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

For the quarterly period ended September 30, ~~2022~~2023


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

For the transition period from __________ to __________

Commission file number: 001-37673

WORKHORSE GROUP INC.

(Exact name of registrant as specified in its charter)


Nevada						26-1394771
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

3600 Park 42 Drive, Suite 160E, Sharonville, Ohio 45241

(Address of principal executive 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 class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.001 par value per share

WKHS

The 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 registrant 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 every Interactive Data File required to be submitted 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 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	☐☒	Smaller reporting company	☐☒
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

The number of shares of the Registrant's Common Stock, $0.001 par value per share, outstanding as of October 31, ~~2022,~~2023, was ~~164,101,244~~.260,923,427.

TABLE OF CONTENTS


PART I	FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)	1
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Operations	2
	Condensed Consolidated Statements of ~~Comprehensive Loss~~	3
	~~Condensed Consolidated Statements of~~ Stockholders’ Equity	43
	Condensed Consolidated Statements of Cash Flows	65
	Notes to Unaud ited Condensed Consolidated Financial Statements	76

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1915
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2621
Item 4.	Controls and Procedures	2621

PART II	OTHER INFORMATION	2722

Item 1.	Legal Proceedings	2722
Item 1A.	Risk Factors	2722
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2723
Item 3.	Defaults Upon Senior Securities	2723
Item 4.	Mine Safety Disclosures	2723
Item 5.	Other Information	2723
Item 6.	Exhibits	2824
	SIGNATURES	2925

Forward-Looking Statements

~~The discussions in this~~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,” “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 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 include, but are not limited to: our ability to develop and manufacture our new product portfolio, including the W4 CC, W750, W56 and ~~W34 platforms;~~WNext programs; our ability to attract and retain customers for our existing and new products; risks associated with obtaining orders and executing upon such orders; the unavailability, reduction, elimination or adverse application of government subsidies, incentives and regulations; supply chain disruptions, including constraints on steel, semiconductors and other material inputs and resulting cost increases impacting our company, our customers, our suppliers or the industry; ~~our ability to implement modifications to vehicles to achieve compliance with Federal Motor Vehicle Safety Standards and to meet customer requirements with respect to the C1000s;~~ 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 ability to regain compliance with the listing requirements of the Nasdaq Capital Market and otherwise maintain the listing of our securities thereon; our ability to protect our intellectual property; ~~negative impacts stemming from the COVID-19 pandemic;~~ market acceptance for our products; our ability to obtain sufficient liquidity from operations and financing activities to continue as a going concern and, our ability to control our expenses; potential competition, including without limitation shifts in technology; volatility in and deterioration of national and international capital markets and economic conditions; global and local business conditions; acts of war (including without limitation the ~~conflict~~conflicts in ~~Ukraine)~~Ukraine and Israel) and/or terrorism; the prices being charged by our competitors; our inability to retain key members of our management team; 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 inability to~~ satisfy our customer warranty claims; the outcome of any regulatory or legal proceedings; ~~our liquidity~~ and other risks and uncertainties and other factors discussed from time to time in our filings with the Securities and Exchange Commission (“SEC”), including under the “Risk Factors” section of our annual report on Form 10-K filed with the ~~SEC.~~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, except as required by law.

All references in this Report that refer to the “Company”, “Workhorse Group”, “Workhorse”, “we,” “us” or “our” are to Workhorse Group Inc.

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Workhorse Group Inc.

