UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

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

For the quarterly period ended SeptemberJune 30, 2017

2023

or

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

☐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.

(Exact name of registrant as specified in its charter)

Nevada26-1394771
Nevada26-1394771
(State or other jurisdiction of

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

Identification No.)

100 Commerce

3600 Park 42 Drive, Loveland,Suite 160E, Sharonville, Ohio 45140

45241

(Address of principal executive offices) (Zip Code)

844-937-9547

offices, including zip code)

1 (888) 646-5205
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.001 par value per shareWKHSThe NASDAQ Capital Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrantregistrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒  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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒  No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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☐ (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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐  No ☒

Indicate the

The number of shares outstanding of each of the issuer’s classes of common stock,Registrant's Common Stock, $0.001 par value per share, outstanding as of the latest practicable date.

July 31, 2023, was 210,793,111.
Common Stock, $0.001 par value per share41,126,934
(Class)(Outstanding at September 30, 2017)




TABLE OF CONTENTS


PART IFINANCIAL INFORMATION
Item 1.Financial Statements1
1
Condensed Consolidated Balance Sheets
1
Condensed Consolidated Statements of Operations
2
Condensed Consolidated Statements of Stockholders’ Equity
3
Condensed Consolidated Statements of Cash Flows
3
5
Notes to Condensed Consolidated Financial Statements
4
6
14
16
19
22
19
22
23
20
23
23
Item 1A.Risk Factors20
30
24
30
24
30
24
24
Other Information30
25
Item 6.Exhibits31
SIGNATURES34
26


i

Forward-Looking Statements


The discussions in this Quarterly Report on Form 10-Q (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, 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 platforms; 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 inability to raise additional capital to fund our operations and business plan; our inability to maintain our listing of our securities on the Nasdaq Capital Market;our ability to protect our intellectual property; market acceptance for our products; our ability to control our expenses, our ability to recruit and retain employees, legislation and government regulation,expenses; 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 maintain and update our product and service portfolio,conditions; acts of war (including without limitation the strength of competitive offerings,conflict in Ukraine) 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 herein. These forward-lookingSecurities and Exchange Commission (“SEC”), including under the “Risk Factors” section of our annual report on Form 10-K filed with the SEC and 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-QReport that refer to the “Company”, “Workhorse Group”, “Workhorse”, “we,” “us” or “our” are to Workhorse Group Inc. and unless otherwise differentiated, its wholly-owned subsidiaries, Workhorse Technologies Inc., Workhorse Motor Works Inc. and Workhorse Properties Inc.

ii


PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Workhorse Group Inc.

Condensed Consolidated Balance Sheets

September 30, 2017 and December 31, 2016

  September 30,
2017		  December 31,
2016		 
Assets      
       
Current assets:      
Cash and cash equivalents $9,839,977  $469,570 
Accounts receivable  225,000   628,700 
Lease receivable current  57,060   98,400 
Inventory  7,468,333   2,464,835 
Prepaid expenses and deposits  1,901,350   255,163 
   19,491,720   3,916,668 
         
Property, plant and equipment, net  5,673,044   6,002,631 
Lease receivable long-term  227,341   320,494 
         
  $25,392,105  $10,239,793 
         
Liabilities and Stockholders’ Equity (Deficit)        
         
Current liabilities:        
Accounts payable $10,111,256  $3,923,758 
Accounts payable, related parties  146,854   101,339 
Shareholder advances  7,000   229,772 
Current portion of long-term debt  61,484   79,521 
   10,326,594   4,334,390 
         
Long-term debt  2,037,118   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 September 30, 2017 and December 31, 2016  -   - 
Common stock, par value of $.001 per share 100,000,000 shares authorized, 41,126,934 shares issued and outstanding at September 30, 2017 and 27,578,864 shares issued and outstanding at December 31, 2016  41,126   27,579 
Additional paid-in capital  105,848,374   66,862,608 
Accumulated deficit  (92,861,107)  (63,073,213)
   13,028,393   3,816,974 
         
  $25,392,105  $10,239,793 

(Unaudited)

June 30,
2023		December 31,
2022
Assets
Current assets:
Cash and cash equivalents$62,379,740 $99,276,301 
Accounts receivable, less allowance for credit losses of $2.4 million and zero as of June 30, 2023 and December 31, 20222,837,242 2,079,343 
Other receivable15,000,000 15,000,000 
Inventory, net34,623,566 8,850,142 
Prepaid expenses and other current assets9,450,740 14,152,481 
      Total current assets124,291,288 139,358,267 
Property, plant and equipment, net31,300,436 21,501,095 
Investment in Tropos10,000,000 10,000,000 
Lease right-of-use assets11,158,562 11,706,803 
Other assets176,310 176,310 
Total Assets$176,926,596 $182,742,475 
Liabilities
Current liabilities:
Accounts payable$10,228,919 $10,235,345 
Accrued and other current liabilities43,049,743 46,207,431 
Deferred revenue, current1,406,250 3,375,000 
Warranty liability1,922,580 2,207,674 
Current portion of lease liabilities1,486,417 1,285,032 
      Total current liabilities58,093,909 63,310,482 
Deferred revenue, long-term3,368,831 2,005,000 
Lease liability, long-term8,076,135 8,840,062 
Total Liabilities69,538,875 74,155,544 
Commitments and contingencies
Stockholders’ Equity:
Series A preferred stock, par value $0.001 per share, 75,000,000 shares authorized,
zero shares issued and outstanding as of June 30, 2023 and December 31, 2022
— — 
Common stock, par value $0.001 per share, 250,000,000 shares authorized, 205,221,154
shares issued and outstanding as of June 30, 2023 and 165,605,355 shares issued and outstanding as of December 31, 2022
205,221 165,605 
Additional paid-in capital782,848,275 736,070,388 
Accumulated deficit(675,665,775)(627,649,062)
      Total stockholders’ equity107,387,721 108,586,931 
Total Liabilities and Stockholders’ Equity$176,926,596 $182,742,475 
See accompanying notes to consolidated financial statements.

1
the Condensed Consolidated Financial Statements.

1


Workhorse Group Inc.

Condensed Consolidated StatementStatements of Operations

For the Three and Nine Months Ended September 30, 2017 and 2016

(Unaudited)

  Three Months Ended
September 30,		  Nine Months Ended
September 30,		 
  2017  2016  2017  2016 
             
Sales $3,285,000  $1,906,000  $5,333,037  $3,376,600 
                 
Cost of Sales  7,558,082   4,173,364   12,866,095   6,932,416 
Gross loss  (4,273,082)  (2,267,364)  (7,533,058)  (3,555,816)
                 
Operating Expenses                
Selling, general and administrative  3,283,196   1,968,260   8,031,368   4,755,642 
Research and development  5,084,419   1,024,470   14,139,074   4,224,208 
Total operating expenses  8,367,615   2,992,730   22,170,442   8,979,850 
                 
Interest expense, net  26,891   2,765   84,394   43,035 
                 
Net loss $(12,667,588) $(5,262,859) $(29,787,894) $(12,578,701)
                 
Basic and diluted loss per share $(0.35) $(0.25) $(0.83) $(0.61)
                 
Weighted average number of common shares outstanding  35,930,125   20,665,480   35,930,125   20,665,480 


Three Months Ended
June 30,		Six Months Ended
 June 30,
2023202220232022
Sales, net of returns and allowances$3,966,463 $12,555 $5,659,878 $26,854 
Cost of sales8,427,377 3,020,204 13,755,496 6,943,555 
Gross loss(4,460,914)(3,007,649)(8,095,618)(6,916,701)
Operating expenses
Selling, general and administrative14,002,517 13,030,143 28,692,360 24,940,402 
Research and development5,059,745 5,027,061 12,284,594 9,038,995 
Total operating expenses19,062,262 18,057,204 40,976,954 33,979,397 
Loss from operations(23,523,176)(21,064,853)(49,072,572)(40,896,098)
Interest income (expense), net505,500 (95,419)1,055,859 (2,318,709)
Loss before benefit for income taxes(23,017,676)(21,160,272)(48,016,713)(43,214,807)
Benefit for income taxes— — — — 
Net loss$(23,017,676)$(21,160,272)$(48,016,713)$(43,214,807)
Net loss per share of common stock
Basic & Diluted$(0.12)$(0.13)$(0.27)$(0.28)
Weighted average shares used in computing net loss per share of common stock
Basic & Diluted185,660,305 159,107,776 176,453,477 155,543,436 
See accompanying notes to consolidated financial statements.

2
the Condensed Consolidated Financial Statements.


2

Workhorse Group Inc.

Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited)

Common StockAdditional
Paid-in
Capital		Accumulated
Deficit		Accumulated Other Comprehensive LossTotal
Stockholders’
Equity
Number
of Shares		Amount
Balance as of March 31, 2022151,993,870 $151,994 $688,472,154 $(532,429,379)$— $156,194,769 
Common stock issued in exchange of convertible notes7,833,666 7,834 25,373,244 — — 25,381,078 
Common stock issued through At-The-Market offering98,986 99 248,596 — — 248,695 
Stock options and vesting of restricted shares*131,990 132 (128,358)— — (128,226)
Stock-based compensation— — 3,292,409 — — 3,292,409 
Net loss for the three months ended June 30, 2022— — — (21,160,272)— (21,160,272)
Balance as of June 30, 2022160,058,512 $160,059 $717,258,045 $(553,589,651)$— $163,828,453 

Common StockAdditional
Paid-in
Capital		Accumulated
Deficit		Accumulated Other Comprehensive LossTotal
Stockholders’
Equity
Number
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 
Common stock issued in exchange of convertible notes7,833,666 7,834 25,373,244 — — 25,381,078 
Common stock issued through At-The-Market offering98,986 99 248,596 — — 248,695 
Stock options and vesting of restricted shares*210,405 210 (324,698)— — (324,488)
Stock-based compensation— — 5,642,702 — — 5,642,702 
Net loss for the six months ended June 30, 2022— — — (43,214,807)— (43,214,807)
Other comprehensive loss— — — — 1,402,500 1,402,500 
Balance as of June 30, 2022160,058,512 $160,059 $717,258,045 $(553,589,651)$— $163,828,453 
*Net of tax payments related to shares withheld for option exercises and vested stock.
See accompanying notes to the Condensed Consolidated Financial Statements.


















3

Workhorse Group Inc.
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited)

Common StockAdditional
Paid-in
Capital		Accumulated
Deficit		Accumulated Other Comprehensive LossTotal
Stockholders’
Equity
Number
of Shares		Amount
Balance as of March 31, 2023180,580,698 $180,580 $757,288,067 $(652,648,099)$— $104,820,548 
Common stock issued through At-The-Market offering24,299,355 24,300 21,675,120 — — 21,699,420 
Issuance of common stock116,347 116 199,884 — — 200,000 
Stock options and vesting of restricted shares*224,754 225 (91,892)— — (91,667)
Stock-based compensation— — 3,777,096 — — 3,777,096 
Net loss for the three months ended June 30, 2023— — — (23,017,676)— (23,017,676)
Balance as of June 30, 2023205,221,154 $205,221 $782,848,275 $(675,665,775)$— $107,387,721 

Common StockAdditional
Paid-in
Capital		Accumulated
Deficit		Accumulated Other Comprehensive LossTotal
Stockholders’
Equity
Number
of Shares		Amount
Balance as of December 31, 2022165,605,355 $165,605 $736,070,388 $(627,649,062)$— $108,586,931 
Common stock issued through At-The-Market offering38,684,131 38,684 40,252,923 — — 40,291,607 
Issuance of common stock116,347 116 199,884 — — 200,000 
Stock options and vesting of restricted shares*815,321 816 (476,405)— — (475,589)
Stock-based compensation— — 6,801,485 — — 6,801,485 
Net loss for the six months ended June 30, 2023— — — (48,016,713)— (48,016,713)
Balance as of June 30, 2023205,221,154 $205,221 $782,848,275 $(675,665,775)$— $107,387,721 
*Net of tax payments related to shares withheld for option exercises and vested stock.
See accompanying notes to the Condensed Consolidated Financial Statements.






