. Under the terms of the agreement, the landlord may use the whole or any part of the LOC for the payment of any amount as to which we are in default or to compensate the landlord for certain specified losses or damage.
The Company assesses the carrying value of its ROU assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. Such indicators may include, but are not limited to, significant underperformance relative to historical or projected future operating results, changes in the business climate or legal factors, and changes in the expected use of the leased asset. The assessment of whether a ROU asset is impaired involves management's judgment, including considerations of future cash flows, market conditions, and other relevant factors.
If impairment indicators are identified, the Company estimates the future cash flows expected to result from the use and eventual disposition of the leased asset. These estimates consider factors such as anticipated future operating results, market conditions, and other relevant factors. If the sum of the expected future cash flows is less than the carrying amount of the ROU asset, an impairment loss is recognized for the difference between the carrying amount and the fair value of the ROU asset. The fair value is determined based on various valuation techniques, including discounted cash flow analysis, market comparable transactions, and other appropriate methods.
Impairment losses are recognized in the consolidated statements of operations. The Company determines the level at which the impairment loss is recognized based on whether it expects to retain or dispose of the ROU asset. If the Company expects to retain the ROU asset, the impairment loss is recognized as an adjustment to the carrying amount of the ROU asset, with a corresponding adjustment to accumulated depreciation and amortization. If the Company expects to dispose of the ROU asset, the impairment loss is recognized in Selling, general and administrative expense in the statements of operations.
During the year ended December 31, 2023, the Company identified indicators of impairment due to slower than expected market adoption and conducted an impairment test on its ROU assets in accordance with applicable accounting standards. The fair value less costs to sublease was determined based on market prices for similar assets, while the value in use was calculated using discounted cash flow projections. As a result of these assessments, we recognized an impairment loss of $0.9 million related to the ROU asset for our Aero facility located in Mason, Ohio, which is recorded in the Selling, general and administrative expense in the statements of operations.
Lease expense for operating leases is recognized on a straight-line basis over the lease term as cost of sales or operating expenses depending on the nature of the lease right-of-use asset. Amortization of finance lease assets is recognized over the lease term as cost of sales or operating expenses depending on the nature of the leased asset. Interest expense on finance lease liabilities is recognized over the lease term within Interest expense in the consolidated statements of operations.

The components of lease expense are as follows within our consolidated statements of operations:
Years Ended December 31,
20232022
Short-term lease expense$281,802 $589,969 
Operating lease expense2,338,266 1,782,332 
Total lease expense$2,620,068 $2,372,301 

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Lease right-of-use assets consisted of the following:
December 31,
20232022
Operating leases$4,174,800 $5,884,865 
Finance leases5,621,181 5,821,938 
Total lease right-of-use assets$9,795,981 $11,706,803 
Lease liabilities consisted of the following:
December 31,
20232022
Operating leases$6,292,954 $6,977,896 
Finance leases2,548,184 3,147,198 
Total lease liabilities8,841,138 10,125,094 
Less: current portion(3,560,612)(1,285,032)
Long-term portion$5,280,526 $8,840,062 
Other information related to leases is as follows:
As of December 31,
20232022
Weighted-average remaining lease term
Operating leases4.0 years6.0 years
Financing leases1.0 year2.0 years
Weighted-average interest rate
Operating leases10.0 %10.0 %
Financing leases10.0 %10.0 %

Supplemental cash flow information related to leases where we are the lessee is as follows:
Years Ended December 31,
20232022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflows from operating leases$1,349,021 $770,642 
Operating cash outflows from finance leases (interest payments)280,430 369,976 
Financing cash outflows from finance leases879,444 857,516 
Leased assets obtained in exchange for finance lease liabilities— 6,022,694 
Leased assets obtained in exchange for operating lease liabilities— 5,631,558 


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As of December 31, 2023, the maturities of our operating and finance lease liabilities (excluding short-term leases) are as follows:
Operating
Leases		Finance
Leases
2024$1,589,805 $2,752,862 
20251,458,783 — 
20261,503,069 — 
20271,316,387 — 
20281,230,385 — 
Thereafter1,067,207 — 
Total minimum lease payments8,165,636 2,752,862 
Less: Interest1,872,682 204,678 
Present value of lease obligations6,292,954 2,548,184 
Less: Current portion1,012,428 2,548,184 
Long-term portion of lease obligations$5,280,526 $— 
9.    INCOME TAXES
During the years ended December 31, 2023 and 2022, the Company has taxable losses primarily due to operations and thus has no current federal tax expense recorded. We continue to record a valuation allowance against our deferred tax assets as of December 31, 2023.
The U.S. components of loss before income taxes and a reconciliation of the statutory federal income tax with the provision for income taxes follows:

Years Ended December 31,
20232022
Current:
 Federal$— $— 
 State and Local(110,524)— 
Total Current(110,524)— 
Deferred:
 Federal— — 
 State and Local— — 
Total Deferred— — 
Total benefit from income taxes$(110,524)$— 


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The reconciliation of taxes at the federal statutory rate to our provision for income taxes was as follows:

Years Ended December 31,
20232022
Federal tax benefit at statutory rates21.0 %21.0 %
State and local tax at statutory rates1.0 %— %
Fair value adjustments on convertible notes(1.4)%(0.3)%
Stock-based compensation deductions(1.0)%(1.7)%
Research and development credits(0.6)%0.3 %
Other permanent differences and credits(0.4)%(0.5)%
Other temporary deferred tax asset differences0.6 %— %
Federal net operating loss adjustment(0.3)%— %
Change in valuation allowance(18.8)%(18.8)%
Total tax benefit0.1 %— %

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. When realization of the deferred tax asset is more likely than not to occur, the benefit related to the deductible temporary differences attributable to operations is recognized as a reduction of income tax expense. As of each reporting date, management considers new evidence, both positive and negative, that could affect its view of the future realization of deferred tax assets. As of December 31, 2023 and 2022, our ability to realize our net deferred tax asset is not more likely than not to occur and the valuation allowance reduces the deferred tax asset to zero.

Significant components of the Company’s deferred tax assets and liabilities are as follows:
December 31
20232022
Deferred Tax Assets (Liabilities):
Accrued expenses and reserves$567,850 $4,528,418 
Warranty reserve1,625,861 470,342 
Inventory and prepaid purchase reserves2,268,452 17,326,397 
Investment impairment2,165,513 — 
Equity compensation1,538,179 (328,410)
Property, plant and equipment(5,060,439)(1,955,842)
Research and experimental costs8,236,863 4,435,891 
Charitable contributions13,427 — 
Lease right-of-use assets(2,044,257)(2,515,792)
Lease liability1,832,809 2,175,883 
Issuance fees on convertible notes— 343,886 
Federal tax credits4,299,750 5,099,750 
Net operating loss103,518,448 66,112,929 
Total Deferred Tax Assets118,962,456 95,693,452 
Valuation Allowance(118,962,456)(95,693,452)
Total Deferred Tax Assets (Liabilities), net of valuation allowance$— $— 

For the year ended December 31, 2023, the Company recorded an increase to the valuation allowance of $23.3 million as a component of income tax expense.

As of December 31, 2023 and 2022, the Company has $17.2 million of federal net operating loss (“NOL”) carry-forward deferred tax assets which expire through 2038. Additionally, as of December 31, 2023 and 2022, the Company has approximately $84.3 million and $47.0 million, respectively, of federal NOL deferred tax assets which carry-forward
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indefinitely, and approximately $2.0 million and $0.9 million, respectively, of state and local NOL carry-forward deferred tax assets which expire through 2037. The NOL carry-forwards may be limited in certain circumstances, including ownership changes.

Under the provisions of the Internal Revenue Code, the net operating loss and tax credit carry-forwards are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities. Certain tax attributes are subject to an annual limitation as a result of certain cumulative changes in ownership interest of significant shareholders which could constitute a change of ownership as defined under Internal Revenue Code Section 382. The Company completed a full analysis of historical ownership changes and determined that a portion of the NOLs to-date have a limitation on future deductibility. Approximately $8.4 million of NOLs incurred prior to 2014 will be unable to offset future taxable income and have been reserved via a valuation allowance to reduce the deferred tax asset to the expected realizable amount.

The following table presents a reconciliation of unrecognized tax benefits:

20232022
Unrecognized tax benefits - January 1$805,392 $805,392 
Gross increases - tax positions in prior period— — 
Gross decreases - tax positions in prior period— — 
Gross increases - tax positions in current period— — 
Settlement— — 
Lapse of statute of limitations— — 
Unrecognized tax benefits - December 31$805,392 $805,392 

The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. As of December 31, 2023, and 2022, due to the Company’s continued losses, no amounts of interest and penalties have been recognized in the consolidated statements of operations. If the unrecognized tax benefits were reversed, a deferred tax asset and corresponding valuation allowance would be recorded, and thus the reversal would have no impact on the effective rate.
The Company files income tax returns in the U.S. federal jurisdiction, various state jurisdictions and local jurisdictions. Generally, the Company’s 2019 through 2022 tax years remain open and subject to examination by federal, state and local taxing authorities. However, federal, state, and local net operating losses from 2009 through 2022 are subject to review by taxing authorities in the year utilized.
10.    FAIR VALUE MEASUREMENTS
We estimate the fair value of the 2026 Notes and 2026 Warrants using commonly accepted valuation methodologies upon issuance and at each reporting date. Considerable judgment was required in interpreting market data to develop the estimates of fair value. Accordingly, the Company’s estimates are not necessarily indicative of the amounts that the Company, or holders of the instruments, could realize in a current market exchange. Significant assumptions used in the fair value model included estimates of the redemption dates, credit spreads and the market price and volatility of the Company’s common stock. The use of different assumptions and/or estimation methodologies could have a material effect on the estimated fair values. The following table presents the estimated fair values:

December 31, 2023December 31, 2022
Fair ValueLevel 1Level 2Level 3Fair ValueLevel 1Level 2Level 3
Warrant liability$5,605,325 $— $— $5,605,325 $— $— $— $— 
Convertible notes$20,180,100 $— $— $20,180,100 $— $— $— $— 
11.    STOCK-BASED COMPENSATION

Incentive Stock Plans
We maintain, as approved by the board of directors and the stockholders, the 2017 Stock Incentive Plan, the 2016 Stock Incentive Plan, the 2014 Stock Incentive Plan, the 2014 Stock Compensation Plan, 2013 Incentive Stock Plan, the 2012 Incentive Stock Plan, the 20112019 Incentive Stock Plan and the 2010 Stock2023 Long-Term Incentive Plan (the plans)(collectively, the “Plans”) providing for the issuance of optionsstock-based awards to employees, officers, directors or consultants of the Company. IncentiveNon-qualified stock options granted under the plans may only be granted with an
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exercise price of not less than fairequal to the market value of the Company’sour common stock on the date of grant (110% of fair market valuedate. Shares reserved for incentive stock options granted to principal stockholders).  Non-qualified stock options grantedawards under the plans may only be granted with an exercise price of not less than 85% of the fair market value of the Company’s commontotal 17.5 million. Total shares remaining available for stock on the date of grant.  Awardsincentive grants under the plans may be either vested or unvested options. The 2017 Stock Incentive Plan authorized 5,000,000 shares with vesting in sixteen equal quarterly tranches.

In addition to the plans, the Company hasPlans totaled approximately 3.0 million as of December 31, 2023. We have granted on various dates,new stock options, to directors, officersrestricted stock awards (“RSAs”), restricted stock units, and employees to purchase common stock ofperformance share units (“PSUs”) under the Company.  The terms, exercise prices and vesting of these awards vary. 

Plans.


Stock-Based Compensation Expense

The following table summarizes optionstock-based compensation expense:
Years Ended December 31,
20232022
Stock options$973,520 $978,696 
Restricted stock awards9,138,800 7,767,114 
Performance share units3,309,815 2,714,401 
Total stock-based compensation expense$13,422,135 $11,460,211 

Stock Options
During 2023, activity for directors, officers and employees:

      Outstanding Stock Options 
   Options Available for Grant  Number of Options  Weighted
Average
Exercise Price
per Option		  Weighted
Average Grant
Date Fair Value
 per Option		  Weighted
Average
Remaining
Exercise Term
in Months		 
 Balance December 31, 2015  757,471   1,980,434  $2.21  $1.46   49 
 Additional stock reserved  500,000   -   -   -   - 
 Granted  (794,500)  794,500   6.38   2.82   58 
 Exercised  -   (138,113)  1.79   0.49   - 
 Forfeited  -   -   -   -   - 
 Expired  492,500   (492,500)  3.83   1.65   - 
 Balance December 31, 2016  955,471   2,144,321   2.46   1.53   43 
 Additional stock reserved  5,000,000   -   -   -   - 
 Granted  (1,900,000)  1,900,000   5.01   3.41   72 
 Exercised  -   (69,109)  1.10   0.96   - 
 Forfeited  -   -   -   -   - 
 Expired  -   -   -   -   - 
 Balance December 31, 2017  4,055,471   3,975,212  $3.17  $1.84   43 

The Company recorded $1,428,226 and $768,196 compensation expense for stock options was as follows:

SharesWeighted
Average
Exercise Price		Weighted
Average
Remaining Contractual Life (Years)
Outstanding, beginning of period423,626 $7.6 6.7
Exercised(50,200)$1.1 — 
Expired(80,997)$1.7 — 
Outstanding, end of period292,429 $10.3 8.0
Exercisable, end of period197,618 $10.3 8.0

As of December 31, 2023, unrecognized compensation expense was $1.0 million for unvested options, which is expected to directors, officers and employeesbe recognized over the next year. During 2023, no new stock options were granted.