Condensed Consolidated Balance Sheets

(Unaudited)


		September 30, 2022		December 31, 2021			September 30, 2023		December 31, 2022
Assets	Assets					Assets
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	120,117,862	$	201,647,394	Cash and cash equivalents	$	38,865,065	$	99,276,301
Accounts receivable, less allowance for credit losses of zero as of September 30, 2022 and December 31, 2021		1,548,196		149,776
Accounts receivable, less allowance for credit losses of zero as of September 30, 2023 and December 31, 2022, respectively						Accounts receivable, less allowance for credit losses of zero as of September 30, 2023 and December 31, 2022, respectively	7,424,346		2,079,343
Other receivable	Other receivable	15,000,000		—		Other receivable	—		15,000,000
Inventory, net	Inventory, net	11,567,607		10,067,367		Inventory, net	40,783,292		8,850,142
Prepaid expenses and other current assets	Prepaid expenses and other current assets	14,946,935		4,357,829		Prepaid expenses and other current assets	10,705,904		14,152,481
Total current assets	Total current assets	163,180,600		216,222,366		Total current assets	97,778,607		139,358,267
Property, plant and equipment, net	Property, plant and equipment, net	17,047,641		7,897,807		Property, plant and equipment, net	37,465,094		21,501,095
Investment in Tropos	Investment in Tropos	10,000,000		—		Investment in Tropos	—		10,000,000
Lease right-of-use assets	Lease right-of-use assets	11,476,927		1,538,852		Lease right-of-use assets	10,878,500		11,706,803
Other assets	Other assets	176,310		2,479,865		Other assets	176,310		176,310
Total Assets	Total Assets	$	201,881,478	$	228,138,890	Total Assets	$	146,298,511	$	182,742,475
Liabilities	Liabilities					Liabilities
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	7,728,111	$	7,849,607	Accounts payable	$	11,936,156	$	10,235,345
Accrued and other current liabilities	Accrued and other current liabilities	44,825,969		14,752,827		Accrued and other current liabilities	5,858,754		46,207,431
Deferred revenue, current	Deferred revenue, current	3,375,000		—		Deferred revenue, current	4,736,831		3,375,000
Warranty liability	Warranty liability	3,339,484		4,583,916		Warranty liability	1,777,520		2,207,674
Current portion of lease liabilities	Current portion of lease liabilities	1,105,016		363,714		Current portion of lease liabilities	1,561,769		1,285,032
Total current liabilities	Total current liabilities	60,373,580		27,550,064		Total current liabilities	25,871,030		63,310,482
Deferred revenue, long-term	Deferred revenue, long-term	1,505,000		—		Deferred revenue, long-term	—		2,005,000
Lease liabilities, long-term		8,736,715		1,191,053
Convertible notes, at fair value		—		24,705,000
Lease liability, long-term						Lease liability, long-term	7,658,788		8,840,062

Total Liabilities	Total Liabilities	70,615,295		53,446,117		Total Liabilities	33,529,818		74,155,544
Commitments and contingencies
Commitments and contingencies (Note 13)						Commitments and contingencies (Note 13)
Stockholders’ Equity:	Stockholders’ Equity:					Stockholders’ Equity:
Series A preferred stock, par value $0.001 per share, 75,000,000 shares authorized, zero shares issued and outstanding as of September 30, 2022 and December 31, 2021		—		—
Common stock, par value $0.001 per share, 250,000,000 shares authorized, 160,448,077 shares issued and outstanding as of September 30, 2022 and 151,915,455 shares issued and outstanding as of December 31, 2021		160,448		151,916
Series A preferred stock, par value $0.001 per share, 75,000,000 shares authorized, zero shares issued and outstanding as of September 30, 2023 and December 31, 2022						Series A preferred stock, par value $0.001 per share, 75,000,000 shares authorized, zero shares issued and outstanding as of September 30, 2023 and December 31, 2022	—		—
Common stock, par value $0.001 per share, 450,000,000 shares authorized, 255,382,128 shares issued and outstanding as of September 30, 2023 and 250,000,000 shares authorized, 165,605,355 shares issued and outstanding as of December 31, 2022						Common stock, par value $0.001 per share, 450,000,000 shares authorized, 255,382,128 shares issued and outstanding as of September 30, 2023 and 250,000,000 shares authorized, 165,605,355 shares issued and outstanding as of December 31, 2022	255,382		165,605
Additional paid-in capital	Additional paid-in capital	720,100,887		686,318,201		Additional paid-in capital	818,824,798		736,070,388
Accumulated deficit	Accumulated deficit	(588,995,152)		(510,374,844)		Accumulated deficit	(706,311,487)		(627,649,062)
Accumulated other comprehensive loss		—		(1,402,500)