4

Workhorse Group Inc.
Condensed Consolidated Statements of Cash Flows

For the Nine Months Ended September 30, 2017 and 2016

(Unaudited)

  2017  2016 
       
Cash flows from operating activities:      
Net loss $(29,787,894) $(12,578,701)
Adjustments to reconcile net loss from operations to cash used by operations:        
Depreciation  415,163   286,316 
Stock based compensation  1,076,120   853,609 
Write down of inventory  -   78,917 
Accounts receivable  403,700   (536,600)
Inventory  (5,003,498)  (3,568,972)
Prepaid expenses and deposits  (1,646,187)  733,469 
Accounts payable  6,187,498   1,737,918 
Accounts payable, related parties  72,242   (343,638)
         
Net cash used by operations  (28,282,856)  (13,337,682)
         
Cash flows from investing activities:        
Capital expenditures  (85,576)  (148,095)
Proceeds from lease receivable  134,493   - 
         
Net cash provided by (used in) investing activities  48,917   (148,095)
         
Cash flows from financing activities:        
Payments on long-term debt  (69,348)  - 
Conversion of note payable  -   (2,722,500)
Shareholder advances, net of repayments  7,000   1,309,073 
Issuance of common and preferred stock  37,032,831   - 
Exercise of warrants and options  633,863   10,271,294 
         
Net cash provided by financing activities  37,604,346   8,857,867 
         
Change in cash and cash equivalents  9,370,407   (4,627,910)
         
Cash at the beginning of the period  469,570   7,677,163 
Cash at the end of the period  9,839,977   3,049,253 

Supplemental disclosure of non-cash activities:

During the nine months ended September 30, 2017, the Company converted Shareholder advances of $229,772 and accrued interests of $26,727 to common stock of $172 and additional paid-in capital of $256,327.

During the nine months ended September 30, 2017, there were cashless exercises of stock options resulting in 25,995 shares of $0.001 par value common stock being issued.

During the nine months ended September 30, 2016, notes payable of $13,534,426 and accounts payable of $112,487, net of $2,271,637 in prepaid expenses related to the 2015 PPM offering, were converted to equity.

Six Months Ended
June 30,
20232022
Cash flows from operating activities:
Net loss$(48,016,713)$(43,214,807)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization1,386,621 710,348 
Change in fair value and loss on exchange of convertible notes— 1,769,857 
Deferred revenue(604,918)— 
Stock-based compensation6,801,485 5,642,702 
Change in inventory and prepaid purchases reserve54,369 425,130 
Non-cash lease expense425,421 583,406 
Other non-cash items200,000 175,750 
Effects of changes in operating assets and liabilities:
Accounts receivable(851,649)(634,892)
Inventory(25,909,707)(3,187,163)
Prepaid expenses and other current assets4,783,655 (7,119,454)
Other assets— (34,401)
Accounts payable, accrued liabilities and other(3,783,596)(9,317,242)
Warranty liability(285,094)(1,261,704)
Net cash used in operating activities(65,800,126)(55,462,470)
Cash flows from investing activities:
Capital expenditures(10,472,730)(5,658,776)
Net cash used in investing activities(10,472,730)(5,658,776)
Cash flows from financing activities:
Proceeds from issuance of common stock40,291,607 248,695 
Payments on finance lease(439,722)(389,780)
Exercise of warrants and options and restricted share award activity(475,590)(324,488)
Net cash provided by (used in) financing activities39,376,295 (465,573)
Change in cash and cash equivalents(36,896,561)(61,586,819)
Cash, cash equivalents and restricted cash, beginning of the period99,276,301 201,647,394 
Cash and cash equivalents, end of the period$62,379,740 $140,060,575 


See accompanying notes to consolidated financial statements.

3
the Condensed Consolidated Financial Statements.

5



Workhorse Group Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1.SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES

The following accounting principles and practices


1.SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING PRINCIPLES
Overview
We 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, the Company, we, us or our) is aan 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 operate. We are focused on our core competency of bringing our electric delivery vehicle platforms to market.

Liquidity and aircraft that make movementCapital Resources

From inception, we have financed our operations primarily through sales of peopleequity securities and goods more efficientissuance of debt. We have utilized this capital for research and less harmfuldevelopment and to fund designing, building and delivering vehicles to customers and for working capital purposes.

The Company had sales of $5.7 million, incurred a net loss of $48.0 million and used $65.8 million of cash in operating activities during the environment.six months ended June 30, 2023. 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. AlthoughJune 30, 2023, the Company operates as a single unit through its subsidiaries, it approaches its development through two divisions, Automotivehad $62.4 million of cash 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 Workhorse Technologies, Inc.) (AMP or Workhorse Technologies) 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 minimis, 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. As a result of such acquisition, the Company operations were now focused on the design, marketing and sale of vehicles with an all-electric power train and battery systems. Consequently, we believe the acquisition has caused the Company to cease to be a shell Company as it had operations following the acquisition. The Company formally changed its name to AMP Holding Inc. on May 24, 2010.

Since the acquisition, the Company has devoted the majority of its resources to the development 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, Workhorse Motor Works Inc. (f/k/a AMP Trucks Inc.), an Indiana corporation. On March 13, 2013, Workhorse Motor Works Inc. closed on the acquisition of assets from 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 48 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, as well as gasoline drive systems.

On April 16, 2015, the Company filed Articles 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 believes 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.

The Company’s wholly owned subsidiaries include Workhorse Technologies Inc., Workhorse Motor Works Inc. and Workhorse Properties Inc.

4

Basis of presentation

The financial statements have been prepared on a going concern basis, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. However, the Company has limited revenues and a history of negativecash equivalents, working capital of $66.2 million and stockholders’ deficits.an accumulated deficit of $675.7 million.


We have made significant progress executing on our revised strategic product roadmap for our electric vehicle offerings and expect to generate additional sales within the next twelve months to help support our operations. Additionally, management plans to reduce its discretionary spend related to non-contracted capital expenditures and other expenses, if necessary. These conditions raiseplans alleviated the substantial doubt about theour ability of the Company to continue as a going concern.

In viewconcern caused by the significant losses from operations and cash used in operating activities. However, if the expected sales are not generated and management is not able to control 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 funding, that our projections of these matters, continuation as a going concern is dependent uponour future working capital needs will prove accurate, or that any additional funding would be sufficient to continue operations in future periods.


Our future liquidity and working capital requirements will depend on numerous factors, including, the ability to generate sales, the ability to control capital expenditures and other expenses, and the ability to raise funds via private or public placement of our equity securities.

We currently intend to raise additional funds through issuance of equity, including through the continued use of our at-the-market offering program (the "ATM Program"). If we are unable to maintain sufficient financial resources, our business, financial condition and results of operations will be materially and adversely affected. This could affect future vehicle program production and sales. Failure to obtain additional equity financing will have a material, adverse impact on our business operations. There can be no assurance that we will be able to obtain the needed financing on acceptable terms or at all. Additionally, any equity financings would likely have a dilutive effect on the holdings of our existing stockholders.
Principles of Consolidation
The accompanying Condensed Consolidated Financial Statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) and reflect our accounts and operations and those of our wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated upon consolidation.
In the Company, which, in turn, is dependent uponopinion of our management, the Company’s abilityUnaudited Condensed Consolidated Financial Statements include all adjustments that are necessary for the fair presentation of Workhorse’s financial condition, results of operations and cash flows for the interim periods presented. Such adjustments are of a normal, recurring nature. The results of operations and cash flows for the interim periods presented may not necessarily be indicative of full-year results. Reference should be made to meet its financial requirements, raise additional capital, and successfully carry out its future operations. Thethe financial statements do not include any adjustmentscontained in our Annual Report on Form 10-K for the year ended December 31, 2022.

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Reclassifications
Certain prior period balances have been reclassified to conform to the amount and classification of assets and liabilities that may be necessary, shouldcurrent year presentation in the Company not continue as a going concern.

The Company has continued to raise capital. Management believes the proceeds from these offerings, future offerings,condensed consolidated financial statements 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 debtaccompanying notes. These reclassifications have no effect on previously reported results of operations or equity financing from the salestockholders’ equity.

Use of common stock, preferred stock, and/or convertible debentures. Obtaining such working capital is not assured.

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 accompanying notes.

2.    INVENTORY, NET

Inventory, net consisted of the following:

June 30, 2023December 31, 2022
Raw materials$26,673,327 $42,500,878 
Work in process— 25,210,131 
Finished goods10,281,415 301,645 
36,954,742 68,012,654 
Less: inventory reserves(2,331,176)(59,162,512)
Inventory, net$34,623,566 $8,850,142 
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.
As of June 30, 2023 and December 31, 2022, the Company recorded inventory reserves of $2.3 million and $59.2 million, respectively. The period over period decrease in inventory reserves was primarily driven by our efforts to sell and dispose of C-Series vehicle program inventory, which was fully reserved as the program was discontinued at the end of 2022. The sale and disposal activity did not have a material impact on the Company’s results of operations during the six months ended June 30, 2023.
3.     CONTRACT MANUFACTURING SERVICES AND INVESTMENT IN TROPOS

We have a minority ownership in Tropos Technologies, Inc. (“Tropos”) with a value of $10.0 million as of June 30, 2023 and December 31, 2022. The investment was obtained 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. The non-cash consideration was initially recorded as deferred revenue and is recognized as revenue over time as assembly service performance obligations are satisfied.
We elected to utilize the measurement alternative allowed under GAAP to record our Investment in Tropos at cost less impairment, if applicable, as of June 30, 2023 and December 31. 2022.

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4.    PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets consisted of the following:

June 30, 2023December 31, 2022
Prepaid purchases(1)
$25,878,084 $34,611,649 
Less: prepaid purchases reserve(2)
(17,669,622)(22,163,338)
Prepaid purchases, net8,208,462 12,448,311 
Prepaid insurance414,803 1,198,769 
Other827,475 505,401 
Prepaid expenses and other current assets$9,450,740 $14,152,481 

(1) The Company’s prepaid purchases consist primarily of deposits made to our suppliers for non-recurring engineering costs, capital expenditures, and production parts. The decrease in prepaid purchases as compared to December 31, 2022 is primarily due to receiving inventory on supplier orders related to our W4 CC, W750 and W56 vehicle platforms, with limited new supplier orders receiving prepayment. Additionally, we wrote-off prepaid purchases related to the C-Series vehicle platform, which were fully reserved as the program was discontinued in 2022.
(2) We record reserves on prepaid purchases that are significantly aged, for balances that represent deposits for certain production parts related to the Company’s C-Series vehicle platform, and for balances specifically identified as having a carrying value in excess of net realizable value. The reserve represents our best estimate of deposits on orders that we do not expect to recover. The decrease in the reserve is driven by the write-off of prepaid purchases related to the C-Series vehicle platform, which was fully reserved as the program was discontinued in 2022.

5.    REVENUE
Revenue Recognition
The following table provides a summary of sales activity for the periods indicated:
Three Months Ended
June 30,		Six Months Ended
June 30,
2023202220232022
Sales, net of returns and allowances$3,367,666 $— $4,948,966 $— 
Other sales598,797 12,555 710,912 26,854 
Total sales, net of returns and allowances$3,966,463 $12,555 $5,659,878 $26,854 
Sales for the three and six months ended June 30, 2023 consisted primarily of W4 CC vehicle sales. Other sales for the three and six months ended June 30, 2023 consisted of delivery services, service parts and other services.
Deferred revenue is equivalent to the total service fee allocated to the assembly service performance obligations that are unsatisfied as of the balance sheet date. Deferred revenue was $4.8 million and $5.4 million as of June 30, 2023 and December 31, 2022, respectively.
Revenue recognized from the deferred revenue balance as of June 30, 2023 and 2022 was $0.1 million and zero for the three and six months ended June 30, 2023 and 2022, respectively. Of the total deferred revenue for assembly services, we expect to recognize $1.4 million of revenue in the next 12 months.

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6.    ACCRUED AND OTHER CURRENT LIABILITIES

Accrued and other current liabilities consisted of the following:

June 30, 2023December 31, 2022
Legal reserve (Note 13)$35,500,000 $35,000,000 
Compensation and related costs3,138,072 4,967,187 
Other4,411,671 6,240,244 
Total accrued and other current liabilities$43,049,743 $46,207,431 

Warranties

Warranty liability activity consisted of the following for the periods indicated:

Three Months Ended
June 30,		Six Months Ended
 June 30,
2023202220232022
Warranty liability, beginning of period$2,066,588 $4,315,463 $2,207,674 $4,583,916 
Warranty costs incurred(307,500)(348,005)(595,313)(698,958)
Provision for warranty163,492 (645,246)310,219 (562,746)
Warranty liability, end of period$1,922,580 $3,322,212 $1,922,580 $3,322,212 

7.    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 provision, 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 Condensed 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 and accompanying notes. Actual results could differ from these estimates.