Restricted Stock Awards

Granted restricted stock awards generally vest ratably over a three-year service period. The fair value of vested RSAs for the years ended December 31, 20172023 and 2016,2022 were $2.4 million and $2.7 million, respectively.

During 2023, activity for RSAs was as follows:

Number of Unvested SharesWeighted Average Grant Date Fair Value per Share
Unvested restricted stock as of December 31, 20223,525,331 $4.9 
Granted3,994,707 1.5 
Vested(1,972,089)4.2 
Forfeited(419,426)2.8 
Unvested restricted stock as of December 31, 20235,128,523 $2.6 

As of December 31, 2017,2023, unrecognized compensation expense of $3,403,675 is related to non-vested options granted to directors, officers and employeeswas $9.2 million for unvested restricted stock, which is anticipatedexpected to be recognized over the next 46 months, commensurate with the vesting schedules.

1.9 years.

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Options to consultants

The Company has also granted, on various dates, stock options to purchase common stock of the Company to consultants for services previously provided to the Company.  The terms, exercise prices and vesting of these awards vary. 

The following table summarizes option activity for consultants:

      Outstanding Stock Options 
   Options Available for Grant  Number of Options  Weighted
Average
Exercise Price
per Option		  Weighted
Average Grant
Date Fair Value
 per Option		  Weighted
Average
Remaining
Exercise Term
in Months		 
 Balance December 31, 2015  99,303   306,773  $0.36  $1.01   50 
 Additional stock reserved  -   -  -  -   - 
 Granted  (9,000)  9,000  4.99  0.44   - 
 Exercised  -   (138,312) 0.34  0.81   - 
 Forfeited  -   -  -  -   - 
 Expired  -   -  -  -   - 
 Balance December 31, 2016  90,303   177,461  0.49  1.05   41 
 Additional stock reserved  -   -  -  -   - 
 Granted  -   -  -  -   - 
 Exercised  -   (5,000) 1.50  0.83   - 
 Forfeited  -   -  -  -   - 
 Expired  -   -  -  -   - 
 Balance December 31, 2017  90,303   172,461  $0.57  $1.11   32 

The Company recorded $4,966 and $31,356 compensation expense for stock options to consultants for the years ended December 31, 2017 and 2016, respectively.



Performance Share Units
As of December 31, 2017, there2023, the number of unvested PSUs was no3.0 million. The vesting of PSUs is conditioned upon achievement of certain performance objectives over performance periods ending December 31, 2024 and 2025 as defined in each award agreement. Fifty percent of the PSUs vest based upon the Company’s total shareholder return (“TSR”) as compared to a group of peer companies, and fifty percent of the PSUs vest based upon our performance on certain measures including a cumulative adjusted EBITDA target (“EBITDA PSUs”). Depending on the actual achievement of the performance objectives, the grantee may earn between 0% and 200% of the target PSUs.
During 2023, activity for PSUs with a TSR metric was as follows:
Number of Unvested SharesWeighted Average Grant Date Fair Value per Share
Balance, December 31, 2022738,751 $11.79 
Granted966,342 1.88 
Forfeited(33,417)6.28 
Balance, December 31, 20231,671,676 $6.17 
Inputs and assumptions used to calculate the fair value at grant date through a Monte-Carlo simulation were as follows:
20232022
Fair value per stock award$1.88 $11.79 
Grant date stock price$1.09 $2.83 
Assumptions:
Workhorse's stock price expected volatility (a)109 %117 %
Risk-free interest rate3.77 %0.69 %
(a) Expected volatility based on 2.7 years of daily closing share price changes.
As of December 31, 2023, unrecognized compensation expense related to non-vested options granted to consultantswas $4.0 million, which is anticipatedexpected to be recognized over the next 31 months, commensurate with1.3 years.

During 2023, activity for EBITDA PSUs was as follows:
Number of Unvested Shares
Balance, December 31, 2022432,546 
Granted966,342 
Forfeited(33,416)
Balance, December 31, 20231,365,472 
The fair value of performance share units is calculated based on the vesting schedules.

Warrants to placement agent and consultants

Through December 2011,stock price on the Company compensated the placement agent for assisting in the saledate of grant. The stock-based compensation expense recognized each period is dependent upon our estimate of the Company’s securities by payingnumber of shares that will ultimately vest based on the placement agent commissions and issuing the placement agent common stock purchase warrants to purchase sharesachievement of the Company’s common stock.  The warrants have a five-year term and various exercise prices.

The Company has also granted, on various dates, stock warrants to purchase common stock of the Company to consultants for services previously provided to the Company. The terms, exercise prices and vesting of these awards vary.


The following table summarizes warrant activity for the placement agent and consultants:

      Outstanding Warrants 
   Warrants Available for Grant  Number of Warrants  Weighted
Average
Exercise Price
per Warrant		  Weighted
Average Grant
Date Fair Value
 per Warrant		  Weighted
Average
Remaining
Exercise Term
in Months		 
 Balance December 31, 2015  210,227   306,823  $2.79  $1.26   9 
 Additional stock reserved  -   -  -  -   - 
 Granted  -   -  -  -   - 
 Exercised  -   (60,160) 2.69  0.43   - 
 Forfeited  -   -  -  -   - 
 Expired  -   (87,458) 6.00  2.70   - 
 Balance December 31, 2016  210,227   159,205  2.56  1.16   17 
 Additional stock reserved  -   -  -  -   - 
 Granted  -   -  -  -   - 
 Exercised  -   -  -  -   - 
 Forfeited  -   -  -  -   - 
 Expired  -   -  -  -   - 
 Balance December 31, 2017  210,227   159,205  $1.38  $0.68   21 

The Company recorded no compensation expense for stock warrants to the placement agent and consultants for the years ended December 31, 2017 and 2016, respectively. There is no unrecognized compensation expense for the placement agent warrants because they are fully vested at date of grant.

Warrants to directors and officers

In December 2010 and May 2011, the Company issued to certain directors and officers common stock purchase warrants to acquire shares of common stock at an exercise price of $2.00 per share for a period of five years.  In November 2011, under the terms of a Promissory Note issued to a director and officer, common stock purchase warrants were issued to acquire 10,000 shares of common stock at an exercise price of $5.00 per share for a period of one year.  In May 2012, a director and officer received 10,000 2012 Warrants to acquire common stock of the Company at an exercise price of $5.00 for a period of three years.  In June 2012, a director and officer converted secured and unsecured loans provided to the Company from September 2011 to June 2012 in the aggregate amount of $389,250 into 2012 Notes and 2012 Warrants.  In November 2012, the Company entered into a Note and Warrant Amendment and Conversion Agreement whereby the holders and 2012 Investors converted all principal and interest under the 2012 Notes into shares of common stock.  Further, the exercise price of the 2012 Warrants was reduced to $2.50 per share.  The $7,388 cost of the reduction in the exercise price is included inEBITDA-based performance conditions. Future stock-based compensation expense for unvested EBITDA PSUs will be based on the year ended December 31, 2012.


The following table summarizes warrant activity for directors and officers:

      Outstanding Warrants 
   Warrants Available for Grant  Number of Warrants  Weighted
Average
Exercise Price
per Warrant		  Weighted
Average Grant
Date Fair Value
 per Warrant		  Weighted
Average
Remaining
Exercise Term
in Months		 
 Balance December 31, 2015  348,925   338,925  $20.00  $1.02   4 
 Additional stock reserved  -   -   -   -   - 
 Granted  -   -   -   -   - 
 Exercised  -   -   -   -   - 
 Forfeited  -   -   -   -   - 
 Expired  -   (150,000)  20.00   0.15   - 
 Balance December 31, 2016  348,925   188,925  20.00  1.02   4 
 Additional stock reserved  -   -   -   -   - 
 Granted  -   -   -   -   - 
 Exercised  -   -   -   -   - 
 Forfeited  -   -   -   -   - 
 Expired  -   -   -   -   - 
 Balance December 31, 2017  348,925   188,925  $20.00  $1.30   4 

The Company recorded no compensation expense for stock warrants to directors and officers forfair value of the years ended December 31, 2017 and 2016, respectively. Thereawards as of the grant date, which has not yet occurred, as the cumulative adjusted EBITDA target condition is no unrecognized compensation expense for these warrants because they are fully vested at datenot yet defined.

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12.    NEW ACCOUNTING STANDARDS
Adoption of grant.

New Accounting Standards

8.RECENT PRONOUNCEMENTS

ASU 2016-13, Financial Instruments - Credit Losses. In AprilJune 2016, the FinancialFASB issued ASU 2016-13, which requires entities to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts. We adopted this standard effective January 1, 2023. The adoption of this standard did not have a material impact on our consolidated balance sheets or statements of operations.

ASU 2020-06, Accounting Standards Board (FASB)for Convertible Instruments and Contracts in an Entity's Own Equity. In August 2020, the FASB issued Accounting Standards Update (ASU) No. 2016-10, RevenueASU 2020-06, which simplifies the accounting for convertible instruments by removing certain separation models in ASC 470-20, Debt—Debt with Conversion and Other Options, for convertible instruments. The ASU updates the guidance on certain embedded conversion features that are not required to be accounted for as derivatives under Topic 815, Derivatives and Hedging, or that do not result in substantial premiums accounted for as paid-in capital, such that those features are no longer required to be separated from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, and affectsthe host contract. The convertible debt instruments will be accounted for as a single liability measured at amortized cost. This will also result in the interest expense recognized for convertible debt instruments to be typically closer to the coupon interest rate when applying the guidance in Topic 835, Interest. Further, the ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606),made amendments to the EPS guidance in Topic 260 for convertible debt instruments, the most significant impact of which is requiring the use of the if-converted method for diluted EPS calculation, and no longer allowing the net share settlement method. The ASU also made revisions to Topic 815-40, which provides guidance on how an entity must determine whether a contract qualifies for a scope exception from derivative accounting. The amendments to Topic 815-40 change the scope of contracts that are recognized as assets or liabilities. We adopted this standard effective January 1, 2022. The adoption of this standard did not yet effective. have a material impact on our consolidated balance sheets or statements of operations.
Accounting Standards Issued But Not Yet Adopted
ASU No. 2016-10 clarifies2023-07, Segment Reporting - Improvements to Reportable Segment Disclosures. In November 2023, the following two aspects of Topic 606: evaluating whether promised goodsFASB issued ASU 2023-07 related to disclosures about a public entity’s reportable segments and services are separately identifiable and determining whether an entity’s promise to grantprovides more detailed information about a license provides a customer with either a right to use the entity’s intellectual property, which is satisfied at a point in time, or a right to access the entity’s intellectual property, which is satisfied over time. ASU No. 2016-10reportable segment’s expenses. The new standard is effective for public companies for annual reportingfiscal years beginning after December 15, 2023 and interim periods beginning after December 15, 2017, including interim periods within that reporting period. Transitional guidance2024, with retrospective application required. We are assessing the effect on our annual consolidated financial statement disclosures; however, adoption will not impact our consolidated balance sheets or statements of operations.
ASU 2023-09, Improvements to Income Tax Disclosures. In December 2023, the FASB issued ASU 2023-09 to enhance the transparency and decision usefulness of income tax disclosures. The new standard is included in the update. Earlier adoption is permitted only as of annual reporting periodseffective for fiscal years beginning after December 15, 2016, including interim reporting periods within that reporting period. Adoption2024, with retrospective application permitted. We are assessing the effect on our annual consolidated financial statement disclosures; however, adoption will not impact our consolidated balance sheets or statements of ASU No. 2016-10 isoperations.
All other ASUs issued but not yet adopted were assessed and determined to be not applicable or are not expected to have a material impact on our consolidated financial statements or financial statement disclosures.
13.    STOCKHOLDERS' EQUITY
Securities Litigation Settlement
On September 1, 2023, we issued 25.4 million shares of common stock with an aggregate value of $20.0 million in connection with the settlement of the Securities Litigation as described below in Note 15, Commitments and Contingencies. The number of shares was based on the market price per share of our common stock on August 31, 2023. This transaction was recorded as a noncash operating activity.
As a result of the settlement, we no longer have any obligation related to the securities litigation and, as such, the $15.0 million insurance receivable previously recorded in Other Receivable and $35.0 million legal reserve previously recorded in Accrued and Other Current Liabilities were zero as of December 31, 2023.
ATM Sales Agreement
On March 10, 2022, we entered into an ATM Sales Agreement, under which we may offer and sell shares of our common stock having an aggregate sales price of up to $175.0 million.
During the years ended December 31, 2023 and 2022, we issued 89.3 million and 4.9 million shares, respectively, under the ATM Agreement for net proceeds of $62.2 million and $12.9 million, respectively. Commissions paid in connection with the
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issuances under the ATM Agreement are recorded as a reduction of the share proceeds. During the years ended December 31, 2023 and 2022, we incurred commissions of $1.3 million and $0.3 million, respectively. The remaining aggregate sales available under the ATM Agreement was $96.9 million as of December 31, 2023.
Equity Line of Credit
On December 12, 2023, the Company entered into an equity line of credit purchase agreement (the “ELOC Purchase Agreement”) with Lincoln Park Capital Fund, LLC (the “Purchaser”) which provides that, upon the terms and subject to the conditions and limitations set forth therein, the Company may sell to the Purchaser up to $50.0 million of shares of common stock over the 24-month term of the ELOC Purchase Agreement. Concurrently with entering into the ELOC Purchase Agreement, the Company also entered into a registration rights agreement (the “ELOC Registration Rights Agreement”) with the Purchaser, whereby the issuance of the shares pursuant to the ELOC Purchase Agreement were registered pursuant to the Company’s consolidated financial statements.