Total stockholders’ equity	Total stockholders’ equity	131,266,183		174,692,773		Total stockholders’ equity	112,768,693		108,586,931
Total Liabilities and Stockholders’ Equity	Total Liabilities and Stockholders’ Equity	$	201,881,478	$	228,138,890	Total Liabilities and Stockholders’ Equity	$	146,298,511	$	182,742,475

See accompanying notes to the ~~condensed consolidated financial statements.~~unaudited Condensed Consolidated Financial Statements.

Workhorse Group Inc.

Condensed Consolidated Statements of Operations

(Unaudited)


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2022		2021		2022		2021			2023		2022		2023		2022
Sales, net of returns and allowances	Sales, net of returns and allowances	$	1,548,798	$	(576,602)	$	1,575,652	$	1,147,334	Sales, net of returns and allowances	$	3,028,545	$	1,548,798	$	8,688,423	$	1,575,652
Cost of sales	Cost of sales	9,515,547		11,549,187		16,459,102		32,570,616		Cost of sales	6,557,358		9,515,547		20,312,854		16,459,102
Gross loss	Gross loss	(7,966,749)		(12,125,789)		(14,883,450)		(31,423,282)		Gross loss	(3,528,813)		(7,966,749)		(11,624,431)		(14,883,450)
Operating expenses	Operating expenses									Operating expenses
Selling, general and administrative	Selling, general and administrative	34,753,017		10,579,586		59,693,419		24,470,953		Selling, general and administrative	11,756,291		34,753,017		40,448,651		59,693,419
Research and development	Research and development	6,126,951		2,801,394		15,165,946		8,788,969		Research and development	5,771,588		6,126,951		18,056,182		15,165,946
Total operating expenses	Total operating expenses	40,879,968		13,380,980		74,859,365		33,259,922		Total operating expenses	17,527,879		40,879,968		58,504,833		74,859,365
Loss from operations	Loss from operations	(48,846,717)		(25,506,769)		(89,742,815)		(64,683,204)		Loss from operations	(21,056,692)		(48,846,717)		(70,129,264)		(89,742,815)
Interest income (expense), net	Interest income (expense), net	27,716		18,599,130		(2,290,993)		23,040,886		Interest income (expense), net	410,980		27,716		1,466,839		(2,290,993)
Other income (loss)	Other income (loss)	13,413,500		(77,127,266)		13,413,500		(225,432,884)		Other income (loss)	(10,000,000)		13,413,500		(10,000,000)		13,413,500
Loss before benefit for income taxes	Loss before benefit for income taxes	(35,405,501)		(84,034,905)		(78,620,308)		(267,075,202)		Loss before benefit for income taxes	(30,645,712)		(35,405,501)		(78,662,425)		(78,620,308)
Benefit for income taxes	Benefit for income taxes	—		2,919,491		—		21,833,930		Benefit for income taxes	—		—		—		—
Net loss	Net loss	$	(35,405,501)	$	(81,115,414)	$	(78,620,308)	$	(245,241,272)	Net loss	$	(30,645,712)	$	(35,405,501)	$	(78,662,425)	$	(78,620,308)

Net loss per share of common stock	Net loss per share of common stock									Net loss per share of common stock
Basic		$	(0.22)	$	(0.66)	$	(0.50)	$	(1.99)
Diluted		$	(0.22)	$	(0.63)	$	(0.50)	$	(1.90)
Basic & Diluted										Basic & Diluted	$	(0.14)	$	(0.22)	$	(0.41)	$	(0.50)

Weighted average shares used in computing net loss per share of common stock	Weighted average shares used in computing net loss per share of common stock									Weighted average shares used in computing net loss per share of common stock
Basic		160,213,944		123,584,023		157,117,380		123,186,350
Diluted		160,213,944		129,251,351		157,117,380		128,853,678
Basic & Diluted										Basic & Diluted	215,878,517		160,213,944		189,756,837		157,117,380

See accompanying notes to the ~~condensed consolidated financial statements.~~unaudited Condensed Consolidated Financial Statements.