Certain reclassifications were madelease 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 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 prior year financial statementsend of the agreed upon lease term. For purposes of calculating lease liabilities, lease terms include options to conformextend or terminate the lease when it is reasonably certain we will exercise such options.
Three Months Ended
June 30,		Six Months Ended
June 30,
2023202220232022
Short-term lease expense$68,368 $248,103 $126,675 $424,008 
Operating lease expense568,157 465,544 1,140,497 762,967 
Total lease expense$636,525 $713,647 $1,267,172 $1,186,975 

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Lease right-of-use assets consisted of the following:
June 30, 2023December 31, 2022
Operating leases$5,437,003 $5,884,865 
Finance leases5,721,559 5,821,938 
Total lease right-of-use assets$11,158,562 $11,706,803 

Lease liabilities consisted of the following:
June 30, 2023December 31, 2022
Operating leases$6,707,406 $6,977,896 
Finance leases2,855,146 3,147,198 
Total lease liabilities9,562,552 10,125,094 
Less: current portion(1,486,417)(1,285,032)
Long-term portion$8,076,135 $8,840,062 

8.    STOCK-BASED COMPENSATION
We maintain, as approved by the board of directors and the stockholders, the 2017 Incentive Stock Plan, the 2019 Incentive Stock Plan and the 2023 Long-Term Incentive Plan (the “Plans”) providing for the issuance of stock-based awards to employees, officers, directors or consultants of the Company. Non-qualified stock options may only be granted with an exercise price equal to the current year presentation. These reclassifications had no effectmarket value of our common stock on previously reported resultsthe grant date. Awards under the Plan may be either vested or unvested options, or unvested restricted stock. The Plans have authorized 17.5 million shares for issuance of operation or stockholders’ equity.

Financial instruments

stock-based awards. As of June 30, 2023 there were approximately 3.1 million shares available for issuance of future stock awards under the Plans.

Stock-based compensation expense
The carrying amountsfollowing table summarizes stock-based compensation expense for the periods indicated:

Three Months Ended
June 30,		Six Months Ended
June 30,
2023202220232022
Stock options$242,571 $254,585 $483,109 $486,963 
Restricted stock awards2,505,234 2,226,865 4,567,072 3,906,109 
Performance-based restricted stock awards1,029,291 810,959 1,751,304 1,249,630 
Total stock-based compensation expense$3,777,096 $3,292,409 $6,801,485 $5,642,702 

Stock options
A summary of financial instruments including cash, inventory, accounts payable and short-term debt approximate fair value becausestock option activity for the six months ended June 30, 2023 is as follows:

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Number of OptionsWeighted
Average
Exercise Price
per Option		Weighted
Average
Remaining
Contractual Life
(Years)
Balance, December 31, 2022423,626 $7.6 6.7
Exercised(200)1.8 
Forfeited(70,997)1.8 
Balance, June 30, 2023352,429 $8.8 7.2
Number of options exercisable at June 30, 2023204,213 $7.8 6.2

As of June 30, 2023, unrecognized compensation expense was $1.1 million for unvested options which is expected to be recognized over the next 1.2 years.

Restricted stock awards
A summary of restricted stock award activity for the six months ended June 30, 2023 is as follows:

Number of Unvested SharesWeighted Average Grant Date Fair Value per Share
Balance, December 31, 20223,525,331 $4.9 
Granted3,753,965 1.5 
Vested(1,090,357)4.4 
Forfeited(276,051)2.6 
Balance, June 30, 20235,912,888 $2.9 

As of June 30, 2023, unrecognized compensation expense was $14.0 million for unvested restricted stock awards which is expected to be recognized over the next 1.7 years.

Performance share units (“PSUs”)

As of June 30, 2023, the number of unvested PSUs was 3.1 million. The vesting of the relatively short maturityPSUs is conditioned upon achievement of these instruments.

Accounts receivable

Accounts receivable consist of collectible amounts for productscertain performance objectives over performance periods ending December 31, 2024 and services rendered. The Company carries its accounts receivable at invoice amount less an allowance for doubtful accounts. On a periodic basis, the Company evaluates its accounts receivable and establishes an allowance for doubtful accounts based on a history of past write-offs and collections and current credit conditions. The Company generally does not require collateral for accounts receivable.

Lease receivable

The Company’s leasing activities consist2025 as defined in each award agreement. Fifty percent of the leasing of trucks which are classified as direct financing leases.  Revenue is recognized at the inception of the lease.  The leases have a term of 8 years.  Future payments to be received on the leases are as follows:

 2017 $18,069 
 2018 $57,060 
 2019 $57,060 
 2020 $57,060 
 2021 $57,060 
 Thereafter $38,092 
   $284,401 

Inventory

Inventory is stated at the lower of cost or market using the average cost method, and consists of parts and work in process.

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Property, plant and equipment, net

Property and equipment is recorded at cost. Major renewals and improvements are capitalized while maintenance and repairs, which do not improve or extend the lives of the respective assets, are expensed. When property and equipment is retired or otherwise disposed of, a gain or loss is realized for the difference between the net book value of the asset and the proceeds realized thereon. Depreciation is calculated using the straight-line method,PSUs vest based upon the following estimated useful lives:

Buildings: 15 - 30 years

Leasehold improvements: 7 years

Software: 3 - 6 years

Equipment: 5 years

VehiclesCompany’s total shareholder return as compared to a group of peer companies (“TSR PSUs”), and prototypes: 3 - 5 years

Common stock

On April 22, 2010, the directorsfifty percent of the Company approvedPSUs vest based upon our performance on certain measures including a forward stock splitcumulative adjusted EBITDA target (“EBITDA PSUs”). Depending on the actual achievement of the common stockperformance objectives, the grantee may earn between 0% and 200% of the Company on a 14:1 basis. On May 12, 2010, the stockholderstarget PSUs.


A summary of the Company votedactivity for PSU awards with total shareholder return performance objectives for the six months ended June 30, 2023 is as follows:
Number of Unvested SharesWeighted Average Grant Date Fair Value per Share
Balance, December 31, 2022738,751 $11.8 
Granted986,144 0.9 
Forfeited(22,278)0.9 
Balance, June 30, 20231,702,617 $5.6 
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The grant date fair value of $1.88 per TSR PSU for the awards issued in 2023 was estimated using a Monte-Carlo simulation model using a volatility assumption of 109% and risk-free interest rate of 3.77%. The grant date fair value of $11.79 per TSR PSU for the awards issued in 2022 was estimated using a Monte-Carlo simulation model using a volatility assumption of 117% and risk-free interest rate of 0.69%.
As of June 30, 2023, unrecognized compensation expense was $5.9 million for unvested TSR PSUs, which is expected to approvebe recognized over the amendmentnext 1.8 years.

A summary of the certificatePSU awards with cumulative adjusted EBITDA targets for the six months ended June 30, 2023 is as follows:
Number of Unvested Shares
Balance, December 31, 2022432,546 
Granted986,144 
Forfeited(22,278)
Balance, June 30, 20231,396,412 
The fair value of incorporation resulting in a decreaseperformance share units is calculated based on the stock price on the date of grant. The stock-based compensation expense recognized each period is dependent upon our estimate of the number of shares that will ultimately vest based on the achievement of common stock. Management filedEBITDA-based performance conditions. Future stock-based compensation expense for unvested EBITDA PSUs will be based on the certificatefair value of amendment decreasing the authorizedawards as of the grant date, which has not yet occurred, as the cumulative adjusted EBITDA target condition is not yet defined.

9.    STOCKHOLDERS’ EQUITY
At-The-Market Sales Agreement
On March 10, 2022, we entered into the ATM Program. Under the ATM Program, we may offer and sell shares of our common stock withhaving an aggregate sales price of up to $175.0 million.
During the Statethree and six months ended June 30, 2023, we issued 24.3 million and 38.68 million shares, respectively, under the ATM Program for net proceeds of Nevada on September 8, 2010. On February 11, 2015,$21.7 million and $40.3 million, respectively. The remaining aggregate sales available under the Company filed a certificateATM Program is $120.7 million as of amendment to its articlesJune 30, 2023. During the three and six months ended June 30, 2022, we issued 0.1 million and 0.1 million shares, respectively, under the ATM Program for net proceeds 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$0.2 million 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”). $0.2 million, respectively.


10.    INCOME TAXES
As of June 30, 2023 and December 31, 2022, 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 sharesCompany's deferred tax liability was not material.

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 par 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 by the Board of Directors. There are no shares of preferred stock outstanding.

Common Stock - On August 7, 2017 the Workhorse approved the amendment to the Certificate of Incorporation to increase the authorized shares of common stock to 100,000,000. This matter was approved by a majority of the shares outstanding. The Company has authorized 100,000,000 shares of common stock with a par value of $0.001 per share.

Revenue recognition / customer deposits

It is the Company’s policy that revenues will be recognized in accordance with SEC Staff Bulletin (SAB) No. 104, “Revenue Recognition”. Under SAB 104, product revenues (or service revenues) are recognized when persuasive evidence 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

With the consent of its shareholders, at the date of inception, the Company elected under the Internal Revenue Code to be taxed as an S corporation. Since shareholders of an S corporation are taxed on their proportionate share of the Company’s taxable income, an S corporation is generally not subject to either federal or state income taxes at the corporate level. On December 28, 2009, pursuant to the merger transaction the Company revoked its election to be taxed as an S-corporation.

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As no taxable income has occurred from the date of this merger to September 30, 2017 cumulativezero. Cumulative deferred tax assets of approximately 27.7 million are fully reserved and no provision oras there is not sufficient evidence to conclude it is more likely than not the deferred tax assets are realizable. No current liability for federal or state income taxes has been included in these Condensed Consolidated Financial Statements due to the 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 2035
 18.7 2036
 28.7 2037

Research and development costs

The Company expenses research and development costs as they are incurred. Research and Development costs were approximately $5.1 million and $1.0 millionloss for the three months ended September 30, 2017 and 2016, respectively, consisting primarily of personnel costs for our teams in engineering and research, prototyping expense, and contract and professional services. Union City plant expenses prior to the start of production are also included in research and development expenses.

Basic and diluted loss per share

periods.


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11.    EARNINGS (LOSS) PER SHARE
Basic loss per share of common stock is computedcalculated by dividing net loss available to common shareholders (numerator) by the weighted average number ofweighted-average shares outstanding (denominator) duringfor the period. For all periods, allPotentially dilutive shares, which are based on the weighted-average shares of the Company’s common stock equivalentsunderlying outstanding stock-based awards and warrants using the treasury stock method, and convertible notes using the if-converted method, are included when calculating the diluted net loss per share of common stock when their effect is dilutive.

The following table presents the potentially dilutive shares that were excluded from the calculationcomputation of diluted net loss per share of common sharestock, because they were anti-dilutive, due totheir effect was anti-dilutive:

Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
Stock-based awards and warrants10,199,166 6,765,581 10,199,166 6,765,581 
Convertible notes(1)
— 7,833,666 — 7,833,666 

(1) Represents shares issued in exchange of convertible notes in April 2022.

12.    RECENT ACCOUNTING PRONOUNCEMENTS

Accounting Standards and Pronouncements Recently Adopted
There are no accounting standards or pronouncements recently adopted impacting the Company’s net losses.

Stock based compensation

Company.

Accounting Standards and Pronouncements Not Yet Adopted
There are no accounting standards or pronouncements not yet adopted impacting the Company.

13.    COMMITMENTS AND CONTINGENCIES

General Matters

The Company accounts for its stock based compensationis party to various negotiations and legal proceedings arising in accordance with “Share-Based Payments” (codified in FASB ASC Topic 718 and 505).the normal course of business. The Company recognizes in its consolidated statement of operations the grant-date fair value of stock optionsprovides reserves for these matters when a loss is probable and warrants issued to employees and non-employees.reasonably estimable. 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 onCompany does not disclose a range of forecasted results. The expected termpotential loss because the likelihood of such a loss is remote. In the awards granted was assumed to beopinion of management, the contract lifeultimate disposition 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 inthese matters will not have a material adverse effect on the dateCompany’s financial position, results of each grant for United States Treasury debt securities with a maturity equal to the expected term of the award.

Related party transactions

Certain employees have performed services for the Company. These services are believed to be at market rates for similar services from non-related parties. Related party accounts payable are segregatedoperations, cash flows or liquidity.


Federal Motor Vehicle Safety Standards (“FMVSS”) Certification and Other Regulatory Matters

For information regarding certain regulatory matters, see Note 17, “Commitments and Contingencies – Federal Motor Vehicle Safety Standards (“FMVSS”) Certification and Other Regulatory Matters” included in the balance sheet.

Subsequent events

The Company evaluates eventsItem 8, “Financial Statements 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 November 7, 2017, the date on which the consolidated financial statements were available to be issued.