In March 2016,effective shelf registration statement on Form S-3, and the FASB issued ASU No. 2016-09, Compensation—Stock Compensation (Topic 718): Improvementsrelated base prospectus included in the registration statement, as supplemented by a prospectus supplement filed on December 27, 2023.

The Company may direct the Purchaser, at its sole discretion, and subject to Employee Share-Based Payment Accounting,certain conditions, to purchase up to 1.0 million shares of common stock on any business day (a “Regular Purchase”). The amount of a Regular Purchase may be increased under certain circumstances to 1.25 million shares if the closing price is not below $0.40 and affects all entities that issue share-based payment awardsup to their employees.1.5 million if the closing price is not below $0.50 provided the Purchaser’s committed obligation under any single Regular Purchase shall not exceed $2.0 million. The new guidance involves several aspectspurchase price for Regular Purchases (the “Purchase Price”) shall be equal to 97.5% of the accounting for share-based payment transactions, including income tax consequences, classificationlower of awards as either equity or liabilities, and classificationthe lowest sale price of common stock on the statementPurchase Date for such Regular Purchase and the arithmetic average of cash flows. Under ASU No. 2016-09,the three lowest closing sale prices for the common stock during the ten consecutive business days ending on the business day immediately prior to the Purchase Date, with a floor of $0.10. In the event the Company issues the full amount allowed under a Regular Purchase on any excess tax benefits or tax deficiencies shouldgiven business day, we may also direct the Purchaser to purchase additional amounts as accelerated purchases. The purchase price for the accelerated and additional accelerated purchases shall be recognized as income tax expense or benefitequal to the lesser of 97.0% of such day’s the VWAP of the common stock on the principal market and the closing sale price of the common stock on such day.
In connection with the ELOC Purchase Agreement and ELOC Registration Rights Agreement, the Company paid a non-cash commitment fee to the Purchaser in the income statement. Excess tax benefits are to be classifiedamount of 3,775,105 shares of common stock of the Company (valued at $1.5 million). The Company reflected the commitment fee as an operating activityexpense in Interest expense in the statementconsolidated statements of cash flows. In accruing compensation cost,operations based on the fair value on the issuance date.
Under applicable rules of the NASDAQ Capital Market, the Company cannot issue or sell more than 19.99% of the shares of common stock outstanding immediately prior to the execution of the ELOC Purchase Agreement to the Purchaser under the ELOC Purchase Agreement without stockholder approval.
During the year ended December 31, 2023, excluding the additional commitment shares issued to the Purchaser disclosed above, the Company did not sell any shares of common stock pursuant to the ELOC Purchase Agreement. Subsequent to December 31, 2023 through the date of this filing, the Company sold 12.0 million shares of common stock at prices ranging between $0.2210 and $0.3430 pursuant to the ELOC Purchase Agreement and received proceeds of $3.1 million.
The Company evaluated the contract that includes the right to require the Purchaser to purchase shares of common stock in the future (“purchased put right”) considering the guidance in ASC 815-40, “Derivatives and Hedging - Contracts on an entity can makeEntity’s Own Equity” (“ASC 815-40”) and concluded that it is an entity-wide accounting policy election to either estimate the number of awardsequity-linked contract that are expected to vest, as required under current guidance, or account for forfeitures when they occur. For an award todoes not qualify for equity classification, an entity cannot partially settleand therefore requires fair value accounting as a derivative asset. The Company has analyzed the award in excessterms of the employer’s maximum statutory withholding requirements. Such cash paidfreestanding purchased put right and has concluded that it has insignificant value as of December 31, 2023.
Preferred Stock
Workhorse has authorized 75.0 million shares of Series A Preferred Stock, par value $0.001 per share. Our certificate of incorporation provides that shares of preferred stock may be issued from time to time in one or more series. Our Board of Directors is authorized to fix the voting rights, if any, designations, powers, preferences, qualification, limitations and restrictions thereof, applicable to the shares of preferred stock. As of December 31, 2023 and December 31, 2022, there were no shares of Series A Preferred Stock issued and outstanding.


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Common Stock
The Company has one class of common stock, par value$0.001 per share. Each share of our common stock is entitled to one vote on all matters submitted to stockholders.
On September 1, 2023, we obtained approval from our stockholders to amendment our articles of incorporation to increase the number of shares of common stock, par value $0.001 per share, authorized for issuance thereunder to 450.0 million.
Warrants
In connection with the issuance of debt, common stock and preferred stock, we issued equity-classified warrants to purchase shares of our common stock. As of December 31, 2023 and 2022, there were approximately 1.0 million warrants outstanding.
Success Fees
During the years ended December 31, 2023 and 2022, we issued 344,997 and 244,035 shares of common stock, respectively, for payment of professional service fees, valued at $0.4 million and $0.6 million, respectively.
14.    RELATED PARTIES
We obtain our general liability, property and casualty, and directors and officers liability insurance through AssuredPartners NL, LLC (“Assured”). Gerald Budde, a former Director of the Company, is currently the Chief Financial Officer of Accretive Insurance Solutions Inc. (“Accretive”). Assured and Accretive are both subsidiaries of AssuredPartners Capital, Inc. The placement of insurance was completed by an employer when directly withholding sharesAssured agent and Mr. Budde did not participate in any decisions about insurance, nor was he paid any portion of the brokerage fee. Assured earned brokerage fees of approximately $0.3 million and $0.3 million for tax withholding purposes should be classified as a financing activitythe years ended December 31, 2023 and 2022, respectively.
15.    COMMITMENTS AND CONTINGENCIES

General Matters

The Company is party to various negotiations and legal proceedings arising in the statementnormal course of cash flows.business. The amendments in ASU No. 2016-09 are effectiveCompany provides reserves for public business entities for fiscal years,these matters when a loss is probable and for interim periods within those fiscal years, beginning after December 15, 2016. Early adoptionreasonably estimable. The Company does not disclose a range of potential loss because the likelihood of such a loss is permitted. Adoptionremote. In the opinion of ASU No. 2016-07 ismanagement, the ultimate disposition of these matters will not expected to have a material impactadverse effect on the Company’s consolidated financial statements.

Inposition, results of operations, cash flows or liquidity.


Legal Proceedings

On October 24, 2022, the Company entered into a binding term sheet to resolve the putative class action (the “Securities Class Action”) brought in the Central District of California (Case No.2:21-cv-02072) on behalf of purchasers of the Company’s securities from March 2016,10, 2020 through May 10, 2021. On January 13, 2023, the FASB issued ASU No. 2016-08, Revenueparties executed a Stipulation of Settlement setting forth the terms of the settlement of the class action and resolution of all claims.

On July 28, 2023 (the “Judgment Date”), the Court entered an order (the “Order”) granting final approval of the Stipulation of Settlement, resolving the Securities Class Action. Pursuant to the Stipulation of Settlement, in exchange for a release of all claims and dismissal with prejudice of the Securities Class Action, the Company agreed to create a settlement fund with an escrow agent (the “Settlement Fund”), consisting of $15.0 million in cash and $20.0 million in shares of common stock of the Company (the “Settlement Shares”) from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net),which class members will receive payment. The escrow agent may sell the Settlement Shares and affectsdeposit the guidance in ASU No. 2014-09, “Revenueproceeds from Contracts with Customers (Topic 606),” which is not yet effective. When another party is involved in providing goodssuch sales into the Settlement Fund or servicesmay distribute the Settlement Shares to a customer, ASU No. 2014-09 requires an entityclass members.

Pursuant to determine whether the natureStipulation of its promise is to provideSettlement, the specified good or service itself (that is, the entity is a principal) or to arrange for that good or servicenumber of Settlement Shares to be provided byissued was based on the other party (that is, the entity is an agent). The amendments in ASU No. 2016-08 are intended to improve the operability and understandabilityVWAP of the implementation guidance in ASU No. 2014-09 on principal versus agent considerations by offering additional guidance toCompany’s common stock for the 15 trading days immediately preceding the Judgment Date. The VWAP would be considered in making the determination. ASU No. 2016-08 is effective for public companies for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Transitional guidance is included in the update. Earlier adoption is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. Adoption of ASU No. 2016-08 is not expected to have a material impactadjusted if, at market close on the trading day before the date the Company deposits the Settlement Shares, the market price per share of the Company’s consolidated financial statements.


In February 2016,common stock deviated more than 25% above or below the FASB issued ASU No. 2016-02, Leases (Topic 842), and requires a lessee to recognize inVWAP Price. Upon such deviation, the statementnumber of financial position a liability to make lease payments (“Settlement Shares would be adjusted, upward or downward, such that the lease liability”) and a right-of-use asset representing its right to use the underlying asset for the lease term, initially measured at the presentaggregate value of the lease payments. When measuring assets and liabilities arising from a lease,Settlement Shares equals $20.0 million. Consistent with the lessee should include payments to be made in optional periods only if the lessee is reasonably certain, as defined, to exercise an option to the lease or not to exercise an option to terminate the lease. Optional payments to purchase the underlying asset should be included if the lessee is reasonably certain it will exercise the purchase option. Most variable lease payments should be excluded except for those that depend on an index or a rate or are in substance fixed payments. A lessee shall classify a lease as a finance lease if it meets any of five listed criteria: 1) The lease transfers ownership of the underlying asset to the lessee by the end of the lease term. 2) The lease grants the lessee and option to purchase the underlying asset that the lessee is reasonably certain to exercise. 3) The lease term is for the major part of the remaining economic life of the underlying asset. 4) The present value of the sum of the lease payments and any residual value guaranteed by the lessee equals or exceeds substantially all of the fair value of the underlying asset. 5) The underlying asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term. For finance leases, a lessee shall recognize in the statement of comprehensive income interest on the lease liability separately from amortization of the right-of-use asset. Amortization of the right-of-use asset shall be on a straight-line basis, unless another basis is more representative of the pattern in which the lessee expects to consume the right-of-use asset’s future economic benefits. If the lease does not meet any of the five criteria, the lessee shall classify it as an operating lease and shall recognize a single lease cost on a straight-line basis over the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. If a lessee makes this election, it should recognize lease expense for such leases generally on a straight-line basis over the lease term. The amendments in this update are to be applied using a modified retrospective approach, as defined, and are effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2018. Early application is permitted. The Company is currently evaluating the financial statement impact of adopting the new guidance.

In August 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date. The amendments in this update defer the effective date of Update 2014-09 for all entities by one year. Public companies should apply the guidance in Update 2014-09 to annual reporting periods beginning after December 31, 2017, including interim reporting periods within that reporting period. Early adoption is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period.

9.PRIVATE PLACEMENT MEMORANDUM

On February 1, 2017,foregoing, the Company announced the completion of its underwritten public offering of 6,500,000issued 25,380,711 shares of its common stock atinto the Settlement Fund as Settlement Shares in September 2023, which is considered a public offeringnon-cash transaction.


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For additional information regarding the Securities Class Action, see Note 17, “Commitments and Contingencies – Legal Proceedings – Securities Litigation” included in Item 8, “Financial Statements and Supplementary Data” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.
16.    SUBSEQUENT EVENTS 
The Company has evaluated subsequent events for potential recognition and disclosures through the date the accompanying consolidated financial statements were filed.
Sale of Manufacturing Facility and Campus
On January 31, 2024, a subsidiary of Workhorse entered into a Purchase and Sale Agreement (the “Sale Agreement”) with William Repny LLC (the “Purchaser”) for the sale of its Union City, IN manufacturing facility and campus, excluding any equipment or fixtures used in manufacturing operations (the “Property”), for a purchase price, before fees and expenses, of $3.00 per share.approximately $34.5 million.
Pursuant to the Sale Agreement, the Company will lease back the Property from the Purchaser under a triple-net lease agreement (the “Lease”) for an initial term of 20 years. The Company will have the option to renew the Lease for three additional 10-year renewal terms, subject to the terms of the Lease.
Under the Lease, the Company will pay base annual rent of approximately $3.4 million for the Property, subject to an annual increase of 3% during the initial term of the lease and certain additional increases during any renewal term. In addition to rent, the underwriters exercised anCompany will be responsible for all costs and expenses related to the Property, including, without limitation, maintenance, operation, repair and replacement of buildings and improvements, utility charges, insurance premiums and real estate taxes and assessments.
The closing is subject to Purchaser performing satisfactory due diligence on the Property, obtaining financing and other customary closing conditions. There is no assurance at this time that the Purchaser will purchase the Property. The Company plans to use the proceeds for general corporate purposes.
Aero Drone Design and Manufacturing Operations
As previously disclosed in our Quarterly Report on Form 10-Q for the period ended September 30, 2023 filed with the SEC on November 14, 2023, we announced our decision to evaluate a broad range of strategic alternatives for our drone vehicles which may include a sale, strategic partnership, another transaction, or the continued execution of our strategic plan for the drone vehicle production. On February 20, 2024, our Board of Directors approved a plan to cease the production operations of our drone design and manufacturing business and transition to only operating our Drones As A Service business. The decision to cease operation of our drone design and manufacturing product line was not considered a strategic shift having major effects on operations and therefore does not meet the criteria to qualify as a discontinued operation.
First Amendment to Green Senior Secured Convertible Note Due 2026
Subsequent to December 31, 2023, the Company has repaid $7.5 million of the initial principal balance upon request of the holder. On February 29, 2024, the Company entered into a First Amendment to Green Senior Secured Convertible Note Due 2026 (the “2026 Notes Amendment”) with the holder. In connection with the 2026 Notes Amendment, the Company redeemed $10.0 million principal amount of the 2026 Notes, thereby reducing the outstanding principal amount of the 2026 Notes to $2.5 million. The 2026 Notes Amendment also removed the February 15, 2024 and March 1, 2024 partial redemption dates, deleted the minimum liquidity covenant, and amended the 2026 Notes to permit the Company to prepay the 2026 Notes at its option, subject to purchase an additional 975,000certain conditions.
Exchange Agreement
In connection with the 2026 Notes Amendment, the Company entered into a letter agreement (the “Exchange Agreement”) to exchange the 2026 Warrants for a total of 8.5 million shares of common stock atfor a total value of $2.9 million, whereupon the public offering price, lessWarrant was cancelled (the “Exchange”). The Company recorded a gain of $2.7 million in connection with the underwriting discounts and commissions.