~~Workhorse Group Inc.~~

~~Condensed Consolidated Statements of Comprehensive Loss~~

~~(Unaudited)~~

Three Months Ended September 30, Nine Months Ended
September 30,
2022 2021 2022 2021
Net loss $ (35,405,501) $ (81,115,414) $ (78,620,308) $ (245,241,272)
Other comprehensive loss:
Change in fair value of convertible notes attributable to credit spread — — — (10,200,000)
Comprehensive loss $ (35,405,501) $ (81,115,414) $ (78,620,308) $ (255,441,272)

~~See accompanying notes to the condensed consolidated financial statements.~~

Workhorse Group Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)

Common Stock Additional
Paid-in
Capital Accumulated
Deficit Accumulated Other Comprehensive Loss Total
Stockholders’
Equity
Number
of Shares Amount
Balance as of June 30, 2021 123,414,045 $ 123,414 $ 506,073,876 $ (273,155,889) $ (10,200,000) $ 222,841,401
Stock options and warrants exercised, and vesting of restricted shares* 208,830 209 (2,013,839) — — (2,013,630)
Stock-based compensation — — 1,221,205 — — 1,221,205
Net loss for the three months ended September 30, 2021 — — — (81,115,414) — (81,115,414)
Other comprehensive loss — — — — — —
Balance as of September 30, 2021 123,622,875 $ 123,623 $ 505,281,242 $ (354,271,303) $ (10,200,000) $ 140,933,562


	Common Stock			Additional Paid-in Capital	Accumulated Deficit		Accumulated Other Comprehensive Loss		Total Stockholders’ Equity
	Number of Shares	Amount
Balance as of June 30, 2022	160,058,512	$	160,059		$	717,258,045	$	(553,589,651)	$	—	$	163,828,453


Stock options and vesting of restricted shares*	389,565	389			(142,433)		—		—		(142,044)
Stock-based compensation	—	—			2,985,275		—		—		2,985,275
Net loss for the three months ended September 30, 2022	—	—			—		(35,405,501)		—		(35,405,501)

Balance as of September 30, 2022	160,448,077	$	160,448		$	720,100,887	$	(588,995,152)	$	—	$	131,266,183


		Common Stock			Additional Paid-in Capital	Accumulated Deficit		Accumulated Other Comprehensive Loss				Total Stockholders’ Equity				Common Stock								Additional Paid-in Capital	Accumulated Deficit		Accumulated Other Comprehensive Loss				Total Stockholders’ Equity
		Number of Shares	Amount													Number of Shares					Amount					Total Stockholders’ Equity
Balance as of December 31, 2020		121,922,532	$	121,923		$	504,112,442			$	(109,030,031)			$	—				$	395,204,334
Balance as of December 31, 2021																			Balance as of December 31, 2021		151,915,455	$	151,916						$	686,318,201			$	(510,374,844)	$	(1,402,500)	$	174,692,773
Common stock issued in exchange of convertible notes																			Common stock issued in exchange of convertible notes		7,833,666	7,834					25,373,244				—		—		25,381,078
Common stock issued through At-The-Market offering																			Common stock issued through At-The-Market offering		98,986	99					248,596				—		—		248,695
Stock options and vesting of restricted shares*	Stock options and vesting of restricted shares*	1,700,343	1,700			(2,084,746)		—				—					(2,083,046)		Stock options and vesting of restricted shares*		599,970	599					(467,131)				—		—		(466,532)
Stock-based compensation	Stock-based compensation	—	—			3,253,546		—				—					3,253,546		Stock-based compensation		—	—					8,627,977				—		—		8,627,977
Net loss for the nine months ended September 30, 2021		—	—			—		(245,241,272)				—					(245,241,272)
Net loss for the nine months ended September 30, 2022																			Net loss for the nine months ended September 30, 2022		—	—					—				(78,620,308)		—		(78,620,308)
Other comprehensive loss	Other comprehensive loss	—	—			—		—				(10,200,000)					(10,200,000)		Other comprehensive loss		—	—					—				—		1,402,500		1,402,500
Balance as of September 30, 2021		123,622,875	$	123,623		$	505,281,242	$	(354,271,303)			$	(10,200,000)				$	140,933,562
Balance as of September 30, 2022																			Balance as of September 30, 2022		160,448,077	$	160,448				$	720,100,887			$	(588,995,152)	$	—	$	131,266,183