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2.INVENTORY

As of September 30, 2017, and December 31, 2016, our inventory consisted of the following:

   September 30,
2017		  December 31,
2016		 
 Finished Goods   -   212,884 
 Work in Process  674,713   987,665 
 Parts  6,793,620   1,264,286 
    7,468,333   2,464,835 

3.PROPERTY, PLANT AND EQUIPMENT, NET

As of September 30, 2017, and December 31, 2016, our property, plant and equipment, net, consisted of the following:

   September 30,
2017		  December 31,
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  98,788   62,905 
    7,633,805   7,548,229 
 Less accumulated depreciation  (1,960,761)  (1,545,598)
    5,673,044   6,002,631 

4.LONG-TERM DEBT

Long-term debt consists of the following:

   September 30,
2017		  December 31,
2016		 
        
 Secured mortgage payable to Bank for the purchase of the 100 Commerce Drive Building due in monthly installments of $11,900.  1,748,602   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 
    2,098,602   2,167,950 
 Less current portion  61,484   79,521 
 Long term debt  2,037,118   2,088,429 

Aggregate maturities of debt are as follows:

 2018  358,067 
 2019  33,607 
 2020  35,858 
 2021  38,260 
 2022  44,345 
 Thereafter  1,526,981 
    2,037,118 

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5.SHAREHOLDER AND RELATED PARTY ADVANCES

As of September 30, 2017, the Company had deposits for $7,000 that were not yet issued as common stock.

6.LEASE OBLIGATIONS

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 December 2016.

7.STOCK BASED COMPENSATION

Options to directors, officers and employees

The Company maintains, as adopted by the board of directors, the 2014 Stock Incentive Plan, the 2014 Stock Compensation Plan, 2013 Incentive Stock Plan, the 2012 Incentive Stock Plan, the 2011 Incentive Stock Plan and the 2010 Stock Incentive Plan (the plans) providing for the issuance of up to 1,100,000 options to employees, officers, directors or consultants of the Company. Incentive stock options granted under the plans may only be granted with an exercise price of not less than fair market valueSupplementary Data” of the Company’s common stockAnnual Report on the date of grant (110% of fair market value for incentive stock options granted to principal stockholders). Non-qualified stock options granted 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 common stock on the date of grant. Awards under the plans may be either vested or unvested options. The unvested options vest ratably over two years for options with a five or three-year term and after one year for options with a two-year term.

The 2017 Incentive Plan was adopted by the Board of Directors and the shareholders of the Company. 5,000,000 shares of Common Stock have been reserved for issuance under the 2017 Incentive Plan. Under the Plan, options may be granted which are intended to qualify as Incentive Stock Options (“ISOs”) under Section 422 of the Internal Revenue Code of 1986 (the “Code”) or which are not (“Non-ISOs”) intended to qualify as Incentive Stock Options thereunder. The 2017 Incentive Plan is not a qualified deferred compensation plan under Section 409(a) of the Internal Revenue Code and is not subject to the provisions of the Employee Retirement Income Security Act of 1974 (“ERISA”). The primary purpose of the 2017 Incentive Plan is to attract and retain the best available personnel for the Company in order to promote the success of the Company’s business and to facilitate the ownership of the Company’s stock by employees. The 2017 Incentive Plan is administered by a committee of the Board that is designated by the Board to administer the Plan, composed of not less than two members of the Board all of whom are disinterested persons, as contemplated by Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”). All questions of interpretation of the 2017 Incentive Plan are determined by the Committee, and its decisions are final and binding upon all participants. Under the 2017 Incentive Plan, options may be granted to key employees, officers, directors or consultants of the Company, as provided in the 2017 Incentive Plan.

In addition to the plans, the Company has granted, on various dates, stock options to directors, officers and employees to purchase common stock of the Company. The terms, exercise prices and vesting of these awards vary.

The following table summarizes option 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  944,529   -  $-  $-   - 
 Granted  (1,900,000)  1,900,000  $5.01  $1.11   72 
 Exercised  -   (137,419) $2.11  $1.00   - 
 Forfeited  -   -  $-  $-   - 
 Expired  -   -  $-  $-   - 
 Balance September 30, 2017  0   3,906,902  $3.17  $1.84   43 

The Company recorded $1,070,862 and $823,253 compensation expense for stock options to directors, officers and employees for the nine months ended September 30, 2017 and 2016 respectively. As of September 30, 2017, unrecognized compensation expense of $2,376,998 is related to non-vested options granted to directors, officers and employees which is anticipated to be recognized over the next 7 months, commensurate with the vesting schedules.

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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   41 
 Granted  (9,000)  9,000  $4.99  $0.44   52 
 Exercised  -   (138,312) $0.34  $0.81   - 
 Balance December 31, 2016  90,303   177,461  $0.49  $1.05   37 
 Exercised  -   (5,000) $1.50  $0.83   - 
 Balance September 30, 2017  90,303   172,461  $0.57  $1.11   32 

The Company recorded $5,258 and $31,356 compensation expense for stock options to consultants for the nine months ended September 30, 2017 and 2016 respectively. As of September 30, 2017, there was no unrecognized compensation expense for options granted to consultants.

Warrants to placement agent and consultants

The Company has compensated the placement agents for assisting in the sale of the Company’s securities by paying the placement agent commissions and issuing the placement agent common stock purchase warrants to purchase shares 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.

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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 
 Exercised  -   (60,160) $2.69  $0.43   - 
 Expired  -   (87,458) $6.00  $2.70   - 
 Balance December 31, 2016  210,227   159,205  $2.56  $1.16   17 
 Balance September 30, 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 nine months ended September 30, 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 $20.00 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 100,000 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 common stock purchase 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 Promissory Notes and common stock purchase warrants. In November 2012, the Company entered into a Note and Warrant Amendment and Conversion Agreement whereby the holders converted all principal and interest under such Promissory Notes into shares of common stock. Further, the exercise price of the common stock purchase warrants was reduced to $2.50 per share. The $7,388 cost of the reduction in the exercise price is included in stock based compensation expenseForm 10-K for the year ended December 31, 2012. 

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2022.

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 
 Expired  -   (150,000)  20.00   0.15   - 
 Balance December 31, 2016  348,925   188,925  $20.00  $1.02   4 
 Balance September 30, 2017  348,925   188,925  $20.00  $1.30   4 

The Company recorded no compensation expense for stock warrants to directors and officers for the nine months ended September 30, 2017 and 2016. There is no unrecognized compensation expense for these warrants because they are fully vested at date of grant.

8.RECENT PRONOUNCEMENTS

In April 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, and affects the guidance in ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which is not yet effective. ASU No. 2016-10 clarifies the following two aspects of Topic 606: evaluating whether promised goods and services are separately identifiable, and determining whether an entity’s promise to grant 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. 2016-10 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. 2016-10 is not expected to have a material impact on the Company’s consolidated financial statements.  

In March 2016, the FASB issued ASU No. 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, and affects all entities that issue share-based payment awards to their employees. The new guidance involves several aspects of the accounting for share-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. Under ASU No. 2016-09, any excess tax benefits or tax deficiencies should be recognized as income tax expense or benefit in the income statement. Excess tax benefits are to be classified as an operating activity in the statement of cash flows. In accruing compensation cost, an entity can make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest, as required under current guidance, or account for forfeitures when they occur. For an award to qualify for equity classification, an entity cannot partially settle the award in excess of the employer’s maximum statutory withholding requirements. Such cash paid by an employer when directly withholding shares for tax withholding purposes should be classified as a financing activity in the statement of cash flows. The amendments in ASU No. 2016-09 are effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2016. Early adoption is permitted. Adoption of ASU No. 2016-07 is not expected to have a material impact on the Company’s consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net), and affects the guidance in ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606),” which is not yet effective. When another party is involved in providing goods or services to a customer, ASU No. 2014-09 requires an entity to determine whether the nature of its promise is to provide the specified good or service itself (that is, the entity is a principal) or to arrange for that good or service to be provided by the other party (that is, the entity is an agent). The amendments in ASU No. 2016-08 are intended to improve the operability and understandability of the implementation guidance in ASU No. 2014-09 on principal versus agent considerations by offering additional guidance to 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 impact on the Company’s consolidated financial statements.  

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Legal Proceedings

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which requires a lessee to recognize in the statement of financial position a liability to make lease payments (“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 present value of the lease payments. When measuring assets and liabilities arising from a lease, 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.

9.PRIVATE PLACEMENT MEMORANDUM AND STOCK OFFERING

During 2015,


Securities Litigation
On October 24, 2022, the Company entered into a placement agency agreementbinding 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 10, 2020 through May 10, 2021 as well as the related Shareholders Derivative Litigation described below. On January 13, 2023, the parties executed a Stipulation of Settlement setting forth the terms of the settlement of the class action and resolution of all claims. Under these terms, Workhorse will pay $15 million in cash, which is expected to be funded fully by proceeds of available insurance, and $20 million payable in shares of Workhorse stock. A Stipulation of Settlement and Motion for Preliminary Approval of Class Action Settlement was filed on January 13, 2023, and the Court granted preliminary approval of the settlement on February 14, 2023. The Company recorded a $15 million insurance
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receivable in Other receivable and a $35 million legal reserve in Accrued and other current liabilities in the Consolidated Balance Sheet at June 30, 2023.
On July 24, 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 third party to assistsettlement fund with an escrow agent (the “Settlement Fund”), consisting of $15 million in raising capital. Direct costscash and $20 million in shares of this private placement memorandum (PPM) were deferredcommon stock of the Company (the “Settlement Shares”) from which class members will receive payment. The escrow agent may sell the Settlement Shares and reduceddeposit the proceeds from such sales into the shares sold inSettlement Fund or may distribute the PPM. The PPM was completed, and all costs were chargedSettlement Shares to equity inclass members.
Pursuant to the three-month period ended in March 31, 2016.

Total amount convertedStipulation of Settlement, the number of Settlement Shares to be issued is based on the volume weighted average price (“VWAP”) of the Company’s common stock including accrued interest onfor the notes payable was $11,375,276 net of15 trading days immediately preceding the deferred costs.

On February 1, 2017,Judgment Date. The Company has calculated the VWAP for the 15 trading days immediately preceding the Judgment Date to be $1.011 (the “VWAP Price”). As a result, subject to the possible adjustments discussed below, the Company announced the completion of its underwritten public offering of 6,500,000expects to issue 19,782,394 shares of its common stock to be deposited into the Settlement Fund as Settlement Shares. However, if, at a public offering price of $3.00 per share. In addition,market close on the underwriters exercised an option to purchase an additional 975,000 shares of common stock attrading day before the public offering price, lessdate the underwriting discounts and commissions.

All ofCompany deposits the shares in the offering were sold by Workhorse Group, with gross proceeds to Workhorse Group of approximately $22.4 million and net proceeds of approximately $20.5 million, after deducting underwriting discounts and commissions and estimated offering expenses.

On June 22, 2017, Workhorse entered into an atSettlement Shares, 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 September 30, 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 sharesper share of the Company’s common stock deviates more than 25% above or below the VWAP Price, the number of Settlement Shares will be adjusted, upward or downward, as the case may be, such that the aggregate value of the Settlement Shares equals $20 million.

For additional information regarding the Securities Class Action, see Note 17, “Commitments and five year warrants (exercisable beginning on the date of issuance) to purchase up to an aggregate of 2,812,497 sharesContingencies – Legal Proceedings – Securities Litigation” included in Item 8, “Financial Statements and Supplementary Data” of the Company’s common stock.  Each investor receivedAnnual Report on Form 10-K for the year ended December 31, 2022.

Shareholder Derivative Litigation
As described in detail in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, a warranttotal of eight substantively similar derivative actions were originally filed for breach of fiduciary duty and unjust enrichment against Duane Hughes, Steve Schrader, Stephen Fleming, Robert Willison, Anthony Furey, Gregory Ackerson, H. Benjamin Samuels, Raymond J. Chess, Harry DeMott, Gerald B. Budde, Pamela S. Mader, Michael L. Clark and Jacqueline A. Dedo in state court in Nevada, state court in Ohio, and federal courts in Nevada, Ohio and California (collectively, the "Shareholder Derivative Litigation"). In these actions, the plaintiffs allege the defendants breached their fiduciary duties by allowing or causing the Company to purchase 0.75 sharesviolate the federal securities laws as alleged in the Securities Class Action discussed above and by selling Company stock and receiving other compensation while allegedly in possession of material non-public information about the prospect of the USPS awarding the contract to an electric vehicle manufacturer given electrifying the USPS’s entire fleet allegedly have been impractical and expensive. The plaintiffs seek damages and disgorgement in an indeterminate amount.
On October 24, 2022, the Company and the individual defendants entered into a binding term sheet to resolve all of the shareholder derivative actions described above. The settlement was subject to final documentation, public notice and court approval by the State District Court of Nevada. The parties also agreed to promptly request that the courts in such actions stay all proceedings and/or enter an order enjoining all other stockholders of the Company from commencing, instituting, or prosecuting any similar claims.
On April 10, 2023, the parties executed a Stipulation of Settlement setting forth the terms of the settlement of the derivative actions and resolving all claims. Under the terms of the settlement, the Company will receive $12.5 million of the $15.0 million described above from the Company’s common stock at an exercise pricedirectors and officers insurers and will, in turn, deliver the $12.5 million in connection with the settlement of $3.80 per share,the Securities Class Action. The Company has also agreed to adopt various corporate governance changes. On June 21, 2023, the State District Court of Nevada granted final approval of the settlement. 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 is payable by the Company, which was recorded in the Condensed Consolidated Statements of Operations for each sharethe period ended June 30, 2023.