All of the sharesExchange in the offering were sold by Workhorse Group,first quarter of 2024.


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Additional Cost Reduction Measures

Another vital component of management’s intended plan over the next twelve months to improve our liquidity and working capital requirements is reducing our operating costs to, among other things, reduce demands on the liquidity that is available to us. Accordingly, in the first quarter of 2024 we took the measures described below.

•We are in the process of completing a reduction in force (the “RIF”) pursuant to which we terminated approximately 20% of our total workforce, excluding direct labor. We do not expect to incur material costs in connection with gross proceedsthe RIF.
•Each of our executive officers agreed to Workhorse Groupdefer payment of approximately $22.4 million20% of their cash compensation into the second quarter of 2024.
•As described above, we decided to fully transition our Aero business from a design and net proceedsmanufacturing drone business to Drones as a Service business. This transition has resulted in, among other things, our stopping production and development of approximately $20.5 million, after deducting underwriting discountsboth drone product lines and commissionsthe termination of employees who performed the related work.

Management plans to continue to seek additional opportunities to reduce costs and, estimated offering expenses.

On June 22, 2017, Workhorse entered intoin particular, cash expenditures, in a manner intended to minimize their adverse impact on our core operations. Management also plans to significantly reduce capital expenditures and only allocate capital for manufacturing equipment and tooling. There can be no assurance that the measures described above, or any other cost-cutting measures we may implement in the future will be sufficient to address our immediate or longer-term liquidity and working capital needs. Moreover, it is possible that such measures will have an at the market issuance sales agreement (the “Cowen Agreement”) with Cowen and Company, LLC (“Cowen”) under which the Company may offer and sell, from time to time at its sole discretion, shares of its Common Stock having an aggregate offering price of up to $25,000,000 through Cowen as its sales agent. As of December 31, 2017, the Company issued 1,060,783 shares from this facility.

On September 14, 2017, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with Cowen relating to the public offering and sale (the “Offering”) of 3,749,996 shares of the Company’s common stock, and five-year warrants (exercisable beginningadverse effect on the date of issuance) to purchase up to an aggregate of 2,812,497 shares of the Company’s common stock. Each investor received a warrant to purchase 0.75 shares of the Company’s common stock at an exercise price of $3.80 per share, for each share of common stock purchased.

Pursuant to the Underwriting Agreement, Cowen purchased 3,749,996 shares of the Company’s common stock and accompanying warrants at a price per share of $3.20. The net proceeds to the Company were approximately $10.9 million after deducting underwriting discounts and commissions and offering expenses. The sale of such shares and accompanying warrants closed on September 18, 2017. The warrants contain full ratchet anti-dilution protection upon the issuance of any common stock, securities convertible into common stock or certain other issuances at a price below the then existing exercise price of the warrants, with certain exceptions.

10.QUARTERLY FINANCIAL DATA (UNAUDITED)

   Sales  Gross Loss  Net Loss  Basic and diluted loss per share 
 2017            
 First Quarter $1,778,037  $(2,534,051) $(7,920,606) $(0.24)
 Second Quarter 270,000  (725,925) (9,199,700) (0.26)
 Third Quarter 3,285,000  (4,273,082) (12,663,222) (0.35)
 Fourth Quarter 5,513,423  (6,137,345) (12,455,703) (0.32)
 2016                
 First Quarter 236,000  (228,377) (4,380,012) (0.23)
 Second Quarter 1,234,600  (1,060,075) (2,935,830) (0.14)
 Third Quarter 1,906,000  (2,267,364) (5,262,859) (0.25)
 Fourth Quarter 3,038,200  (3,607,646) (6,977,167) (0.28)

our operations.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

(a)

Evaluation of Disclosure Controls and Procedures

Our

We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in reports filed under the Exchange Act is recorded, processed, summarized and reported within the specified time periods and accumulated and communicated to our management, withincluding our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. An evaluation of the participationeffectiveness of our Principal Executive Officerthe design and Principal Financial Officer, has evaluated the effectivenessoperation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of the end of the period covered by this Annual Report. Based on such evaluation, our Principal Executive Officer and Principal Financial Officer have concluded that, as of the end of the period covered by this Annual Report was made under the supervision and with the participation of our management, including our principal executive officer and principal financial officer.
Based upon this evaluation, our principal executive officer and principal financial officer have concluded that, as of December 31, 2023, our disclosure controls and procedures were not effective becauseas of such date due to a material weakness in our internal control over financial reporting, as discusseddescribed below.

Notwithstanding this material weakness, our Chief Executive Officer and Chief Financial Officer have concluded that the Consolidated Financial Statements included in this Annual Report on Form 10-K present fairly, in all material respects, the financial position of the Company at December 31, 2017 and 2016 and the consolidated results of operations and cash flows for each of the fiscal years presented herein in conformity with U.S. generally accepted accounting principles.

(b)

Management’s Annual Report on Internal Control Over Financial Reporting

The

Our management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting, as required by Sarbanes-Oxley (SOX) Section 404(a)such term is defined in Securities Exchange Act Rules 13a-15(f) and 15d-15(f). The Company’s internalInternal control over financial reporting is a process designed by, or under the supervision of, the Company’s Principalour Chief Executive Officer and PrincipalChief Financial Officer and effected by the Company’s Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s consolidated financial statements for external purposes in accordance with United States generally accepted accounting principles.

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with US GAAP. Becausegenerally accepted accounting principles and includes those policies and procedures that (1) pertain to the maintenance of its inherent limitations,records in reasonable detail to accurately and fairly reflect the transactions and dispositions of our assets; (2) provide reasonable assurance transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and our receipts and expenditures are being made only in accordance with authorizations of our management and directors and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets could have a material effect on the financial statements.


Under the supervision and with the participation of management, including Workhorse’s Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of internal control over financial reporting may not prevent or detect misstatements. Also, projectionas of December 31, 2023, based on the criteria set forth in Internal Control – Integrated Framework (2013) (the “Framework”) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

There are inherent limitations on the effectiveness of any evaluationsystem of effectiveness to future periods is subject tointernal controls and procedures, including the risk thatpossibility of human error and the circumvention or overriding of the controls may become inadequate becauseand procedures. Accordingly, even effective internal controls and procedures can only provide reasonable assurance of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

32
achieving their control objectives.


A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. In connection with management’s assessment

During the audit process related to the year ended December 31, 2023, Management identified a material weakness in the design of our internal control over financial reporting as required under Section 404one of the Sarbanes-Oxley Act of 2002, we identified the following material weaknesses in ourCompany's internal control over financial reporting as of December 31, 2017:

●The Company has not established adequate financial reporting monitoring activitiescontrols related to mitigate the risk of accounting errors, specifically because there are few employees and turnover in the finance function had been high.

●The Company expanded significantly in 2016 and 2017 and as a result of its organic growth it has not been able to establish the proper accounting and financial reporting oversight of its increased activity. In addition, resources were redirected toward the support of the SureFly spin-off in late 2017 and in early 2018.

●The lack of a fully implemented enterprise resource planning (ERP) system to handle prepayments contributed to the situation.

Because of the material weaknesses noted above, management has concluded that it did not maintain effective internal control over financial reporting as of December 31, 2017, based on Internal Control over Financial Reporting - Guidance for Smaller Public Companies issued by COSO.

Remediation of Material Weaknesses in Internal Control over Financial Reporting

As a company with limited capital resources, the Company does not have the resources to install a dedicated staff with deep expertise in all facets of SEC disclosure and US GAAP compliance. As a response, the company believes the following measures will adequately address the weakness:

●Complete implementation of the ERP system modules covering purchase orders and inventory

●Review and implement adequate account reconciliation processes to improve the end of period closing process

As a company with limited resources, the Company does not have the resources to fund sufficient staff to ensure a complete segregation of responsibilities within the accounting function. However, Company management does review, and will increase the review of the financial statements. This action, in addition tofair value calculation of the improvements identifiedconvertible note and warrant liability performed by a third-party valuation expert. The controls were not designed with a level of precision that would detect the use of an inappropriate input that could have a material impact on the valuation.


Based on the results of its evaluation and the material weakness described above, will minimize any risk of a potential material misstatement occurring.

The independent registered public accounting firmManagement concluded that audited the consolidated financial statements included in this Annual Report has issued an attestation report on the Company’s internal control over financial reporting attestation report which appears herein.

(c) was not effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with GAAP as of December 31, 2023.

Changes in Internal Control over Financial Reporting

There have beenwere no changes in ourthe Company’s internal control over financial reporting that occurred during the fourth fiscal quarter of the year ended December 31, 2017 that have materially affected, or are reasonably likely to materially affect, ourthe Company’s internal control over financial reporting.

35

Remediation of the Material Weakness
We are in the process of designing and implementing remediation measures intended to address the material weakness discussed above. These remediation measures will be focused on our precision of review of the binomial lattice model performed by independent third-party valuation experts we use to value these types of complex financial instruments. The valuation procedures are to be reviewed and approved by responsible management of the Company. Under the supervision of the Audit Committee, responsible management will develop a comprehensive remediation plan, including a detailed plan and timetable for implementation, and will report regularly to the Audit Committee regarding the status of the implementation activities.
ITEM 9B. OTHER INFORMATION

33


On March 11, 2024, each of our executive officers (including each of our Named Executive Officers) voluntarily agreed to defer receipt of 20% of their annual base salary for pay periods beginning on March 4, 2024 and ending three months thereafter. In addition, each of our directors agreed to defer receipt of monthly cash retainers for the second quarter until July 1, 2024. Our executive officers and directors agreed to the deferrals to reflect their commitment to the Company and to align their compensation with the broader actions we are taking to reduce costs. All executive officers and affected directors are expected to receive such deferred compensation following the deferral period.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
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PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The officersinformation required by this Item 10 of Form 10-K will be included in our 2024 Proxy Statement to be filed with the Securities and director of the Company are as follows:

NameAgePosition
Raymond J. Chess59Director, Chairman
Harry DeMott50Director
H. Benjamin Samuels51Director
Gerald B. Budde56Director
Stephen S. Burns57Director, Chief Executive Officer, Secretary and Treasurer
Duane Hughes54President and Chief Operating Officer
Paul Gaitan58Chief Financial Officer

Officers are elected annually by the Board of Directors (subject to the terms of any employment agreement) to hold such office until an officer’s successor has been duly appointed and qualified, unless an officer sooner dies, resigns or is removed by the Board.

Our officers and directors have not been the subject of any order, judgment, or decree of any court of competent jurisdiction, or any regulatory agency permanently or temporarily enjoining, barring, suspending or otherwise limiting them from acting as an investment advisor, underwriter, broker or dealer in the securities industry, or as an affiliated person, director or employee of an investment company, bank, savings and loan association, or insurance company or from engaging in or continuing any conduct or practice in connection with any such activity orExchange Commission in connection with the purchase or salesolicitation of any securities.

Our officers and directors have not been convicted in any criminal proceeding (excluding traffic violations) and are not the subject of any criminal proceedings which are currently pending.

Background of Executive Officers and Directors

Raymond J. Chess, Director Chairman

Prior to joining the Company, Mr. Chess served as a Global Vehicle Line Executive for General Motors Co. (“GM”), where he was responsible for global, cross functional general management of the GM crossover market segment from May 2009 through December 2012. Prior to this, from August 2001 until April 2009, Mr. Chess was responsible for GM’s commercial truck segment. Previous GM assignments included leadership roles in the full size truck segment, metal fabrication and body assembly. Mr. Chess’s background includes broad, hands-on manufacturing leadership roles with manufacturing, engineering and manufacturing floor operations. Mr. Chess holds a Bachelor’s of Science degree in Mechanical Engineering from Kettering University and an MBA from Indiana University.

Stephen S. Burns, Director, Chief Executive Officer, Treasurer and Secretary

Mr. Burns is a Co-Founder in the Company and has served as the Company’s CEO since inception. Mr. Burns was appointed as CEO, and Secretary of the Company on December 28, 2009. Mr. Burns had founded several companies, most recently iTookThisOnMyPhone.com, a mobile photo and video-sharing technology company, MobileVoiceControl, Inc. a developer of high-end speech recognition software for smartphones sold to Nuance Communications (NASDAQ:NUAN), Inc. in 2006, AskMeNow [OTC:AKMN] a mobile search and information delivery system sold to Ocean West Holdings in 2005, PocketScript, the leading mobile electronic prescription system in the world which was sold to ZixCorp [NASDAQ:ZIXI] in 2002, Over The Line/AdLink, sold to Gannett Co. Inc. (NYSE:GCI) in 1994 and the design and development of Suspension Parameter Measurement Machines.