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

See accompanying notes to the ~~condensed consolidated financial statements.~~unaudited Condensed Consolidated Financial Statements.

Workhorse Group Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)

Common Stock Additional
Paid-in
Capital Accumulated
Deficit Accumulated Other Comprehensive Loss Total
Stockholders’
Equity
Number
of Shares Amount
Balance as of June 30, 2022 160,058,512 $ 160,059 $ 717,258,045 $ (553,589,651) $ — $ 163,828,453
Stock options and warrants exercised, and vesting of restricted shares* 389,565 389 (142,433) — — (142,044)
Stock-based compensation — — 2,985,275 — — 2,985,275
Net loss for the three months ended September 30, 2022 — — — (35,405,501) — (35,405,501)
Balance as of September 30, 2022 160,448,077 $ 160,448 $ 720,100,887 $ (588,995,152) $ — $ 131,266,183


	Common Stock			Additional Paid-in Capital	Accumulated Deficit		Accumulated Other Comprehensive Loss		Total Stockholders’ Equity
	Number of Shares	Amount
Balance as of June 30, 2023	205,221,154	$	205,221		$	782,848,275	$	(675,665,775)	$	—	$	107,387,721

Common stock issued for securities litigation settlement	25,380,711	25,381			19,974,619		—		—		20,000,000
Common stock issued through At-The-Market offering	24,639,221	24,639			12,473,265		—		—		12,497,904

Stock options and vesting of restricted shares*	141,042	141			8,235		—		—		8,376
Stock-based compensation	—	—			3,520,404		—		—		3,520,404
Net loss for the three months ended September 30, 2023	—	—			—		(30,645,712)		—		(30,645,712)
Balance as of September 30, 2023	255,382,128	$	255,382		$	818,824,798	$	(706,311,487)	$	—	$	112,768,693

Common Stock Additional
Paid-in
Capital Accumulated
Deficit Accumulated Other Comprehensive Loss Total
Stockholders’
Equity
Number
of Shares Amount
Balance as of December 31, 2021 151,915,455 $ 151,916 $ 686,318,201 $ (510,374,844) $ (1,402,500) $ 174,692,773
Common stock issued in exchange of convertible notes 7,833,666 7,834 25,373,244 — — 25,381,078
Common stock issued through At-The-Market offering 98,986 99 248,596 — — 248,695
Stock options and vesting of restricted shares* 599,970 599 (467,131) — — (466,532)
Stock-based compensation — — 8,627,977 — — 8,627,977
Net loss for the nine months ended September 30, 2022 — — — (78,620,308) — (78,620,308)
Other comprehensive loss — — — — 1,402,500 1,402,500
Balance as of September 30, 2022 160,448,077 $ 160,448 $ 720,100,887 $ (588,995,152) $ — $ 131,266,183


	Common Stock			Additional Paid-in Capital	Accumulated Deficit		Accumulated Other Comprehensive Loss		Total Stockholders’ Equity
	Number of Shares	Amount
Balance as of December 31, 2022	165,605,355	$	165,605		$	736,070,388	$	(627,649,062)	$	—	$	108,586,931
Common stock issued for securities litigation settlement	25,380,711	25,381			19,974,619		—		—		20,000,000
Common stock issued through At-The-Market offering	63,323,352	63,323			52,726,189		—		—		52,789,512
Issuance of common stock	116,347	116			199,884		—		—		200,000
Stock options and vesting of restricted shares*	956,363	957			(468,171)		—		—		(467,214)
Stock-based compensation	—	—			10,321,889		—		—		10,321,889
Net loss for the nine months ended September 30, 2023	—	—			—		(78,662,425)		—		(78,662,425)

Balance as of September 30, 2023	255,382,128	$	255,382		$	818,824,798	$	(706,311,487)	$	—	$	112,768,693

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

See accompanying notes to the ~~condensed consolidated financial statements.~~unaudited Condensed Consolidated Financial Statements.