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14.    SUBSEQUENT EVENT

On August 10, 2023, a subsidiary of common stock purchased.

the Company entered into a Floorplan and Security Agreement (the “Agreement”) with Mitsubishi HC Capital America, Inc. Pursuant to this arrangement, the Underwriting Agreement, Cowen purchased 3,749,996 sharesCompany has obtained a revolving floorplan line of credit with a maximum borrowing limit of $5.0 million.


The floorplan line of credit allows the Company to finance the acquisition of inventory, which is primarily intended for use in our manufacturing and sales of our W4 CC and W750 vehicles. Under this arrangement, the Company can borrow funds up to the specified borrowing limit to acquire eligible inventory. As the inventory is sold, the Company is required to repay the borrowings from the proceeds of the Company’s common stocksales.

The terms of the floorplan lending line of credit include interest charged on the outstanding borrowings and accompanying warrantsmay also include other fees and covenants. Interest is typically charged at a price per sharevariable rate based on a reference interest rate, such as the Secured Overnight Financing Rate (SOFR), plus 4.86%.

The floorplan lending line of $3.20.credit is secured by a security interest in the eligible inventory. The net proceedsterm of the Agreement is one year and is subject to automatic renewal on an annual basis.

The Company believes that the Agreement provides a valuable source of financing to support its inventory management and sales operations. However, the Agreement also exposes the Company were approximately $10.9 million after deducting underwriting discountsto risks related to changes in interest rates, inventory values, and commissions and offering expenses.  The salethe availability 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.

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eligible inventory.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


Overview and Quarter Highlights

We are aan 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 electric mobility solutions to the commercial transportation sector. As an American manufacturer, weWe design and build high-performance, battery-electricmanufacture all-electric trucks and drone systems, including the technology that optimizes the way these vehicles operate. We are focused on our core competency of bringing our electric vehicle platforms to market.

We continue to seek opportunities to grow the business organically, and by expanding relationships with existing and 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 Developments
Certified Dealer Program
During the second quarter, 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 the Company’s 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 made investments in electric vehicle ("EV") charging infrastructure, 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.
Vehicles in Production

We continue to focus on product quality, manufacturing capacity and operational planning, and engineering and design to enable increased deliveries and deployments of our products and future revenue growth. During the period, we experienced increased sales of the W4CC, W750 and HorseFly vehicles and aircraft that make movementwe continued developing and commercializing our package delivery trucks and drones. Additionally, our progress on the W750 production supports the electrification of people and goods more efficient and less harmful to the environment. We approach our development through two divisions, Automotive OEM and Aviation Manufacturer.

Automotive

Last Mile Electric Delivery Vehicles

Workhorse battery-electric and range-extended delivery vans are currently in production at our Union City, Indiana plant and are in usefleet of trucks being utilized by our customers on dailyStables & Stalls initiative, which operates FedEx Ground delivery routes acrossin the United States. To date, we have built and delivered over 300 electric and range extended delivery trucks to our customers. To our knowledge, we are the only OEM to achieve such a milestone, worldwide. Our delivery customers include companies such as UPS, FedEx Express, Alpha Baking, Brink’s and W.B. Mason. Data from our in-house-developed telematics system demonstrates our vehicles have logged nearly 2,000,000 customer miles on the road and are averaging approximately a 500% improvement in fuel economy as compared to conventional gasoline-based trucksgreater Cincinnati area. The electrification of the same sizefleet will provide us with firsthand data on of the challenges and duty cycle.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 EV, including how to develop adequate charging infrastructure, training and maintenance services. We also continued executing our assembly services for the Tropos vehicles. In addition to a five-fold improvementour ongoing production ramp in fuel economy,2023, we anticipate thatintend to continue to generate demand and brand awareness by improving our vehicles’ performance and functionality, and by developing new vehicle platforms such as the performanceW56 and WNext. We expect to continue to benefit from ongoing electrification of our vehicles on-route will reduce long-term vehicle maintenance expensethe automotive sector and increasing environmental awareness.

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 approximately 50% as compared to fossil-fueled trucks.

We produced 73 of our E-GEN electric delivery trucks to customers in the third quarter 2017. This was a record production and revenue level for Workhorse. We also delivered our six prototype vehiclesparties to the United States Postal Service (USPS)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 third quarter. Looking ahead,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 first 37 daysCompany (the “Settlement Shares”) from which class members will receive payment. For further information regarding the Securities Class Action and the settlement thereof, please see Note 13, “Commitments and Contingencies – Legal Proceedings – Securities Litigation” included in Item 1 of this current quarter,Form 10-Q, and Note 17, “Commitments and Contingencies – Legal Proceedings – Securities Litigation” included in Item 8 of the Company’s Form 10-K for the year ended December 31, 2022.


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 is payable by the Company. For further information regarding the Shareholder Derivative Litigation and the
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settlement thereof, please see Note 13, “Commitments and Contingencies – Legal Proceedings – Shareholder Derivative Litigation” included in Item 1 of this Form 10-Q, and Note 17, “Commitments and Contingencies – Legal Proceedings – Shareholder Derivative Litigation” included in Item 8 of the Company’s Form 10-K for the year ended December 31, 2022.
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 already builtto accurately project demand and delivered 64 E-Gen vehicles.

Today,infrastructure requirements globally and deploy our production, workforce and other resources accordingly. For more detailed descriptions of the impact and risks to our business, please see certain risk factors described in Part I, Item 1A, Risk Factors in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 1, 2023 (the Form 10-K”) and Part II, Item 1A, Risk Factors in this Quarterly Report on Form 10-Q.


Commodities. Prices for commodities remain volatile, and we announced our new NGEN low floor electric delivery van with a stylish composite body. This next generational vehicle was designed with Last Mile Delivery in mind,expect to experience price increases for base metals and incorporates our work with traditional delivery customers, our USPS prototypes and the new delivery demandsraw materials that are theused 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 as a result of the ever increasing packages being delivered due to e-commerce.COVID-19 pandemic and geopolitical uncertainties have generated divergence in price movements across different commodities. We believe this new, lightweight, all wheel drive electric vehicle with best in class turning radius coupled with its optional roof mounted HorseFly delivery drone representsexpect the most efficient last mile delivery system available. As with all Workhorse chassis and trucks, Rydernet impact on us overall will be our sales and national service organization for the new NGEN vehicle.

In addition to extending our “first mover” status in the electric delivery truck marketplace, the NGEN vehicle also leverages our existing supply chain partners to achieve our goal of being gross margin positive on our trucks.

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higher material costs.


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 be an Original Equipment Manufacturer (OEM) of Class 3-6 commercial-grade, medium-duty truck chassis, to be marketed under the Workhorse® brand.

The Workhorse Custom Chassis acquisition includes other important assets including the Workhorse brand and logo, intellectual property, schematics, logistical support from Up-Time Parts (a Navistar subsidiary) and access to a network of 400-plus sales and service outlets across North America. We believe the combination of our assembly capability, coupled with our battery-electric product development expertise gives Workhorse a unique opportunity to manufacture at scale in the U.S.

W-15 Pickup Truck

The success of our E-GEN total-cost-of-ownership value proposition to fleet buyers of medium-duty vehicles encouraged us to bring this same philosophy to the much higher volume segment of light-duty trucks. Our first product offering in the light-duty truck environment is our W-15 Range-Extended Electric Pickup Truck, which is presently under development and is targeted for initial production to begin in late 2018. We believe that the W-15 has the potential to transform the pickup truck market in the United States.

We had a highly successful unveiling of our W-15 pickup truck in Long Beach, CA the week of May 1st, 2017. As part of the unveiling, we also announced that we had secured letters-of-intent for the W-15 from a mixture of top corporate fleets representing the utility, municipality and automotive logistics sectors. The LOIs represent more than 5,000 units.

We have also had many inquiries from general consumers with respect to the availability of the W-15 being sold to consumers. Our current plan is to release the W-15 for availability to consumers if we reach the point where at least 10,000 consumers place a pre-order that is accompanied by a $1,000 deposit.

To realize further efficiencies, we intend to assemble the W-15 at our existing 250,000 square foot facility 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 built in our Loveland, Ohio battery pack plant using Panasonic cells produced in Japan.

Post Office Replenishment Program

Workhorse, with our partner VT Hackney, is one of five awardees that the United States Postal Service selected to build prototype vehicles for USPS Next Generation Delivery Vehicle (NGDV) project. The Post Office has stated that the number of vehicles to be replaced in the project is approximately 180,000. In September, Workhorse delivered six vehicles for prototype testing under the NGDV Acquisition Program in compliance with the terms set forth in their USPS prototype contract.

Aviation

Delivery Drones

Our Horsefly Delivery Drone is a custom-designed, purpose-built drone that is fully integrated with our electric trucks. We have a patent pending on this architecture and we believe we are the only company in the world with a working drone/truck system. The Horsefly delivery drone and truck system is designed to work within the FAA Rule 107 that permits the use of commercial drones in U.S. airspace under certain conditions.

UPS conducted a successful real-world test with us in February 2017 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/truck delivery system can have significant cost savings in the parcel delivery ecosphere.

As stated in UPS’s press release issued on February 21, 2017, 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. 

Supply Chain. We continue to develop relationships with suppliers of key parts, components and raw materials to be used in the manufacturing of our products such as batteries, electronics, and vehicle chassis that are sourced from suppliers across the world. As we continue to execute on our new vehicle platforms, we will continue to identify supplier relationship and vehicle platform 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 will work closelyto qualify multiple supply sources to achieve pricing efficiencies and minimize potential production risks related to supply chain.

Inflation. Inflation continues to impact our operations, 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 result of the ongoing Ukraine and Russia conflict. 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 cost of any financing the Company may undertake in the future.

The following section provides a narrative discussion about our financial condition and results of operations. The comments should be read in conjunction with our Condensed Consolidated Financial Statements and related Notes thereto included in Item 1 of this Form 10-Q and in conjunction with the FAA as we strive to bring10-K filed with the system toSEC on March 1, 2023.

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Results of Operations
The following table sets forth, for the point of daily drone deliveries across rural America.

Manned Multicopter

We continue to leverage our knowledge of high-voltage battery packs, electric motor controls, range extending generators and lightweight carbon fiber chassis to design to expand into areas that fit within our corporate mission statement. On June 17th atperiods indicated, the Paris Air show, we launched our multi-copter platform that can carry a pilot and passenger. The product is called SureFly™, and it is meant to be a short haul, vertical takeoff and landing aircraft that is less expensive to buy and operate, and much safer and easier to fly when compared to a conventional helicopter. We believe that the typical application would be agriculture, package delivery and logistics in remote areas, emergency responders, military, and commuters in highly congested larger cities.

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In lightcomponents of the robust response to the launch, we are working closely with the FAACompany's Condensed Consolidated Statements of Operations:

Three Months Ended
June 30,		Six Months Ended
June 30,
2023202220232022
Sales, net of returns and allowances$3,966,463 $12,555 $5,659,878 $26,854 
Cost of sales8,427,377 3,020,204 13,755,496 6,943,555 
Gross loss(4,460,914)(3,007,649)(8,095,618)(6,916,701)
Operating expenses
Selling, general and administrative14,002,517 13,030,143 28,692,360 24,940,402 
Research and development5,059,745 5,027,061 12,284,594 9,038,995 
Total operating expenses19,062,262 18,057,204 40,976,954 33,979,397 
Loss from operations(23,523,176)(21,064,853)(49,072,572)(40,896,098)
Interest income (expense), net505,500 (95,419)1,055,859 (2,318,709)
Other income (loss)— — — — 
Loss before benefit for income taxes(23,017,676)(21,160,272)(48,016,713)(43,214,807)
Benefit for income taxes— — — — 
Net loss$(23,017,676)$(21,160,272)$(48,016,713)$(43,214,807)

Sales, net of returns and severalallowances
Sales, net of our industry partners to bring the SureFly™ solution to market. We expect to test our first manned hover in late 2017. We believe that our range-extended truck experience combined with our Horsefly delivery drone aviation development experience will give us competitive advantagesreturns and speed-to-market with such an aircraft. We have targeted 2019 to receive our certification from the FAA and have begun accepting $1,000 deposits from potential customers.