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H. Benjamin Samuels, Director

Mr. Samuels served as CEO of Victory Packaging from May 2007 through 2015, during which time he led an executive team which currently manages more than 1,500 employees. In 2015, Mr. Samuels was appointed as Co-President after Victory Packaging was acquired by KapStone Paper and Packaging Corporation. From 1997 through 2007, Mr. Samuels served as Vice Chairman and leader of Victory Packaging’s national accounts group, real estate, finance and legal departments, achieving a period of unprecedented growth in sales and revenues. Mr. Samuels joined Victory Packaging in 1995 as its regional operating manager of Texas. Mr. Samuels is an active member in the community, where he recently served as the Chairman of the Houston Food Bank. Mr. Samuels also served as the President of the Houston Chapter of the American Jewish Committee before joining its National Board of Governors. Mr. Samuels served on the boards of and held leadership positions with American Leadership Forum, Serve Houston, Holocaust Museum Houston, Jewish Federation of Greater Houston and Jewish Family Service. Mr. Samuels received a Bachelor’s degree in American studies and economics from Amherst College in Massachusetts well as an MBA from the Harvard Graduate School of Business Administration.

Gerald Budde, Director

From September 2011 through the present, Mr. Budde serves as the Chief Financial Officer of AssuredPartners NL, LLC. and maintains titles for other affiliated companies.  Mr. Budde was previously the Chief Financial Officer and shareholder of Neace Lukens Holding Company and Subsidiaries from July 2003 through September 2011, when it was acquired by Assured Partners Capital, Inc.  AssuredPartners was founded in 2011 and is a national partnership of leading independent property and casualty and employee benefits brokerage firms.  Mr. Budde was the Machine Tool Group Controller of Cincinnati Milacron Inc. from April 1994 to October 1998, at which time he was appointed as Vice President of Finance after Cincinnati Milacron’s machine tool group was acquired by UNOVA Industrial Automation Systems, Inc.   Mr. Budde remained in that role prior to joining Neace Lukens in 2003.  Mr. Budde was a Certified Public Accountant until he left public accounting Ernst & Young after 11 years of service in 1994. Mr. Budde is currently a member of the Board of Trustees and the Finance Committee of Mt. Notre Dame high school and is also a member of the Finance Commission of St. Margaret of York parish and school.  Mr. Budde received a Bachelor’s degree in Accounting from the University of Dayton.

Harry DeMott, Director

Mr. DeMott, has more than 25 years experience in the investment community, having worked as an analyst and portfolio manager at leading brokerage firms and investment management firms. He has also served on the boards of several companies. He is a long-time operator and investor in the media, sports and entertainment industries. He is the co-founder of Raptor Ventures I LP, where he has been a General Partner since February 2011. In addition, Mr. DeMott is a member of the Board of Directors of Fan Manager, SecurityPoint Media, Signal360 and Ticket Evolution.

He also serves as founder and managing partner for Hamerle Investments, a family investment company. Prior to co-founding Raptor Ventures, Mr. DeMott served on the Board of Directors of Pandora Media, Inc. from 2006 through 2011. Earlier, he served as senior analyst at Knighthead Capital Management, analyst at King Street Capital Management, portfolio manager at Bourgeon Capital Management and managing member and founder at Gothic Capital Management. During this 16-year period, Mr. DeMott focused on finding, fostering and investing in disruptive technology companies. He previously spent nine years at First Boston (now Credit Suisse), where he was a director in the equity research division specializing in radio, TV, outdoor advertising and cell towers. He earned a bachelor of arts in economics from Princeton University in 1988 and a MBA in finance from New York University in 1991.

Duane Hughes, President and Chief Operating Officer

Mr. Hughes is a senior-level executive with more than 20 years experience including direct business relationships in the automotive, advertising, and technology segments. Prior to joining Workhorse/AMP Electric Vehicles, Duane served as Chief Operating Officer for Cumulus Interactive Technologies Group. As COO, Duane was responsible for managing the company’s day-to-day sales and operations. He was responsible for all operations of the business unit. Prior to Cumulus ITG, Duane spent nearly fifteen years in senior management positions with Gannett Co., Inc., including his duties as Vice President of Sales and Operations for Gannett Media Technologies International.

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Paul Gaitan, Chief Financial Officer

Mr. Gaitan is a finance executive with over 30 years of experience working for manufacturing companies in the automotive, building products and consumer products space. Paul has led business integrations, developed strategy, and implemented advanced product costing approaches. He has held roles such as Production Manager, Controller, VP of Finance and CFO driving change by addressing both systems and personnel. Paul works collaboratively to design and deliver insightful information that leads to high quality decisions by the executive team. He earned a bachelor of science degree in finance from the University of Southern California and an MBA from the Stanford Graduate School of Business.

Family Relationships

There are no family relationships among our directors and executive officers. There is no arrangement or understanding between or among our executive officers and directors pursuant to which any director or officer was or is to be selected as a director or officer.

Involvement in Certain Legal Proceedings

To our knowledge, during the last ten years, none of our directors and executive officers has:

●Had a bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time.
●Been convicted in a criminal proceeding or been subject to a pending criminal proceeding, excluding traffic violations and other minor offenses.
●Been subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities.
●Been found by a court of competent jurisdiction (in a civil action), the SEC, or the Commodities Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated.
●Been the subject to, or a party to, any sanction or order, not subsequently reverse, suspended or vacated, of any self-regulatory organization, any registered entity, or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.

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CORPORATE GOVERNANCE

Governance Policies of the Board of Directors

The Board of Directors has adopted Governance Policies of the Board of Directors to assist the Board in the exercise of its duties and responsibilities and to serve the best interests of the Company and its stockholders. These policies provide a framework for the conduct of the Board’s business.

Committees

Establishment of Board Committees and Adoption of Charters

On December 17, 2015, the Company established a Nominating and Corporate Governance Committee, a Compensation Committee and an Audit Committee (collectively, the “Committees”) and approved and adopted charters to govern each of the Committees. 

In connection with the establishment of the Nominating and Corporate Governance Committee, Compensation Committee and Audit Committee, the Board of Directors of the Company appointed members to each such committee. Currently, all three committees are comprised of three (3) directors meeting the requirements set forth in each applicable charter. The membership of these three standing committees of the Board of Directors of the Company is as follows: 

Nominating and Corporate Governance CommitteeCompensation CommitteeAudit Committee
Raymond Chess (Chairman)Harry DeMott (Chairman)Gerald Budde (Chairman)
Gerald BuddeGerald BuddeRaymond Chess
Harry DeMottBenjamin SamuelsBenjamin Samuels

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Nominating and Corporate Governance Committee.

Our board of directors has determined that each of the members of the Governance Committee is an “independent director” as defined by the rules of The NASDAQ Stock Market, Inc. The Governance Committee is generally responsible for recommending to our full board of directors policies, procedures, and practices designed to help ensure that our corporate governance policies, procedures, and practices continue to assist the board of directors and our management in effectively and efficiently promoting the best interests of our stockholders. The Governance Committee is also responsible for selecting and recommending for approval by our board of directors and our stockholders a slate of director nominees for election at each of our annual meetings of stockholders, and otherwise for determining the board committee members and chairmen, subject to board of directors ratification, as well as recommending to the board director nominees to fill vacancies or new positions on the board of directors or its committees that may occur or be created from time to time, all in accordance with our bylaws and applicable law. The Governance Committee’s principal functions include:

●developing and maintaining our corporate governance policy guidelines;

●developing and maintaining our codes of conduct and ethics;

●overseeing the interpretation and enforcement of our Code of Conduct and our Code of Ethics for Chief Executive Officer and Senior Financial and Accounting Officers;

●evaluating the performance of our board of directors, its committees, and committee chairmen and our directors; and

●selecting and recommending a slate of director nominees for election at each of our annual meetings of the stockholders and recommending to the board director nominees to fill vacancies or new positions on the board of directors or its committees that may occur from time to time.

During 2017, the Governance Committee met one time. The Governance Committee is governed by a written charter approved by our board of directors. A copy of the Governance Committee’s charter is posted on the Company’s website at www.workhorse.com in the “Investors” section of the website. In identifying potential independent board of directors candidates with significant senior-level professional experience, the Governance Committee solicits candidates from the board of directors, senior management and others and may engage a search firm in the process. The Governance Committee reviews and narrows the list of candidates and interviews potential nominees. The final candidate is also introduced and interviewed by the board of directors and the lead director if one has been appointed. In general, in considering whether to recommend any particular candidate for inclusion in our board of directors’ slate of recommended director nominees, the Governance Committee will apply the criteria set forth in our corporate governance guidelines. These criteria include the candidate’s integrity, business acumen, commitment to understanding our business and industry, experience, conflicts of interest and the ability to act in the interests of our stockholders. Further, specific consideration is given to, among other things, diversity of background and experience that a candidate would bring to our board of directors. The Governance Committee does not assign specific weights to particular criteria and no particular criterion is a prerequisite for each prospective nominee. We believe that the backgrounds and qualifications of our directors, considered as a group, should provide a composite mix of experience, knowledge and abilities that will allow our board of directors to fulfill its responsibilities. Stockholders may recommend individuals to the Governance Committee for consideration as potential director candidates by submitting their names, together with appropriate biographical information and background materials to our Governance Committee. Assuming that appropriate biographical and background material has been provided on a timely basis, the Governance Committee will evaluate stockholder recommended candidates by following substantially the same process, and applying substantially the same criteria, as it follows for candidates submitted by others.

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Audit Committee.

We have a separately-designated standing Audit Committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Our board of directors has determined that the members are all “independent directors” as defined by the rules of The NASDAQ Stock Market, Inc. applicable to members of an audit committee and Rule 10A-3(b)(i) under the Exchange Act. In addition, Mr. Budde is an “audit committee financial expert” as defined in Item 407(d)(5) of Regulation S-K and demonstrates “financial sophistication” as defined by the rules of The NASDAQ Stock Market, Inc. The Audit Committee is appointed by our board of directors to assist our board of directors in monitoring (1) the integrity of our financial statements, (2) our compliance with legal and regulatory requirements, and (3) the independence and performance of our internal and external auditors. The Audit Committee’s principal functions include:

●reviewing our annual audited financial statements with management and our independent auditors, including major issues regarding accounting and auditing principles and practices and financial reporting that could significantly affect our financial statements;
●reviewing our quarterly financial statements with management and our independent auditor prior to the filing of our Quarterly Reports on Form 10-Q, including the results of the independent auditors’ reviews of the quarterly financial statements;
●recommending to the board of directors the appointment of, and continued evaluation of the performance of, our independent auditor;
●approving the fees to be paid to our independent auditor for audit services and approving the retention of our independent auditor for non-audit services and all fees for such services;
●reviewing periodic reports from our independent auditor regarding our auditor’s independence, including discussion of such reports with the auditor;
●reviewing the adequacy of our overall control environment, including internal financial controls and disclosure controls and procedures; and
●reviewing with our management and legal counsel legal matters that may have a material impact on our financial statements or our compliance policies and any material reports or inquiries received from regulators or governmental agencies.

During 2017, the audit committee met four times. A copy of the Audit Committee’s charter is posted on the Company’s website at www.workhorse.com in the “Investors” section of the website.

Meetings may be held from time to time to consider matters for which approval of our Board of Directors is desirable or is required by law.

Compensation Committee.

A full discussion of our compensation committee can be found under Item 11 – Executive Compensation.

Code of Ethics

We have adopted a Code of Business Conduct and Ethics Policy (the “Code of Ethics”) that applies to all directors and officers. The Code of Ethics describes the legal, ethical and regulatory standards that must be followed by the directors and officers of the Company and sets forth high standards of business conduct applicable to each director and officer. As adopted, the Code of Ethics sets forth written standards that are designed to deter wrongdoing and to promote, among other things:

●honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships;
●compliance with applicable governmental laws, rules and regulations;
●the prompt internal reporting of violations of the Code of Ethics to the appropriate person or persons identified in the code; and
●accountability for adherence to the Code of Ethics.

Company Policies

The Company has established the following written policies that have been distributed and reviewed with all Company employees: Approval policy, Purchase Requisition policy, Conflict of Interest policy, “Do the Right Thing” (ethics) policy and a Travel and Expense policy.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our directors and executive officers and persons who own more than 10% of the issued and outstanding shares of our common stock to file reports of initial ownership of common stock and other equity securities and subsequent changes in that ownership with the SEC. Officers, directors and greater than ten percent stockholders are required by SEC regulation to furnish us with copies of all Section 16(a) forms they file. To our knowledge, based solely on a review of the copies of such reports furnished to us and written representations that no other reports were required, during the fiscal year ended December 31, 2016 all Section 16(a) filing requirements applicable to our officers, directors and greater than 10% beneficial owners were complied with.

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ITEM 11. EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

Oversight of Executive Compensation Program

Compensation Committee.