Workhorse Group Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)


		Nine Months Ended September 30,					Nine Months Ended September 30,
		2022		2021			2023		2022
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net loss	Net loss	$	(78,620,308)	$	(245,241,272)	Net loss	$	(78,662,425)	$	(78,620,308)
Adjustments to reconcile net loss to net cash used in operating activities:	Adjustments to reconcile net loss to net cash used in operating activities:					Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	Depreciation and amortization	1,378,365		1,342,348		Depreciation and amortization	2,468,832		1,378,365
Change in fair value and loss on exchange of convertible notes	Change in fair value and loss on exchange of convertible notes	1,769,857		(27,600,000)		Change in fair value and loss on exchange of convertible notes	—		1,769,857
Change in fair value of Investment in LMC		—		225,429,997
Deferred revenue						Deferred revenue	(143,169)		—
Stock-based compensation	Stock-based compensation	8,627,977		3,253,546		Stock-based compensation	10,321,889		8,627,977
Impairment of investment in Tropos						Impairment of investment in Tropos	10,000,000		—
Change in inventory and prepaid purchases reserve	Change in inventory and prepaid purchases reserve	5,196,774		(10,919,259)		Change in inventory and prepaid purchases reserve	550,090		5,196,774
Forgiveness of PPP Term Note		—		(1,411,000)
Deferred taxes		—		(21,833,930)
Non-cash lease expense	Non-cash lease expense	855,119		—		Non-cash lease expense	583,348		855,119
Other non-cash items	Other non-cash items	175,750		—		Other non-cash items	200,000		175,750
Effects of changes in operating assets and liabilities:	Effects of changes in operating assets and liabilities:					Effects of changes in operating assets and liabilities:
Accounts receivable	Accounts receivable	(16,398,420)		1,035,715		Accounts receivable	(5,295,003)		(16,398,420)
Inventory	Inventory	(6,969,095)		(35,118,442)		Inventory	(28,492,532)		(6,969,095)
Prepaid expenses and other current assets	Prepaid expenses and other current assets	(10,317,025)		(2,220,967)		Prepaid expenses and other current assets	(1,083,886)		(10,317,025)
Other assets	Other assets	(84,401)		—		Other assets	—		(84,401)
Accounts payable, accrued liabilities and other	Accounts payable, accrued liabilities and other	29,650,491		3,743,729		Accounts payable, accrued liabilities and other	(5,563,625)		29,650,491
Warranty liability	Warranty liability	(1,244,432)		(508,002)		Warranty liability	(430,154)		(1,244,432)
Net cash used in operating activities	Net cash used in operating activities	(65,979,348)		(110,047,537)		Net cash used in operating activities	(95,546,635)		(65,979,348)
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Capital expenditures	Capital expenditures	(9,708,699)		(3,803,807)		Capital expenditures	(16,527,317)		(9,708,699)
Investment in Tropos	Investment in Tropos	(5,000,000)		—		Investment in Tropos	—		(5,000,000)
Net cash used in investing activities	Net cash used in investing activities	(14,708,699)		(3,803,807)		Net cash used in investing activities	(16,527,317)		(14,708,699)
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Proceeds from sale of Investment in LMC		—		105,789,310
Commissions and fees on sale of Investment in LMC		—		(662,563)