Results of Operations

Our condensed consolidated statement of operations data for the period presented follows:

Workhorse Group Inc

Consolidated Statement of Operations

For the Three and Nine Months Ended September 30, 2017 and 2016

(Unaudited)

  Three Months Ended
September 30,		  Nine Months Ended
September 30,		 
  2017  2016  2017  2016 
             
Sales $3,285,000  $1,906,000  $5,333,037  $3,376,600 
                 
Cost of Sales  7,558,082   4,173,364   12,866,095   6,932,416 
Gross loss  (4,273,082)  (2,267,364)  (7,533,058)  (3,555,816)
                 
Operating Expenses                
Selling, general and administrative  3,283,196   1,968,260   8,031,368   4,755,642 
Research and development  5,084,419   1,024,470   14,139,074   4,224,208 
Total operating expenses  8,367,615   2,992,730   22,170,442   8,979,850 
                 
Interest expense, net  26,891   2,765   84,394   43,035 
                 
  Net loss $(12,667,588) $(5,262,859) $(29,787,894) $(12,578,701)

Sales

Salesallowances for the three months ended SeptemberJune 30, 20172023 and 20162022 were $3.3$4.0 million and $1.9$12,555, respectively. Sales, net of returns and allowances for the six months ended June 30, 2023 and 2022 were $5.7 million respectively and were related to delivery of the production vehicles for UPS.$26,854, respectively. The increase in sales is due toprimarily driven by sales of the higher rateW4 CC vehicle during the first six months of delivery requested by UPS.

Sales for the nine months ended September 30, 2017 and 2016 were $5.3 million and $3.4 million The increase in sales is due to the higher rate of delivery requested by UPS and the increased production capacity of Workhorse.

Cost of Sales

2023.

Cost of sales includes cost of materials, labor and overhead for the vehicles delivered during the period.

Cost of Salessales for the three months ended SeptemberJune 30, 20172023 and 20162022 were $7.6$8.4 million and $4.2$3.0 million, respectively. MaterialsThe increase in cost of sales was primarily due to a $4.8 million increase in costs related to vehicle sales and componentsa $0.6 million increase in employee compensation and related expenses.
Cost of sales for the manufacturing of the initial units were acquired at low volume pricing.

Cost of Sales for the ninesix months ended SeptemberJune 30, 20172023 and 20162022 were $12.9$13.8 million and $6.9 million, respectively. MaterialsThe increase in cost of sales was primarily due to a $5.6 million increase in costs related to vehicle sales and components fora $1.7 million increase in employee compensation and related expenses. The increase was offset by a $0.5 million decrease in inventory reserves, which was driven by the manufacturingdisposition of the initial units were acquired at low volume pricing. We areC-Series inventory items in the process of negotiating high volume pricing2022.

Selling, general and credit terms with vendors as production volume is increasing.

Selling, General and Administrative Expenses

administrative expenses

Selling, general and administrative (“SG&A”) expenses consistduring the three months ended June 30, 2023 and 2022 were $14.0 million and $13.0 million, respectively. The increase was primarily of personneldriven by a $0.5 million increase in employee compensation and facilities costs related to ourexpenses, including non-cash stock-based compensation expense, a $0.4 million increase in professional services, and a $0.5 million increase in other operational expenses. The increase was partially offset by a $0.6 million decrease in legal expenses.
SG&A expenses during the six months ended June 30, 2023 and 2022 were $28.7 million and $24.9 million, respectively. The increase was primarily driven by a $3.9 million increase in employee compensation and related expenses, including non-cash stock-based compensation expense, a $0.6 million increase in IT related expenses, a $0.5 million increase in insurance premiums, and a $1.0 million increase in professional services. The increase was partially offset by a $2.4 million decrease in legal expenses.


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Research and development including marketing, sales, executive, finance, human resources, information technologyexpenses
Research and professional, legal and contract services.

16

SG&Adevelopment (“R&D”) expenses during the three months ended SeptemberJune 30, 20172023 and 20162022 were $3.3$5.1 million and $2.0$5.0 million, respectively.

R&D expenses during the six months ended June 30, 2023 and 2022 were $12.3 million and $9.0 million, respectively. The increase consistedwas primarily driven by an increase of $1.7 million in employee salariescompensation and benefits, promotional activitiesrelated expenses. Additionally, there was a $1.0 million increase in prototype expenses and a $0.2 million increase in consulting dueexpenses related to increased activity in the period.

SG&A expenses during the nine months ended September 30, 2017continued development of our HorseFly™, W56, W750 and 2016 were $8.0 million and $4.8 million respectively. The increase consisted primarily of employee salaries and benefits, consulting and investor relations, due to increased activity in the period.

Research and Development Expenses

Research and development (“R&D”) expenses consist primarily of personnel costsW4 CC vehicle programs.


Interest income (expense), net

Net interest income for our teams in engineering and research, prototyping expense, and contract and professional services.

R&D expenses during the three months ended SeptemberJune 30, 2017 and 2016 were $5.12023 was $0.5 million and $1.0as compared to $0.1 million respectively. The increase in R&D expenses consisted primarily in consulting and materials related to the start of the Next Generation Delivery Vehicles project and SureFly™ Octocopter.

R&D expenses during the nine months ended September 30, 2017 and 2016 were $14.1 million and $4.2 million respectively. The increase in R&D expenses consisted primarily in employee salaries and benefits, consulting and materials related to the start of the Next Generation Delivery Vehicles project, the construction and completion of the prototypes for the pickup truck, EPA/CARB certification and the SureFly™ Optocopter.

Interest Expenses

Our interest expense is incurred primarily from our long-term loans for financing Property, Plant and Equipment.

Interest expenses during the three months ended SeptemberJune 30, 2017 and 2016 were $27 thousand and $3 thousand, respectively. Interest2022.


Net interest income for the six months ended June 30, 2023 was $1.1 million as compared to $2.3 million of interest expense for 2017 wasthe six months ended June 30, 2022. Net interest income in the current period is driven by interest earned on cash in our money market investment account. Net interest expense in the prior period is primarily related to the Long-Term loanfair value adjustments, contractual interest expense, and loss on the Loveland Headquarters R&D building. 

Interest expensesconversion of our former convertible notes, which were exchanged for shares of our common stock during 2022.

Income taxes
Benefit for income taxes during the ninethree and six months ended SeptemberJune 30, 2017 and 2016 were $84 thousand and $43 thousand, respectively. Interest expense for 20172023 was related to the Long-Term loan on the Loveland Headquarters R&D building. Interest expense for 2016 was related to the Navistar loan which was paid off during the second quarter of 2016.

zero.


Liquidity and Capital Resources

Cash Requirements

From inception, we

We have financed our operations primarily through sales of equity securities.securities and issuance of debt. We have consumed substantial amounts ofutilized this capital to date as we continue ourfor research and development activitiesto fund designing, building and manufacturing our vehicles.

delivering vehicles to customers and for working capital purposes.

We had $5.7 million of sales for the six months ended June 30, 2023.As of SeptemberJune 30, 2017, we2023, the Company had approximately $9.8$62.4 million in cash and cash equivalents, positive working capital of $66.2 million, accumulated deficit of $675.7 million, and short-term investments, as comparedduring the six months ended June 30, 2023 incurred a loss from operations of $49.1 million and used $65.8 million of cash in operating activities. We have made significant progress executing on our revised strategic product roadmap for our electric vehicle offerings, and we expect to approximately $470 thousand as of December 31, 2016, an increase of approximately $9.4 million. The increase was primarily attributablegenerate additional sales revenue within the next twelve months which will help support our operations. Additionally, management plans to reduce its discretionary spend related to non-contracted capital expenditures and other expenses, if necessary. However, if the closingexpected sales are not generated and management is not able to control 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 funding, that our projections of our underwritten public offerings in February and September 2017.

We believefuture working capital needs will prove accurate, or that our existing capital resources willany additional funding would be sufficient to supportcontinue operations in future years.


Our annual cash burn remained high during the six month period ended June 30, 2023, however we expect it to decrease overall for the period ending December 31, 2023, despite increased working capital requirements and R&D activities.

We will primarily rely upon a private or public placement of our current and projected funding requirements into Q1 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. Becauseequity securities, including the continued use 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,ATM Program, for which there can be no assurance we will be successful in such efforts. If we are unable to estimatemaintain 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 platforms, will be materially and adversely affected. This could affect future vehicle program production and sales. Failure to obtain additional equity financing will have a material, adverse impact on the Company’s business operations. There can be no assurance that we will be able to obtain the financing needed to achieve our goals on acceptable terms or at all. Additionally, any equity financings would likely have a dilutive effect on the holdings of the Company’s existing stockholders.
Cash Requirements
From time to time in the ordinary course of business, we enter into agreements with certainty the amounts of increased capital outlays and operating expenditures.

Our operations will require significant additional fundingvendors for the foreseeable future. Unlesspurchase of components and untilraw materials to be used in the manufacture of our products. However, due to contractual terms, variability in the precise growth curves of our development and production ramps, and opportunities to renegotiate pricing, we are ablegenerally do not have

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binding and enforceable purchase orders under such contracts beyond the short term, and the timing and magnitude of purchase orders beyond such period is difficult to generate a sufficient amountaccurately project.
We currently expect our capital expenditures to upgrade our facilities in Indiana, Ohio and Michigan to be between $15.0 and $25.0 million in 2023.
As of revenueJune 30, 2023, our total minimum future lease payments were $9.6 million. A description of our lease obligations is contained in Note 7, Leases, of the Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q.
Sources and reduceCondition of Liquidity
On March 10, 2022, we entered into the ATM Program. Under the ATM Program, we may offer and sell shares of our costs,common stock having an aggregate sales price of up to $175.0 million, in amounts and at times determined by management. During the three and six months ended June 30, 2023, we expect to finance future cash needsissued 24.3 million and 38.7 million shares under the ATM Program for net proceeds of $21.7 million and $40.3 million, respectively. During the three and six months ended June 30, 2022, we issued 0.1 million and 0.1 million shares, respectively, under the ATM Program for net proceeds of $0.2 million and $0.2 million, respectively. As of June 30, 2023 we have approximately $120.7 million available through public and/or private offeringsthe issuance of equity securities and/or debt financings. Weshares of common stock under the ATM Program.
With the exception of contingent and royalty payments we may receive under our existing agreements, we do not currently have any committed future funding. To the extent we raise additional capital by issuing equity securities, including under the ATM Program, our stockholders could at that time experience substantial dilution. Any debt financing that we are able tocan obtain may involveinclude operating covenants that restrict our business. In February 1, 2017, the Company announced the completion of its underwritten public offering of 6,500,000 shares of its common stock at a public offering price of $3.00 per share. In addition, the underwriters exercised an option to purchase an additional 975,000 shares of common stock at the public offering price, less the underwriting discounts and commissions. On June 22, 2017, the Company entered into 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. Cowen may sell the Common Stock by any method permitted by law deemed to be an “at the market offering” as defined in Rule 415 of the Securities Act of 1933, as amended, including without limitation sales made by means of ordinary brokers’ transactions on the Nasdaq Global Select Market or otherwise at market prices prevailing at the time of sale, in block transactions, or as otherwise directed by the Company. Cowen will use commercially reasonable efforts to sell the Common Stock from time to time, based upon instructions from the Company (including any price, time or size limits or other customary parameters or conditions the Company may impose). The Company will pay Cowen a commission of 3.0% of the gross sales proceeds of any Common Stock sold through Cowen under the Cowen Agreement, and also has provided Cowen with customary indemnification rights. The Company is not obligated to make any sales of Common Stock under the Agreement. The offering of shares of Common Stock pursuant to the Cowen Agreement will terminate upon the earlier of (i) the sale of all Common Stock subject to the Cowen Agreement or (ii) termination of the Cowen Agreement in accordance with its terms. The shares of Common Stock being offered pursuant to the Cowen Agreement will be offered and sold pursuant to the Company’s shelf registration statement on Form S-3 (File No. 333-213100). On June 22, 2017, the Company filed a prospectus supplement relating to the ATM Offering with the Securities and Exchange Commission (the “SEC”). As of September 30, 2017, the Company issued 1,060,783 shares of Common Stock for gross proceeds of $3.5 million under the Cowen Agreement.

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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 beginning 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.