Our compensation committee consists of Harry DeMott, Gerald Budde and Benjamin Samuels. Our board of directors has determined that each of the members are an “independent director” as defined by the rules of The NASDAQ Stock Market, Inc. applicable to members of a compensation committee. The Compensation Committee is responsible for establishing the compensation of our senior management, including salaries, bonuses, termination arrangements, and other executive officer benefits as well as director compensation. The Compensation Committee also administers our equity incentive plans. During 2017, the Compensation Committee meet one time. The Compensation Committee is governed by a written charter approved by the board of directors. A copy of the Compensation Committee’s charter is posted on the Company’s website at www.workhorse.com in the “Investors” section of the website. The Compensation Committee works with the Chairman of the Board and Chief Executive Officer and reviews and approves compensation decisions regarding senior management including compensation levels and equity incentive awards. The Compensation Committee also approves employment and compensation agreements with our key personnel and directors. The Compensation Committee has the power and authority to conduct or authorize studies, retain independent consultants, accountants or others, and obtain unrestricted access to management, our internal auditors, human resources and accounting employees and all information relevant to its responsibilities.

The responsibilities of the Compensation Committee, as stated in its charter, include the following:

●review and approve the Company’s compensation guidelines and structure;
●review and approve on an annual basis the corporate goals and objectives with respect to compensation for the Chief Executive Officer;
●review and approve on an annual basis the evaluation process and compensation structure for the Company’s other officers, including salary, bonus, incentive and equity compensation; and
●periodically review and make recommendations to the Board of Directors regarding the compensation of non-management directors.

The Compensation Committee is responsible for developing the executive compensation philosophy and reviewing and recommending to the Board of Directors for approval all compensation policies and compensation programs for the executive team.

Overview of Executive Compensation

The Company recognizes that people are our primary asset and our principal source of competitive advantage. In order to recruit, motivate and retain the most qualified individuals as senior executive officers, the Company strives to maintain an executive compensation program that is competitive in the commercial transportation industry, which is a competitive, global labor market.

The Compensation Committee’s compensation objective is designed to attract and retain the best available talent while efficiently utilizing available resources. The Compensation Committee compensates executive management primarily through base salary and equity compensation designed to be competitive with comparable companies, and to align management’s compensation with the long-term interests of shareholders. In determining executive management’s compensation, the Compensation Committee also takes into consideration the financial condition of the Company and discussions with the executive.

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In order to accomplish our goals and to ensure that the Company’s executive compensation program is consistent with its direction and business strategy, the compensation programproxies for our senior executive officers is based on the following objectives:

●to attract, motivate, retain and reward a knowledgeable and driven management team and to encourage them to attain and exceed performance expectations within a calculated risk framework; and
●to reward each executive based on individual and corporate performance and to incentivize such executives to drive the organization’s current growth and sustainability objectives.

The following key principles guide the Company’s overall compensation philosophy:

●compensation is designed to align executives to the critical business issues facing the Company;
●compensation should be fair and reasonable to shareholders and be set with reference to the local market and similar positions in comparable companies;
●an appropriate portion of total compensation should be equity-based, aligning the interests of executives with shareholders; and
●compensation should be transparent to the Board of Directors, executives and shareholders.

Compensation Elements and Rationale

There are two basic components to the Company’s executive compensation program: base salary and long-term incentive equity compensation. The Compensation Committee determined that it would continue evaluating and evolving the compensation program design against best market practices as the Company experiences further growth. We intend to add short-term incentive cash awards in the near future.

Base Salary

Base salary is the foundation of the compensation program and is intended to compensate competitively relative to comparable companies within our industry and the marketplace where we compete for talent. Base salary is a fixed component of the compensation program and is used as the base to determine elements of incentive compensation and benefits.

Long-Term Incentive (Equity)

The Company’s long-term incentive program provides for the granting of stock options to executive officers to both motivate executive performance and retention, as well as to align executive officer performance to shareholder value creation. In awarding long-term incentives, the Company compares the long-term incentive program to that of comparable companies within our industry and evaluates such factors as the number of options available under its Stock Incentive Plan and the number of options outstanding relative to the number of shares outstanding. The Company has historically sought to award stock options on a competitive basis based on a comparison with comparable companies.

Each long-term incentive grant is based on the level of the position held and overall market competitiveness. The Compensation Committee takes into consideration previous grants when it considers new grants of options.

The Board of Directors fixes the exercise price of stock options at the time of the grant based on the market price on the Nasdaq.

During the year ended December 2017, long-term equity incentive plan awards were awarded to the executive officers in the form of stock options.

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Our Board of Directors adopted the Company’s 2017 Stock Incentive Plan. On August 7, 2017 our shareholders ratified the 2017 Stock Incentive Plan.

The following table summarizes the pay mix for the executive officers and illustrates the percentage of fixed versus at-risk pay for the fiscal year ended December 31, 2017:

Name and Principal Position Base Salary  Stock Options (LTIP) 
Stephen S. Burns  15%  85%
CEO and Director        
         
Duane Hughes  24%  76%
President and Chief Operating Officer        
         
Paul Gaitan  38%  62%
Chief Financial Officer        

Non-Cash Compensation

The Company provides standard health benefits to its executives, including medical, dental and disability insurance.

The Company’s non-cash compensation is intended to provide a similar level of benefits as those provided by comparable companies within our industry.

Review of Executive Officer Performance

On an annual basis, the Compensation Committee reviews the overall compensation package for our executive officers and evaluates executive officer performance relative to corporate goals. The Compensation Committee has the opportunity to meet with the executive officers at various times throughout the year, which assists the Compensation Committee in forming its own assessment of each individual’s performance. The executive officers are not present during voting or deliberations of the Compensation Committee relating to executive compensation.

In determining the compensation for the executive officers, the Compensation Committee considers compensation paid to executive officers of other companies within the industry, the executive’s performance in meeting goals, the complexity of the management position and the experience of the individual. During 2017, the Company’s operations were still in development and no significant portion of the executive’s pay was linked to performance goals.

Executive and Director Compensation

Director Compensation 

On October 24, 2013, Raymond J. Chess was appointed as a director of the Company. Prior to joining the Board of Directors, Mr. Chess served on our advisory board pursuant to which he received a stock option to acquire 10,000 shares of common stock at an exercise price of $2.50 per share. On October 24, 2013, Mr. Chess entered into a letter agreement with the Company pursuant to which he was appointed as a director of the Company in consideration of an annual fee of $40,000. Additionally, the Company granted Mr. Chess options to purchase 50,000 shares of the Company’s common stock at $2.60 per share. The options will expire five years from the vesting period with 10,000 options vesting upon the signing of the agreement and 4,000 every six months thereafter for a total of 50,000 shares.

On December 17, 2015, Messrs. Budde and Samuels entered into letter agreements with the Company pursuant to which they were each appointed as directors of the Company in consideration of an annual fee of $40,000.  Additionally, the Company granted Messrs. Budde and Samuels options to purchase 50,000 shares of the Company’s common stock at $7.01 per share.  The options will expire five years from the vesting period with 10,000 options vesting upon the signing of the agreement and 4,000 every June 30 and December 31 thereafter for a total of 50,000 shares.

On September 14, 2016, Mr. DeMott entered into a letter agreement with the Company pursuant to which he was appointed as a director of the Company in consideration of an annual fee of $40,000. Additionally, the Company granted Mr. DeMott an option to purchase 50,000 shares of the Company’s common stock at $8.20 per share. The option will expire five (5) years from the vesting period with 10,000 options vesting upon the signing of the agreement and 4,000 every June 30 and December 31 thereafter for a total of 50,000 shares.

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The Company’s compensation policy for the above directors was based on comparisons of other companies’ remunerations made to their Chairman and other directors and the value of their expertise to the Company.

Executive Compensation

Messrs. Burns, Hughes and Gaitan are retained according to employment agreements with our Company, and each individuals’ compensation for serving as an executive officer of the Company is disclosed below in the “Summary Compensation Table”. The compensation committee is presently contemplating amending and/or restating the employment agreements to provide for a uniform structure and in order to appropriately update such agreements.

The Company’s compensation policy for each of the above parties is based on comparisons of other companies’ remunerations made to each of the respective positions and the value of each executive’s expertise to the Company.

Pension Benefits

None.

Non-Qualified Deferred Compensation

None.

Retirement, Resignation or Termination Plans

Each of the Company’s executive employment agreements with Messrs. Burns, Hughes and Gaitan contemplates the case of termination due to various provisions whereby the named executive officers will receive severance payments, as described below.

Compensation and Risk

We do not believe that our compensation policies and practices are reasonably likely to have a material adverse effect on us. We have taken steps to ensure our executive compensation program does not incentivize risk outside the Company’s risk appetite. Some of the key ways that we currently manage compensation risk are as follows:

●appointed a Compensation Committee which is composed entirely of independent directors to oversee the executive compensation program;
●the use of deferred equity compensation in the form of stock options to encourage a focus on long-term corporate performance versus short-term results; and
●disclosure of executive compensation to stakeholders;

Consideration of Most Recent Shareholder Advisory Vote on Executive Compensation

As required by Section 14A of the Exchange Act, at our 20172024 Annual Meeting of Stockholders our stockholders voted, in an advisory manner, on a proposal to approve our named executive officer compensation. This was our most recent stockholder advisory vote to approve named executive officer compensation.and is incorporated herein by reference. The proposal was approved by our stockholders, receiving approximately 72% of2024 Proxy Statement will be filed with the vote of the stockholders present in person or represented by proxySecurities and voting at the meeting. We considered this vote to be a ratification of our current executive compensation policies and decisions and, therefore, did not make any significant changes to our executive compensation policies and decisions based on the vote.

Compensation Committee Interlocks and Insider Participation

No person who served as a member of our Compensation Committee during Fiscal 2017 was a current or former officer or employee of our Company or engaged in certain transactions with our Company required to be disclosed by regulations of the SEC. Additionally, during Fiscal 2017 there were no Compensation Committee “interlocks,” which generally means that no executive officer of our Company served: (a) as a member of the compensation committee (or other board committee performing equivalent functions or, in the absence of any such committee, the entire board of directors) of another entity which had an executive officer serving as a member of our Company’s Compensation Committee; (b) as a director of another entity which had an executive officer serving as a member of our Company’s Compensation Committee; or (c) as a member of the compensation committee (or other board committee performing equivalent functions or, in the absence of any such committee, the entire board of directors) of another entity which had an executive officer serving as a director of our Company.

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Compensation Committee Report

The Compensation Committee has reviewed and discussed the foregoing compensation discussion and analysis with Company management. Based on that review and those discussions, the Compensation Committee recommended to the Board of Directors that the compensation discussion and analysis be included in this Annual Report. This report is provided by the following independent directors, who comprise the Compensation Committee: Harry DeMott, Benjamin Samuels and Gerald Budde.

The following summary compensation table sets out details of compensation paid to (a) our principal executive officer; (b) each of our two most highly compensated executive officers who served as executive officers during the fiscal year ended December 31, 2017; and (c) up to two additional individuals for whom disclosure would have been provided under (b) but for the fact that the individual was not serving as our executive officer atExchange Commission within 120 days after the end of the fiscal year ended December 31, 2017, except that no disclosure is provided for any named executive officer, other than our principal executive officer, whose total compensation did not exceed $100,000 for the fiscal year ended December 31, 2017:

Summary Compensation Table

Name and Principal Position Year  Salary
($)		 Bonus
($)		 Stock Awards
($)		Option Awards
($)		  Non-equity Incentive Plan Compensation  Change in Pension Value and Non Qualified Preferred Compensation Earnings
($)		  All Other Compensation
($)		  Total
($)		 
Stephen S. Burns 2017   343,750     1,991,000               2,334,750 
CEO and Director 2016   275,000     231,231               506,231 
  2015   275,000     111,900               386,900 
                              
Duane Hughes 2017   253,750     796,400               1,050,150 
President and Chief Operating Officer 2016   144,000     125,063               269,063 
  2015   138,000     44,760               182,760 
                              
Paul Gaitan 2017   200,000     322,200               522,200 
Chief Financial Officer                           - 

Employment Agreements

On May 19, 2017, Stephen S. Burns and the Company entered into an Executive Retention Agreement whereby Mr. Burns was retained as Chief Executive Officer in consideration of an annual salary of $325,000. Further, the Company entered Executive Retention Agreements with Duane Hughes as President and Chief Operating Officer at an annual salary of $275,000. The Company also granted stock options exercisable at $5.28 per share to Mr. Burns and Mr. Hughes to acquire 1,000,000 and 400,000 shares of common stock of the Company, respectively, which are exercisable for a period of ten years. The Stock Options vest in 16 equal quarterly tranches. On August 9, 2017, the Company and Mr. Rodriguez entered a letter agreement amending certain terms of his Executive Retention Agreement dated May 19, 2017, pursuant to which Mr. Rodriguez agreed to serve as the Chief Information Officer at a salarythis report relates.

ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 of $250,000 per year with stock options exercisable at $5.28 per share to acquire 300,000 shares of common stock of the Company, which are exercisable for a period of ten years vesting over four years in instalments of 18,750 shares. On August 9, 2017, Paul Gaitan and the Company entered into an Executive Retention Agreement whereby Mr. Gaitan was retained as Chief Financial Officer in consideration of an annual salary of $200,000. The Company also granted stock options exercisable at $2.74 per share to Mr. Gaitan to acquire 200,000 shares of common stock of the Company, which are exercisable for a period of ten years. The Stock Options vest in 16 equal quarterly tranches.