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

Insufficient funds may require usseek to delay, scale backpursue;

•our ability to manage our growth;
•competing technological and market developments;
•the costs and timing of obtaining, enforcing and defending our patent and other intellectual property rights; and
•expenses associated with any litigation or eliminate some or all of our research or development programs, limit our sales activities, limit or cease production or negatively impact our operations.

other legal proceedings.

For the ninethree and six months ended SeptemberJune 30, 2017,2023, 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

  Nine Months Ended
September 30,		 
  2017  2016 
       
Net cash used in operating activities $(28,282,856) $(13,337,682)
Net cash used in investing activities $48,917  $(148,095)
Net cash used and provided by financing activities $37,604,346  $8,857,867 

Six Months Ended
June 30,
20232022
Net cash used in operating activities$(65,800,126)$(55,462,470)
Net cash used in investing activities$(10,472,730)$(5,658,776)
Net cash provided by (used in) financing activities$39,376,295 $(465,573)

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,R&D, 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.

During the ninesix months ended SeptemberJune 30, 20172023 and September 30, 2016,2022, net cash used in operating activities was $28.3$65.8 million and $13.3$55.5 million, respectively. The decreaseincrease in operatingnet cash flowsused in 2017 as compared to 2016operations was mainly dueprimarily attributable to an increase in operating losses,spend related to the initial inventory purchases,build as we continue to ramp up our production of the W4 CC and prepaids offset by increases in accounts payable and reductions of accounts receivable.

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W750 vehicle platforms.


20

Cash Flows from Investing Activities

Cash flowflows from investing activities and their variability across each period related primarily relates to capital expenditures to supportupgrade our future growth in operations.

Duringadministrative, research, and production facilities, which were $10.5 million for the ninesix months ended SeptemberJune 30, 20172023 and September 30, 2016, net cash provided by (used in) investing activities was $49 thousand and $(148) thousand respectively. For$5.7 million for the ninesix months ended in SeptemberJune 30, 2017, we spent on new equipment and software used mainly for R&D and manufacturing activities, offset by leasing of vehicles to customers. For the nine months ended September 30, 2016, we used funds for the purchase of new equipment and software used mainly for R&D and manufacturing activities.

2022.

Cash Flows from Financing Activities

During the nine months ended September 30, 2017 and 2016, net

Net cash provided by financing activities during the six months ended June 30, 2023 was $37.6$39.4 million, and $8.9 million, respectively. Cash flows fromwhich is primarily attributable to the issuance of common stock under our ATM Program.
Net cash used in financing activities during the ninesix months ended SeptemberJune 30, 20172022 was $0.5 million, which consisted primarily of a netpayments on financing leases and tax payments related to shares withheld for option exercises and vesting of $37.0 million from a stock public offering.

The Company established an at the market facility to complement the above mentioned public offering and may seek to raise additional capital through public or private debt or equity financings in order to fund its operations. 


restricted share awards.


Off-Balance Sheet Arrangements

The Company does

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


Critical Accounting Policies

We consider accounting policies involving significant judgments and assumptions by management that have, or could have, a material impact on the carrying valueEstimates

A discussion of certain assets or on income (loss) to be critical accounting policies. We consider the following to be our critical accounting policies: basisestimates is contained in our Annual Report on Form 10-K for the year ended December 31, 2022, under the caption “Management’s Discussion and Analysis of presentation, revenue recognition,Financial Condition and income taxes.

Results of Operations.”


Recent Accounting Pronouncements
A description of recently issued and adopted accounting pronouncements is contained in Note 12, Recent Accounting Pronouncements, of the Condensed Consolidated Financial Statements.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The primary objective

For a discussion of our investment activities is to preserve principal while atquantitative and qualitative disclosures about market risk, see “Quantitative and Qualitative Disclosures About Market Risks” included in our Annual Report on Form 10-K for the same time maximizingyear ended December 31, 2022, under the income we receive from our investments without significantly increasing risk. Somecaption “Management’s Discussion and Analysis of the securities in which we invest mayFinancial Condition and Results of Operations.” There 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 quarter ended September 30, 2017, we maintained an investment portfolio primarily in money market funds. Duebeen no material changes 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 frominformation provided in our investments. Therefore, no quantitative tabular disclosure is provided.

We have operated primarily inAnnual Report on Form 10-K for the United States. Accordingly, we have not had any significant exposure to foreign currency rate fluctuations.

year ended December 31, 2022.


ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Pursuant to Rules 13a-15(b) and 15-d-15(b) under the Securities Exchange Act of 1934, as amended (“Exchange Act”), the Company carried out an evaluation,we evaluated, with the participation of the Company’s management, including the Company’sour Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’sour disclosure controls and procedures as of the end of the period covered by this report. The term “disclosure controls and procedures”, as defined under Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Based upon
Our management, with the evaluationparticipation of our Principal Executive Officer and Principal Financial Officer, evaluated the effectiveness of our disclosure controls and procedures atas of the end of the period covered by this report, the Company’s ChiefQuarterly Report on Form 10-Q. Based on such evaluation, our Principal Executive Officer and ChiefPrincipal Financial Officer have concluded that, as of the Company’send of the period covered by this Quarterly Report, our disclosure controls and procedures were effective.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as that term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarterthree months ended SeptemberJune 30, 20172023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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22


PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS


For a description of certain material legal proceedings, please see Note 13, Commitments and Contingencies, to the Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q.

ITEM 1A. RISK FACTORS

For a detailed discussion of risk factors affecting us, see “Part I – Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022. Except as set forth below, we are currently not a party to anythere have been no material legal or administrative proceedings and are not aware of any pending or threatened material legal or administrative proceedings arisingchanges in the ordinary course of business. We may from time to time become a party to various legal or administrative proceedings arising in the ordinary course ofcurrent period regarding our business. In May 2017, Autokinetics, Inc. (“AK”) filed a complaint against the Company in the Circuit Court for the County of Oakland, State of Michigan (File No. 2017-158748-CB). AK claims Breach of Contract 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 defenses to the plaintiff’s claims.

ITEM 1A. RISK FACTORS

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

risk factors.


We have incurred net losses amounting to $92.9 milliona limited number of shares of common stock available for the period from inception (February 20, 2007) through September 30, 2017. We have had net losses in each quarter since our inception. We expect that we will continue to incur net losses for the foreseeable future. We may incur significant losses in the future for several reasons, including the other risks described in this report, 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.   There is no assurance that even if we successfully implement our business plan, that we will be able to curtail our losses. If we incur additional significant operating losses, our stock price may decline, perhaps significantly.

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 $28.3 million and $13.3 million for the nine months ended September 30, 2017 and 2016, respectively. We anticipate that we will continue to have negative cash flow from operating and investing activities for the foreseeable future 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 commence operations at our Union City 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 anticipated increase in production. An inability to generate positive cash flow for the foreseeable future mayissuance which could adversely affect our ability to raise needed capital, attract qualified personnel or consummate strategic transactions.


We are currently authorized to issue 250 million shares of common stock under our articles of incorporation. As of July 10, 2023, we had approximately 210 million shares outstanding and we expect to issue $20.0 million of common stock in connection with the Stipulation of Settlement we reached for our business on reasonable terms, diminish supplier or customer willingness to enter into transactions with us,securities litigation. For further information regarding the Securities Litigation and have other adverse effects that may decrease our long-term viability. There can be no assurance we will achieve positive cash flowthe settlement thereof, please see Note 13, “Commitments and Contingencies – Legal Proceedings – Securities Litigation” included in Item 1 of this Form 10-Q, and Note 17, “Commitments and Contingencies – Legal Proceedings – Securities Litigation” included in Item 8 of 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 terms or at all. If we cannot access additional financing when we need it and on acceptable terms, our business may fail.

Our business plan 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. ForCompany’s Form 10-K for the year ended December 31, 2016, our independent registered public accounting firm issued a report on our 2016 financial statements that contained an explanatory paragraph stating that2022.


We need stockholder approval to increase the lack of sales, negative working capital and stockholders’ deficit, raise substantial doubt about our ability to continue as a going concern. For example, our existing capital resources, will be insufficient to fund our operations beyond the end of the first quarter of 2018. Accordingly, we will need additional financing. 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 we do not now have a committed credit facility with any government or financial institution. Further, if there remains doubt about our ability to continue as a going concern, investors or other financing sources may be unwilling to provide additional funding on acceptable terms or at all. If we cannot obtain additional financing when we need it and on terms acceptable to us, we will not be able to continue as a going concern.

The developmentnumber of our businessauthorized shares of our common stock. On July 25, 2023, we filed a definitive proxy statement with the SEC related to a Special Meeting of Stockholders to be held on August 28, 2023.At the Special Meeting, our stockholders are being asked to approve an increase in the near future is contingent upon the implementationnumber of ordersauthorized shares of common stock from UPS and other key customers for the purchase of E-GENs and if we are unable250 million shares 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 orders to purchase 343 E-GENs from UPS. We have entered into various purchase orders with UPS relating450 million shares.


Due to the deliverylimited number of the vehicles ordered. Currently, the schedule agreed to with UPS requires thatauthorized shares of common stock available for future issuance, we deliver specified numbers of vehicles per month. However, these deadlines are expected to evolve as the individual UPS operations personnel from the seven states are involved in the scheduling. There is no guarantee that the Company will be able to perform under these orders and if it does perform, that UPS will purchase additional vehicles from the Company. Also, there is no assurance that UPS will not terminate its agreement with the Company pursuant to the termination provisions therein. Further, if the Company ismay not able to raise additional equity capital or use our shares as consideration for a merger or other business combination unless we increase the required capitalnumber of shares we are authorized to purchase required parts and pay certain vendors, the Company may not be able to comply with UPS’s deadlines. Accordingly, despite the receipt of the orders from UPS, there is no assurance, due to the Company’s financial constraints and statusissue. In addition, we use equity awards as a development stage company, that the Company will be ablekey element of executive compensation and believe this type of equity compensation is critical to deliver such vehicles or that it will receive additional orders whether from UPS or other potential customers.

If we are unable to perform under our orders with UPS, the Company business will be significantly negatively impacted.

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.

We have basically been a research and development company since beginning operations in February 2007. We have a limited operating history and have generated limited revenue. As we move more toward a manufacturing environment, 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, we may be hindered in our ability to anticipateattract and timely adapt to increases or decreases in revenues or expenses.retain highly qualified personnel. If we make poor budgetary decisions asdo not have sufficient shares available for delivery on equity awards, our ability to accomplish these purposes will be diminished.


As a result of unreliable historical data, we could be less profitable or incur losses, which may result in a decline in our stock price.

We offer no financing on our vehicles. As such, our business is dependent on cash sales, which may adversely affect our growth prospects.

While most of our current customers are well-established companies with significant purchasing power, many of our potential smaller and medium-sized customers may needprice, we will have to rely on credit or leasing arrangements to gain accessissue more shares in equity awards to our vehicles. Unlike someexecutives, when raising capital and in strategic transactions. We can provide no assurance that we will succeed in getting stockholder approval to amend our articles of our competitors who provide credit or leasing services forincorporation to increase the purchasenumber of their vehicles, we do not provide, and currently do not have commercial arrangements with a third party that provides, such financial services. We believe the current limited availabilityshares of credit or leasing solutions for our vehicles could adversely affect our revenues and market share in the commercial electric vehicle market.

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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 considerably higher than the projected revenue stream that such vehicles will produce. As a result,common stock we are continually working on initiativesauthorized to reduce our cost structure so that we may effectively compete. If we do not properly manage our costs and expenses our net losses will continue which will negatively impact our stock price.

Increases in costs, disruption of supplyissue. Any failure or shortage of lithium-ion cellsdelay 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.

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.

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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 over the last few years.

If the market for commercial electric vehicles does not develop as we expect or develops more slowly than we expect, 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 during 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.

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.

If our customers are unable 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 for 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. If we are unable to develop 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 condition and operating results.

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We currently do not have long-term supply contracts with guaranteed pricing which exposes 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.

Because we currently do not have long-term supply contracts with guaranteed pricing, we are 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.

If we are unable to scale our operations at our Union City facility in an expedited manner from our limited low volume production to high volume production, our business, prospects, financial condition and operating results could be adversely affected.

We are currently assembling our orders at our Union City facility which is acceptable for our existing orders. To satisfy increased demand, we will need to quickly scale operations in our Union City facility as well as scale our supply chain including access to batteries. Our business, prospects, financial condition and operating results could be adversely affected if we experience 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 facility.

Failure to successfully integrate the Workhorse® brand, logo, intellectual property, patents and assembly plant in Union City, Indiana into our operations could adversely affect our business and results of operations.

As part of our strategy to become an OEM, in March 2013, we acquired Workhorse and the Workhorse Assets including the Workhorse ® brand, logo, intellectual property, patents and assembly plant in Union City, Indiana.  The Workhorse acquisition may expose us to operational challenges and risks, including the diversion of management’s attention from our existing business, the failure to retain key Workhorse dealers and our ability to commence operations at the plant in Union City, Indiana.  Our ability to sustain our growth and maintain our competitive position may be affected by our ability to successfully integrate the Workhorse Assets.

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 Burns 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 Chief Operating Officer/President, 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 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. 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 competition. A few of our competitors have greater financial or other resources, longer operating histories and greater name recognition than we do and one or more of these competitors 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 Ford Motor Company and Freightliner. Ford and Freightliner are currently selling alternative fuel fleet vehicles including hybrids. In the electric medium duty truck market in the United States, we compete with a few other manufacturers, including Electric Vehicles International and Smith Electric Vehicles. Ford and Freightliner have more significant 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), 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 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, our 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 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 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 that 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 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.

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If we are unable to keep up with advances in electric vehicle technology, we may suffer a decline in our competitive position.

There are companies in the electric vehicle industry that have developed or are developing vehicles 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 those of our competitors.

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 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 and the loss of any of these high-volume customers could materially harm our business.

A significant portion of our projected future revenue, if any, is generated from a limited number of vehicle customers. Additionally, much of our business model is focused on building relationships with large 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 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 could have an 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, demand for and interest in electric vehicles has been slower than forecasted by industry experts. As a result, growth in the electric vehicle industry depends on many factors, 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

We cannot assume that growth in the electric vehicle industry will continue. Our business may 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.

The results of the 2016 United States presidential and congressional elections may create regulatory uncertainty for the alternative energy sector and may materially harm our business, financial condition and operating results.

Donald Trump’s victory in the U.S. presidential election, as well as the Republican Party maintaining control of both the House of Representatives and Senate of the United States in the congressional election, 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. 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, even if 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, 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,the California Hybrid and ChicagoZero-Emission Truck and Bus Voucher Incentive Project (“HVIP”), is an important factor considered by our customers when purchasing our vehicles, and that ourvehicles. Our growth depends in part on the availability and amounts of these subsidies and incentives. AnyMany 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, including our W4CC and W750, 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.

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We may be unable to keep up with changes

In addition, these factors could heighten many of our known risks described in electric vehicle technology and, as a result, may suffer a declinePart I, Item 1A. “Risk Factors” in our competitive position.

Our current products 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 competitive position.

The failure of certain key suppliers to provide us with components could have a severe and negative impact upon our business.

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. Further, we rely on a small group of suppliers to provide us with components for our products. If these 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. Changes in business conditions, wars, governmental changes, and other factors beyond our control or which we do not presently anticipate could 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.

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 electrical vehicles. Although we have product liability insurance for 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 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.

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, 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.

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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. Our patents relate to the vehicle chassis assembly, vehicle header and drive module and manifold for electric motor drive assembly. Our existing patent application relates to the onboard generator drive system for electric vehicles. Our success will, in part, depend on our ability to obtain additional trademarks and patents. We are working on obtaining patents and trademarks registered with the United States Patent and Trademark Office but have not finalized any as of this date. 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 techniques or otherwise gain access to our trade secrets.

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. 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.

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 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, 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 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 could adversely affect our business, prospects, financial condition and operating results.

Our facilities could be damaged or adversely affected as a result of disasters or other unpredictable events. Any prolonged disruption in the operations of our facility would adversely affect our business, prospects, financial condition and operating results.

We engineer and assemble our electric vehicles in a facility in Loveland, Ohio and we intend to locate the assembly function to our facility in Union City. Any prolonged disruption in the operations of our 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

27

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. If we are unable to develop a market for our common shares, you may not be able to sell your common shares at prices you consider to be fair or at times that are convenient for you, or at all.

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 dividends in the past and have no immediate plans to pay 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 you 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, you should not expect to receive cash dividends on our common stock.

28

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

Of the 41,126,934 shares of our common stock outstanding as of the date hereof, approximately 25.6 million shares are held by “non-affiliates” and are freely tradable without restriction pursuant to Rule 144. In addition, our Registration StatementAnnual Report on Form S-310-K for purposes of registering the resale of 1,314,967 shares of common stock. 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 may experience future dilution as a result of future equity offerings.

In order to raise additional capital, we may in the future offer additional shares of our common stock 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. 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.

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.

There are limitations on director/officer liability.

As permitted by Nevada law, our certificate of incorporation limits the liability of our directors for monetary damages for breach of a director’s fiduciary duty except for liability in certain instances. As a result of our charter provision and Nevada law, shareholders may have limited rights to recover against directors 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.

29
year ended December 31, 2022.


23

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

During the nine months ended September 30, 2017, warrant holders exercised stock purchase warrants to receive an aggregate of 362 thousand shares of common stock in consideration of an aggregate of $634 thousand in cash consideration.

The Company claims an exemption from the registration requirements of the Securities Act of 1933 (the “Securities Act”) for the issuance of the above securities pursuant to Section 4(a)(2) of the Securities Act and/or Rule 506 of Regulation D promulgated under the Securities Act.


None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES


None.


ITEM 4. MINE SAFETY DISCLOSURES


Not applicable.


ITEM 5. OTHER INFORMATION


Insider Trading Arrangements

During the three and six months ended June 30, 2023, none of our officers or directors adopted or terminated any contract, instruction or written plan for the purchase or sale of our securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement.” However, certain of our directors and officers may adopt 10b5-1 Plans or non-Rule 10b5-1 trading arrangements in the future.

Floorplan and Security Agreement

On April 27, 2017,August 10, 2023, a subsidiary of the Company and Mitsubishi HC Capital America, Inc. ("Mitsubishi") entered into a Services PartnerFloorplan and Security Agreement (the “Ryder Agreement”“Agreement”) with Ryder Truck Rental, Inc. (“Ryder”). The Ryder Agreement provides that Ryder shall serve as the primary distributor, except with respect, pursuant to certain exclusive accounts, in the United States, Mexico and Canada. During the fourth quarter of every year commencing in the fourth quarter of 2018, Ryder and the Company will mutually establish sales goals for each type of vehicle for the following year as well as standards relating to parts availability, service responsiveness and other key performance indicators. Ryder shall 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. The Companywhich Mitsubishi has agreed to provide a warranty for each vehicle and part for varying time period and mileage.revolving floorplan line of credit with a maximum borrowing limit of $5.0 million. For all repair services performed by Ryderadditional information concerning the Agreement please see Note 14, Subsequent Event, to the Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on the Company’s vehicles during the warranty period, excluding physical damage repairs resulting from, but not limited to, collision, driver behavior, fire or act of God, the Company will reimburse Ryder for such services.Form 10-Q. The termdescription of the Ryder Agreement does not purport to be complete and is through December 31, 2027 unless terminated sooner. Onqualified in its entirety by the fifth anniversarycomplete text of the Ryder Agreement, if there are any material changes in the relationship or the external market that havesuch agreement, a direct impactform of which is filed as Exhibit 10.1 to this Quarterly Report on the material terms of the Ryder Agreement, the parties may seek to renegotiate the affected terms of the Ryder Agreement. In the event that the parties do not reach a mutual agreement within 90 days of the commencement of the renegotiation, either party may terminate the Ryder Agreement with 30 days prior written notice to the other party or decide to continue under the current terms for the remainder of the term.

On May 2, 2017, the Company unveiled its W-15 plug-in, battery-electric range-extended prototype pickup truck at the Advanced Clean Transportation Exhibition (ACT Expo) in Long Beach, California.

30
Form 10-Q, and incorporated herein by reference.

24


ITEM 6. EXHIBITS

Exhibit No.Description
3.1Exhibit No.Certificate of Designation for Series A Preferred Stock (1)Description
3.23.1
3.310.1*
3.4Articles of Merger (3)
3.5Certificate of Correction (Articles of Merger) (3)
3.6Certificate of Amendment to the Certificate of Incorporation (4)
3.7Certificate of Incorporation (5)
3.8Articles of Merger between AMP Holding Inc. Workhorse Group Inc. (16)
3.9Certificate of Change filed December 9, 2015 (20)
3.10Certificate of Amendment to the Certificate of Incorporation dated August 8, 2017 (33)
4.1Stock Option to acquire 500,000 shares of common stock issued to James Taylor dated May 25, 2011 (6)
4.2Common Stock Purchase Warrant to acquire 500,000 shares of common stock issued to James Taylor dated May 25, 2011 (6)
4.3Stock Option to acquire 500,000 shares of common stock issued to Stephen Burns dated May 25, 2011 (6)
4.4Common Stock Purchase Warrant to acquire 500,000 shares of common stock issued to Stephen Burns dated May 25, 2011 (6)
4.5Conversion Letter Agreement by and between Stephen Burns and AMP Holding Inc. (7)
4.6Form of Warrant by and between AMP Holding Inc. and the January 2013 Accredited Investor (8)
4.7Common Stock Purchase Warrant issued to Stephen Baksa (9)
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 Subscription Agreement10, 2023, by and between Workhorse GroupTechnologies Inc. and the 2015 Accredited Investors (17)Mistubishi HC Capital America, Inc.
4.1331.1*Form 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)

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)

31

Exhibit No.Description
10.7Director Agreement by and between AMP Holding Inc. and Raymond Chess dated October 24, 2013 (15)
10.8Director Agreement by and between Workhorse Group Inc. and Gerald Budde dated December 17, 2015 (21)
10.9Director Agreement by and between Workhorse Group Inc. and Benjamin Samuels dated December 17, 2015 (21)
10.10Director Agreement by and between Workhorse Group Inc. and Harry DeMott dated September 15, 2016 (24)
10.11Form of Warrant Exercise Agreement (25)
10.12Conversion Agreement between Jospeh T. Lukens and the Company dated January 27, 2017 (27)
10.13Services Partner Agreement between Workhorse Group Inc. and Ryder Truck Rental, Inc. dated April 27, 2017 (29)
10.14Executive Retention Agreement by and between Workhorse Group Inc. and Stephen S. Burns dated May 19, 2017 (30)
10.15Executive Retention Agreement by and between Workhorse Group Inc. and Duane Hughes dated May 19, 2017 (30)
10.16Executive Retention Agreement by and between Workhorse Group Inc. and Julio Rodriguez dated May 19, 2017 (30)
10.17Sales Agreement, dated June 22, 2017, by and between Workhorse Group Inc. and Cowen and Company, LLC (32)

10.18

Executive Retention Agreement by and between Workhorse Group Inc. and Paul Gaitan dated August 9, 2017 (34)

10.19

Letter Agreement by and between Workhorse Group Inc. and Julio Rodriguez dated August 9, 2017(34)

10.20

Form of Indemnification Agreement (30)

10.21

Form of Employee Invention Assignment, Confidentiality, Non-Compete and Non-Solicit Agreement (30)

21.1List of Subsidiaries (28)
31.1Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 20022002.
31.231.2*
32.132.1*
32.232.2*
99.1101.INSNominating and Corporate Governance Committee Charter adopted by the Board of Directors of Workhorse Group Inc. on December 17, 2015 (33)
99.2Compensation 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 DOCUMENTTaxonomy Extension Schema Document
EX-101.CAL101.CALInline XBRL TAXONOMY EXTENSION CALCULATION LINKBASETaxonomy Extension Calculation Linkbase Document
EX-101.DEF101.DEFInline XBRL TAXONOMY EXTENSION DEFINITION LINKBASETaxonomy Extension Definition Linkbase Document
EX-101.LAB101.LABInline XBRL TAXONOMY EXTENSION LABELS LINKBASETaxonomy Extension Labels Linkbase Document
EX-101.PRE101.PREInline XBRL TAXONOMY EXTENSION PRESENTATION LINKBASETaxonomy Extension Presentation Linkbase Document

10432Inline XBRL Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

(1)Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on January 4, 2010.
(2)Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on May 25, 2010.
(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.

33
*Filed herewith.


25

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 hereuntothereunto duly authorized.

WORKHORSE GROUP INC.
Dated: November 7, 2017August 14, 2023By:/s/ Stephen S. BurnsRichard Dauch
Name: Stephen S. Burns
Richard Dauch
Title:   Chief Executive Officer

(Principal Executive Officer)


Dated: November 7, 2017By:/s/ Paul Gaitan
Dated: August 14, 2023By:Name: Paul Gaitan/s/ Robert M. Ginnan
Name: Robert M. Ginnan
Title:   Chief Financial Officer

(Principal Financial andOfficer)

Dated: August 14, 2023By:/s/ Gregory T. Ackerson
Name: Gregory T. Ackerson
Title:   Chief Accounting Officer
(Principal Accounting Officer)

34

26