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For each executive, the Company has agreed to provide a bonus of 25% of their base salary upon the Company achieving 75% of annual revenue targets established by the Board of Directors and management. The cash bonusForm 10-K will be increased to 37.5%included in our 2024 Proxy Statement and 50% of the base salary in the event that 100% or 125% of the revenue target is achieved, respectively. The Company and the executives also each entered into an Indemnification Agreement. The employment of each of the executives is at will and may be terminated at any time, with or without formal cause.

Pursuant to the terms of the executive retention agreements in certain circumstances, the Company has agreed to provide specified severance and bonus amounts and to accelerate the vesting on their equity awards upon termination upon a change of control or an involuntary termination, as each term is defined in the agreements. In the event of a termination upon a change of control or an involuntary termination, the executives are entitled to receive an amount equal to 12 months of their base salary and the target bonus then in effect for the executive officer for the year in which such termination occurs, such bonus payment to be pro-rated to reflect the full number of months the executive remained in the Company’s employ. In addition, the vesting on any equity award heldincorporated herein by the executive officer will be accelerated in full upon a change of control or an involuntary termination. In the event the executive is terminated for cause, then the vesting of all equity awards shall cease and such equity awards will be terminated. In the event the executive leaves for any reason that is not considered a good reason, then the vesting of equity award shall cease. At the election of the executive officer, the Company will also continue to provide health related employee insurance coverage for twelve months, at the Company’s expense upon termination upon a change of control or an involuntary termination.

Grants of Plan Based Awards

We granted awards to the Named Executive Officers in the fiscal year ended December 31, 2017, as follows:

Name Grant date Threshold  Target  Maximum  All Other Stock Awards: Number of Shares of Stock or Units  All Other Stock Awards: Number of Securities Underlying  Exercise Price of Options Awards  Grant Data Fair Value of Stock and Options Awards 
Stephen S. Burns 5/22/2017      1,000,000       1,000,000       5.28   1.99 
CEO and Director                              
                               
Duane Hughes 5/19/2017      400,000       400,000       5.28   1.99 
President and Chief Operating Officer                              
                               
Julio Rodriguez 5/16/2017      300,000       300,000       5.28   1.99 
Chief Information Officer                              
                               
Paul Gaitan 8/6/2017      200,000       200,000       2.74   1.61 
Chief Financial Officer                              

45
reference.

Option Exercises and Stock Vested

For the year ended December 31, 2017, 581,358 options were exercised for $906,599.

Outstanding Equity Awards

The following table sets forth information with respect to the outstanding equity awards of our principal executive officers and principal financial officer during 2017, and each person who served as an executive officer of the Company as of December 31, 2017:

Outstanding Equity Awards at Fiscal Year-End
Option Awards  Stock Awards  
Name and Principal Position  Number of Securities underlying unexercised options (#) Exercisable   Number of securities underlying unexercised options (#) Unexercisable   Equity Incentive Plan awards: Number of securities underlying unexercised options (3)   Options exercise price ($)  Option Expiration date  Number of shares or units of stock that have not vested (#)   Market value of shares or units of stock that have not vested ($)   Equity incentive plan awards: Number if unearned shares other rights that have not vested (#)   Equity incentive awards: Market or payout value of unearned shares, units or other rights that have not vested ($) 
Stephen S. Burns  1,000,000   1,000,000   0   5.28  5/17/2027  -   -   -   - 
CEO and Director  10,000   7,222   0   7.21  8/15/2021  -   -   -   - 
   35,000   25,278   0   7.21  8/15/2021  -   -   -   - 
   40,000   13,333   0   4.99  2/1/2021  -   -   -   - 
   50,000   2,778   0   1.75  8/11/2020  -   -   -   - 
   50,000   -   0   1.40  12/18/2019  -   -   -   - 
   16,667   -   0   0.10  6/30/2019  -   -   -   - 
   40,000   -   0   0.10  6/30/2019  -   -   -   - 
   50,000   -   0   0.10  6/30/2019  -   -   -   - 
   174,773   -   0   0.10  6/30/2019  -   -   -   - 
   40,000   -   0   2.90  3/14/2018  -   -   -   - 
   30,000   -   0   7.20  12/5/2020  -   -   -   - 
   60,000   -   0   4.00  11/15/2020  -   -   -   - 
                                   
Duane Hughes  400,000   400,000   0   5.28  5/17/2027  -   -   -   - 
President and Chief Operating Officer  22,000   15,889   0   7.21  8/15/2021  -   -   -   - 
   25,000   8,333   0   4.99  2/1/2021  -   -   -   - 
   20,000   1,111   0   1.75  8/11/2020  -   -   -   - 
                                   
Julio Rodriguez  300,000   300,000   0   5.28  5/18/2021  -   -   -   - 
Chief Information Officer  22,000   15,889   0   7.21  8/15/2021  -   -   -   - 
   25,000   8,333   0   4.99  2/1/2021  -   -   -   - 
   25,000   1,389   0   1.75  8/11/2020  -   -   -   - 
   15,000   -   0   1.40  12/18/2019  -   -   -   - 
   49,323   -   0   0.10  6/30/2019  -   -   -   - 
   4,110   -   0   0.10  6/30/2019  -   -   -   - 
   20,000   -   0   0.10  6/30/2019  -   -   -   - 
   30,000   -   0   4.00  8/6/2018  -   -   -   - 
                                   
Paul Gaitan  200,000   200,000   0   2.74  8/6/2027  -   -   -   - 

No Pension Benefits

The Company does not maintain any plan that provides for payments or other benefits to its executive officers at, following or in connection with retirement and including, without limitation, any tax-qualified defined benefit plans or supplemental executive retirement plans.

No Deferred Compensation

The Company does not maintain any defined contribution or other plan that provides for the deferral of compensation on a basis that is not tax-qualified. 

46

Director Compensation

Name Fees Earned or Paid in Cash
$		  Stock
Awards
$		  Non-equity Incentive Plan Compensation
$		  Change in Pension Value and Non-Qualified Deferred Compensation Earnings
$		  All Other Compensation
$		  Total
$		 
Raymond Chess  40,000       -       -       -       -   40,000 
Benjamin Samuels  40,000   -   -   -   -   40,000 
Gerald Budde  40,000   -   -   -   -   40,000 
Stephen S. Burns  40,000   -   -   -   -   40,000 
Harry DeMott  40,000   -   -   -   -   40,000 

Directors’ and Officers’ Insurance

The Company has purchased directors and officers liability insurance (“D&O Liability Insurance”) for the benefit of its directors and officers, and the directors and officers of its subsidiaries, against liability incurred by them in the performance of their duties as directors and officers of the Company, or its subsidiaries, as the case may be. The amount of premium paid with respect to D&O Liability Insurance for the fiscal year ended December 31, 2017, was $110 thousand. The entire premium is paid by the Company. The Company’s D&O Liability Insurance is comprised of the following policies:

D&O Liability Insurance Annual Limit  Deductible 
Primary and Excess Policy $5,000,000  $750,000(1)

(1)

Not applicable to non-indemnifiable loss, crisis loss or derivative investigation costs. There is a $250,000 deductible for Corporate Claims, $750,000 deductible for Securities Claims and a $1,000,000 deductible for Indemnifiable M&A Claims

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table sets forth certain information asrequired by this Item 12 of March 2, 2018 with respect to the beneficial ownership of the outstanding common stock by (i) any holder of more than five (5%) percent; (ii) each of the Company’s executive officers and directors; and (iii) the Company’s directors and executive officers as a group. Except as otherwise indicated, each of the stockholders listed below has sole voting and investment power over the shares beneficially owned.

Name of Beneficial Owner (1)    Common Stock Beneficially Owned  Percentage of Common stock (2) 
Joseph T. Lukens  (3)  6,695,335   16.1%
Stephen D. Baksa  (4)  3,389,442   8.2%
Stephen S. Burns  (5)  2,552,476   6.1%
Benjamin Samuels  (6)  1,202,856   2.9%
Julio Rodriguez  (10)  490,433   1.2%
Duane Hughes  (9)  467,000   1.1%
Paul Gaitan  (11)  200,000   0.5%
Raymond Chess  (7)  180,000   0.4%
Gerald Budde  (8)  135,000   0.3%

(1)Except as otherwise indicated, the address of each beneficial owner is c/o Workhorse Group Inc, 100 Commerce Drive, Loveland, Ohio 45140

47

(2)   

Applicable percentage ownership is based on 41,529,181 shares of common stock outstanding as of March 2, 2018.  Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities.  Shares of common stock that are currently exercisable or exercisable within 60 days of March 12, 2018 are deemed to be beneficially owned by the person holding such securities for the purpose of computing the percentage of ownership of such person, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person.

(3)   Represents (i) 3,491,888 shares of common stock held directly by Mr. Lukens; (ii) 154,871 shares of common stock held by The Joe & Kim Lukens Foundation; (iii) 2,697,147 shares of common stock held by the US Trust Company of Delaware Administrative Trustee of the Joe & Kim Lukens Dynasty Trust; (iv) 25,000 shares of common stock held by the Joseph T Lukens, Jr. and Gerald Budde, Co-Trustee of the Joseph T. Lukens, Jr. Irrevocable Trust for Nathan J. Lukens U/T/A Dated 2/23/2016; (v) 25,000 shares of common stock held by the Joseph T Lukens, Jr. and Gerald Budde, Co-Trustee of the Joseph T. Lukens, Jr. Irrevocable Trust for Roman E. Lukens U/T/A Dated 2/23/2016; and (vi) a common stock purchase warrant to acquire 571,429 shares of common stock at $5.28 per share. On February 10, 2017, the Reporting Person resigned from all positions with Our Lady of America Ministries Inc., an Ohio 501(c)(3) charity which holds 570,000 shares of common stock of the Company
(4)   Represents (i) 3,358,421 shares of common stock held directly by the Mr. Baksa; and (ii) 31,000 shares of common stock held by the Stephen D. Baksa 2012 Trust F/B/O Sarah E. Marra, F/B/O Brian S. Baksa.
(5)   Represents (i) 767,337 shares of common stock held by Mr. Burns, (ii) 50,000 shares of common stock held by Mr. Burns’ wife, (iii) a stock option to acquire 35,000 shares of common stock at $7.21 per share, (iv) a stock option to acquire 10,000 shares of common stock at $7.21 per share , (iv) a stock option to acquire 40,000 shares of common stock at $4.99 per share, (v) a stock option to acquire 50,000 shares of common stock at $1.75 per share, (vi) a stock option to acquire 50,000 shares of common stock at $1.40 per share, (vii) a stock option to acquire 281,440 shares of common stock at $0.10 per share, (viii) a stock option to acquire 50,000 shares of common stock at $1.75 per share, (ix) a stock option to acquire 40,000 shares of common stock at $2.90 per share, (x) a stock option to acquire 50,000 shares of common stock at $6.00 per share, (xi) a stock option to acquire 30,000 shares of common stock at $1.10 per share, (xii) a stock option to acquire 30,000 shares of common stock at $7.20 per share, (xiii) a stock option to acquire 60,000 shares of common stock at $4.00 per share and (xiv) a common stock purchase to acquire 29,350 shares of common stock at $1.50 per share and (xv) a common stock purchase to acquire 1,000,000 shares of common stock at $5.28 per share.
(6)   Represents (i) 762,532 shares of common stock held by Samuel 2012 Children’s Trust UAD 10/28/12 (the “Trust”), (ii) a common stock purchase warrant to acquire 237,467 shares of common stock at an exercise price of $5.28 per share held by the Trust, (iii) a common stock purchase warrant to acquire 142,857 shares of common stock at an exercise price of $5.28 per share held by the Trust, and (iv) a stock option to acquire 50,000 shares of common stock at $7.01 per share and (v) a stock option to acquire 10,000 shares of common stock at $7.21 per share. Mr. Samuels is a trustee of the Trust.   
(7)   Represents a stock option to acquire 180,000 shares of common stock at $1.89 per share.
(8)   Represents (i) 75,000 shares of common stock, (ii) stock option to acquire 50,000 shares of common stock at an exercise price of $7.01 per share and (iii) a common stock purchase warrant to acquire 10,000 shares of common stock at $7.21 per share.
(9)   Represents (i) 67,000 shares of common stock at $4.75 per share and (ii) a common stock purchase to acquire 300,000 shares of common stock at $5.28 per share.

(10)   Represents (i) a stock option to acquire 190,433 shares of common stock at $2.50 per share and (ii) a common stock purchase to acquire 300,000 shares of common stock at $5.28 per share.
(11)Represents a common stock purchase to acquire 200,000 shares of common stock at $2.74 per share.

Changes in Control

We have no knowledge of any arrangements, including any pledge by any person of our securities, the operation of which may, at a subsequent date, result in a changeForm 10-K will be included in our control.

48
2024 Proxy Statement and is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

Transactions with Related Persons

At no time during the last two fiscal years has any executive officer, director or any member

The information required by this Item 13 of these individuals’ immediate families, any corporation or organization with whom any of these individualsForm 10-K will be included in our 2024 Proxy Statement and is an affiliate or any trust or estate in which any of these individuals serves as a trustee or in a similar capacity or has a substantial beneficial interest been indebted to the Company or was involved in any transaction in which the amount exceeded $120,000 and such person had a direct or indirect material interest.

Procedures for Approval of Related Party Transactions

Our Board of Directors is charged with reviewing and approving all potential related party transactions. All such related party transactions must then be reported under applicable SEC rules. We have not adopted other procedures for review, or standards for approval, of such transactions, but instead review them on a case-by-case basis.

Director Independence

The Board of Directors has determined that Ray Chess, Gerald Budde, H. Benjamin Samuels and Harry DeMott each qualify as independent directors under the listing standards of the Nasdaq.

incorporated herein by reference.

ITEM 14. PRINCIPAL ACCOUNTINGACCOUNTANT FEES AND SERVICES

The total fees charged to the Companyinformation required by Clark Schaefer Hackett & Company, the Company’s independent registered public accounting firm, are as follows ($ thousands):

  Audit  Taxes  Other  Total 
2017  93.3   5.7   60.0   159.2 
2016  47.0   6.10   47.2   100.4 

The current policythis Item 14 of the directors, acting as the audit committee, is to approve the appointment of the principal auditing firm and any permissible audit-related services. The audit and audit related fees include fees for the annual audit of the financial statements and review of financial statementsForm 10-K will be included in 10Q filings. Fees chargedour 2024 Proxy Statement and is incorporated herein by Clark, Schaefer Hackett & Company were approved by the Board with engagement letters signed by Stephen S. Burns, Chief Executive Officer.

The Audit Committee is responsible for the pre-approval of audit and permitted non-audit services to be performed by the Company’s independent auditor. The Audit Committee will, on an annual basis, consider and, if appropriate, approve the provision of audit and non-audit services by the auditor. Thereafter, the Audit Committee will, as necessary, consider and, if appropriate, approve the provision of additional audit and non-audit services by the auditor which are not encompassed by the Audit Committee’s annual pre-approval and are not prohibited by law. The Audit Committee has delegated to the Chair of the Audit Committee the authority to pre-approve, on a case-by-case basis, non-audit services to be performed by the auditor. The Audit Committee has approved all audit and permitted non-audit services performed by the auditor for the year ended December 31, 2017.

49
reference.

37


PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

The Company’s

1.Financial statements (see Index to Consolidated Financial Statements in Part II, Item 8 of this report)
2.All financial statement schedules have been omitted since the required information was not applicable or was not present in amounts sufficient to require submission of the schedules, or because the information required is included in the consolidated financial statements or the accompanying notes.
3.The exhibits listed in the following Index to Exhibits are filed or incorporated by reference as part of this report are listed in the Table of Contents and provided in response to Item 8.

report.

Exhibit No.DescriptionDescriptionForm Incorporated FromReport Date
3.18-K1/4/2010
3.28-K5/25/2010
3.38-K5/25/2010
3.48-K5/25/2010
3.58-K5/25/2010
3.68-K9/10/2010
3.7SB-22/4/2008
3.88-K4/16/2015
3.98-K12/10/2015
3.10

10-Q8/9/2017
4.13.1110-Q5/7/2019
4.23.12Common Stock Purchase Warrant to acquire 500,000 shares of common stock issued to James Taylor dated May 25, 2011 (6)8-K6/6/2019
4.33.13Stock Option to acquire 500,000 shares of common stock issued to Stephen Burns dated May 25, 2011 (6)8-K4/4/2022
4.43.14Common Stock Purchase Warrant to acquire 500,000 shares of common stock issued to Stephen Burns dated May 25, 2011 (6)8-K9/6/2023
4.53.158-K7/12/2023
4.110-K3/1/2021
4.28-K12/28/2023
4.64.38-K12/28/2023
4.710.1
4.82014 Incentive Stock Plan (11)
4.9Form of Common Stock Purchase Agreement entered between AMP Holding Inc and the December 2014 Investors (31)
4.10Form of Common Stock Purchase Warrant issued to the December 2014 Investors (31)
4.11Intentionally Left Blank
4.12Form of SubscriptionDirector Agreement by and between Workhorse Group Inc. and the 2015 Accredited Investors (17)
4.13Form of Securities Purchase Agreement entered between Workhorse Group Inc. and the November 2015 Investors (18)
4.14Form of 6% Convertible Promissory Note issued to the November 2015 Investors (18)
4.15Form of Stock Purchase Warrant issued to the November 2015 Investors (18)
4.16Form of Securities Purchase Agreement entered between Workhorse Group Inc. and the Convertible Note Investor (19)
4.17Form of 6% Convertible Promissory Note issued to the Investors (19)
4.18Form of Stock Purchase Warrant issued to the Investors (19)
4.19Stock Option Agreement by and between Workhorse Group Inc. and Gerald Budde dated December 17, 2015 (21)
4.20Stock Option Agreement by and between Workhorse Group Inc. and H. Benjamin Samuels dated December 17, 2015 (21)
4.21Stock Option Agreement by and between Workhorse Group Inc. and Harry DeMott dated September 16, 2016 (24)
4.22Intentionally left blank.
4.23Securities Purchase Agreement entered between Workhorse Group Inc. and Joseph T. Lukens dated January 10, 2017 (26)
4.246% Convertible Debenture issued to Joseph T. Lukens dated January 10, 2017 (26)
4.25Form of Warrant – September 2017 (35)
4.26Form of Senior Secured Note dated December 26, 2017 (36)

50

Exhibit No.Description
10.1Share Exchange Agreement dated as of December 28, 2009 by and among Advanced Mechanical Products, Inc., the shareholders of Advanced Mechanical Products, Inc. and Title Starts Online, Inc. (1)
10.2Employment Agreement by and between AMP Holding Inc. and Stephen S. Burns dated December 8, 2010 (12)
10.3Letter Agreement by and between AMP Holding Inc. and Martin J. Rucidlo dated August 24, 2012 (13)
10.4Asset Purchase Agreement by and between Workhorse Custom Chassis, LLC, as Seller, and AMP Trucks Inc., as Buyer dated as of March 4, 2013 (10)
10.5Amendment No. 1 to the Asset Purchase Agreement by and between Workhorse Custom Chassis, LLC, as Seller, and AMP Trucks Inc., as Buyer dated as of March 13, 2013 (10)
10.6Employment Agreement between AMP Holding Inc. and Julio C. Rodriguez dated August 15, 2013 (14)
10.7Director Agreement by and between AMP Holding Inc. and Raymond Chess dated October 24, 2013 (15)8-K10/30/2013
10.810.28-K12/21/2015
10.910.38-K12/21/2015
10.1010.48-K9/9/2016
10.1110.510-K3/1/2021
10.1210.6
10.13Services Partner Agreement between Workhorse Group Inc. and Ryder Truck Rental, Inc. dated April 27, 2017 (29)
10.14Executive RetentionDirector Agreement by and between Workhorse Group Inc. and Stephen S. BurnsMichael L. Clark dated May 19, 2017 (30)September 28, 20188-K10/1/2018
10.15+ 10.78-K11/6/2019
+ 10.88-K11/6/2019
+ 10.98-K4/21/2021
38

+ 10.108-K4/26/2021
+ 10.118-K7/26/2021
+ 10.1210-K3/1/2022
+ 10.1310-K3/1/2022
+ 10.148-K1/4/2022
10.1510-K3/13/2020
10.1610-K3/13/2020
10.178-K8/4/2020
10.188-K2/28/2022
10.198-K3/10/2022
10.208-K10/13/2020
10.218-K10/13/2020
10.228-K10/16/2020
10.238-K10/6/2021
10.248-K11/2/2021
10.258-K4/5/2022
+ 10.2610-Q8/9/2022
+ 10.2710-K3/13/2020
+ 10.2810-Q11/9/2021
+ 10.2910-K3/1/2022
+ 10.3010-K3/1/2022
+ 10.3110-K3/1/2022
+ 10.3210-K3/1/2022
+ 10.3310-K3/1/2022
+ 10.3410-K3/1/2022
+ 10.3510-Q5/15/2023
10.3610-Q8/14/2023
10.378-K12/12/2023
10.1610.388-K12/12/2023
10.1710.398-K12/12/2023
39

10.1810.408-K12/12/2023
10.1910.418-K12/12/2023
10.2010.42
10.21Form of Employee Invention Assignment, Confidentiality, Non-Compete and Non-Solicit Agreement (30)
10.22Form of Securities Purchase Agreement dated December 26, 2017 (36)

10.23

Form of Pledge and Security Agreement, dated December 26, 2017 (36)

10.24

Form of Pledge Agreement dated December 26, 2017 (36)
10.25Form of Guaranty dated December 26, 2017 (36)

10.26

Bill of Sale entered27, 2023, by and between Workhorse Group Inc. and SureFly, Inc. dated December 26, 2017 (36)the investor party thereto8-K12/28/2023
21.110.438-K12/28/2023
+ 10.448-K11/14/2023
10.45†
10.46†
21.1†
23.1

†
31.1†
31.2†
32.1†
32.2†
99.197.1Nominating and Corporate Governance Committee Charter adopted by the Board of Directors of Workhorse Group Inc. on December 17, 2015(33)†
99.2101.INSCompensation Committee Charter adopted by the Board of Directors of Workhorse Group Inc. on December 17, 2015 (33)
99.3Audit Committee Charter adopted by the Board of Directors of Workhorse Group Inc. on December 17, 2015 (33)
EX-101.INSInline XBRL INSTANCE DOCUMENT
EX-101.SCH101.SCHInline XBRL Taxonomy Extension Schema DocumentXBRL TAXONOMY EXTENSION SCHEMA DOCUMENT
EX-101.CAL101.CALInline XBRL Taxonomy Extension Calculation Linkbase DocumentXBRL TAXONOMY EXTENSION CALCULATION LINKBASE
EX-101.DEF101.DEFInline XBRL Taxonomy Extension Definition Linkbase DocumentXBRL TAXONOMY EXTENSION DEFINITION LINKBASE
EX-101.LAB101.LABInline XBRL Taxonomy Extension Labels Linkbase DocumentXBRL TAXONOMY EXTENSION LABELS LINKBASE
EX-101.PRE101.PREInline XBRL Taxonomy Extension Presentation Linkbase DocumentXBRL TAXONOMY EXTENSION PRESENTATION LINKBASE

(1)Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on January 4, 2010.
(2)104Incorporated by reference to the Form 8-K Current Report filed with the SecuritiesInline XBRL Cover Page Interactive Data File (formatted as Inline XBRL and Exchange Commission on May 25, 2010.

contained in Exhibit 101)51

(3)Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on May 25, 2010.
(4)Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on September 10, 2010.
(5)Incorporated by referenced to the Form SB-2 Registration Statement filed with the Securities and Exchange Commission on February 4, 2008.
(6)Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on June 1, 2011.
(7)Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on July 11, 2012.
(8)Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on February 5, 2013.
(9)Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on February 28, 2013.
(10)Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on March 13, 2013.
(11)Incorporated by reference to the Form S-8 Current Report filed with the Securities and Exchange Commission on January 17, 2014.
(12)Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on December 13, 2010.
(13)Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on August 30, 2012.
(14)Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on August 16, 2013.
(15)Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on October 30, 2013.
(16)Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on April 16, 2015.
(17)Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on September 10, 2015.
(18)Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on November 12, 2015.
(19)Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on November 12, 2015.
(20)Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on December 10, 2015.
(21)Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on December 21, 2015.
(22)Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on March 30, 2016.
(23)Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on July 8, 2016.
(24)Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on September 9, 2016.
(25)Incorporated by reference to the Form S-3/A Registration Statement filed with the Securities and Exchange Commission on December 12, 2016.
(26)Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on January 12, 2017.
(27)Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on February 1, 2017.
(28)Incorporated by reference to the Form 10-Q Quarterly Report filed with the Securities and Exchange Commission on November 14, 2016.
(29)Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on May 3, 2017.
(30)Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on May 19, 2017.
(31)Incorporated by reference to the Form 8-K Current Report filed with the Securities Exchange Commission on December 11, 2014.
(32)Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on June 22, 2017.
(33)Incorporated by reference to the Form 10-Q Quarterly Report filed with the Securities and Exchange Commission on August 9, 2017.
(34)Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on August 11, 2017.

(35)

Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on September 14, 2017.

(36)Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on December 27, 2017.

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† Exhibits that are filed with this report.

+ Indicates a management contract or compensatory arrangement.

ITEM 16. FORM 10-K SUMMARY
None.
40

Signatures

Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.


WORKHORSE GROUP INC.
Dated:March 12, 2024By:/s/ Richard Dauch
Dated:  March 14, 2018Name:By:/s/ Stephen S. BurnsRichard Dauch
Title:Name: Stephen S. Burns
Title:Chief Executive Officer,
President and Director
(Principal Executive Officer)
Dated:  March 14, 2018By:/s/ Paul Gaitan
Name:Paul Gaitan
Title:Chief Financial Officer
(Principal Financial and Accounting Officer)


In accordance with the Exchange Act, this report has been signed below by the following persons on March 14, 2018,12, 2024, on behalf of the registrant and in the capacities indicated.


SignatureTitle
/s/ Stephen S. BurnsRichard DauchChief Executive Officer, President and Director
Stephen S. Burns
(Principal Executive Officer)
Richard Dauch
/s/ Paul GaitanRobert M. GinnanChief Financial Officer
Paul Gaitan
(Principal Financial Officer and Principal Accounting Officer)
Robert M. Ginnan
/s/ Raymond ChessDirector
Raymond Chess
/s/ Jacqueline DedoDirector
Jacqueline Dedo
/s/ William G. Quigley IIIDirector
William G. Quigley III
/s/ Gerald BuddeAustin Scott MillerDirector
Gerald BuddeAustin Scott Miller
/s/ Pamela S. MaderDirector
Pamela S. Mader
/s/ Jean BottiDirector
Jean Botti
/s/ H. Benjamin SamuelsBrandon Torres DecletDirector
H. Benjamin SamuelsBrandon Torres Declet
/s/ Harry DeMottDirector
Harry DeMott

53


41