Proceeds from issuance of common stock	Proceeds from issuance of common stock	248,695		—		Proceeds from issuance of common stock	52,789,512		248,695
Payments on finance lease	Payments on finance lease	(623,648)		—		Payments on finance lease	(659,582)		(623,648)
Exercise of warrants and options and restricted share award activity		(466,532)		(2,083,046)
Exercise of options and restricted share award activity						Exercise of options and restricted share award activity	(467,214)		(466,532)
Net cash provided by (used in) financing activities	Net cash provided by (used in) financing activities	(841,485)		103,043,701		Net cash provided by (used in) financing activities	51,662,716		(841,485)
Change in cash and cash equivalents	Change in cash and cash equivalents	(81,529,532)		(10,807,643)		Change in cash and cash equivalents	(60,411,236)		(81,529,532)
Cash, cash equivalents and restricted cash, beginning of the period		201,647,394		241,229,067
Cash and cash equivalents, beginning of the period						Cash and cash equivalents, beginning of the period	99,276,301		201,647,394
Cash and cash equivalents, end of the period	Cash and cash equivalents, end of the period	$	120,117,862	$	230,421,424	Cash and cash equivalents, end of the period	$	38,865,065	$	120,117,862

Supplemental disclosure of non-cash activities
Investment in Tropos in exchange for non-cash deferred revenue		5,000,000		—
Leased assets obtained in exchange for finance lease liabilities		6,022,694		—
Leased assets obtained in exchange for operating lease liabilities		5,024,284		—

See accompanying notes to the ~~condensed consolidated financial statements.~~unaudited Condensed Consolidated Financial Statements.

Workhorse Group Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

(Unaudited)

1.SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING PRINCIPLES

Overview

We are an American technology company with 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. We design and manufacture 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~~programs to market.

~~Principles~~Basis of Presentation and Consolidation

The accompanying ~~condensed consolidated financial statements~~unaudited Condensed Consolidated Financial Statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) and ~~reflect our~~applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting and include the accounts and operations of the Company and those of our wholly-owned subsidiaries. Accordingly, they do not include all of the information and footnotes required by GAAP for annual audited financial statements. All intercompany balances and transactions have been eliminated upon consolidation.

~~Use of Estimates~~

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses and related disclosures in the accompanying notes.

In the opinion of our management, the ~~Unaudited~~unaudited Condensed Consolidated Financial Statements have been prepared on a basis consistent with the audited consolidated financial statements and 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 the financial statements contained in our Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022.

Liquidity and Going Concern

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with GAAP applicable to a going concern. The going concern basis of presentation assumes that the Company will continue in operation one year after the date these unaudited Condensed Consolidated Financial Statements are issued and will be able to realize assets and discharge its liabilities and commitments in the normal course of business.

Pursuant to the requirements of the Financial Accounting Standard Board's (“FASB”) Accounting Standards Codification (“ASC”) Topic 205-40, Presentation of Financial Statements - Going Concern (“ASC 205-40”), management must evaluate whether there are conditions and events, considered in aggregate, that raise substantial doubt about the Company's ability to continue as a going concern for one year after the date these unaudited Condensed Consolidated Financial Statements are issued. In accordance with ASC 205-40, management’s analysis can only include the potential mitigating impact of management’s plans that have not been fully implemented as of the issuance date if (a) it is probable that management’s plans will be effectively implemented on a timely basis, and (b) it is probable that the plans, when implemented, will alleviate the relevant conditions or events that raise substantial doubt about the Company’s ability to continue as a going concern.

We had sales of $8.7 million, incurred a net loss of $78.7 million and used $95.5 million of cash in operating activities during the nine months ended September 30, 2023. As of September 30, 2023, the Company had total working capital of $71.9 million, including $38.9 million of cash and cash equivalents, and an accumulated deficit of $706.3 million.

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

•Generating revenue by increasing sales of our vehicles, delivery and other services.

•Reducing expenses and limiting non-contracted capital expenditures.

•Raising capital to fund operations through the issuance of debt or equity securities, including through our at-the market offering program (“ATM Program)”, the sale of assets, or other strategic transactions.

It is essential that we have access to capital as we bring our existing line of vehicles to market, scale up production and sales of such vehicles and continue to develop our next generation of vehicles. There is no assurance that we will be successful in implementing management’s plans to generate liquidity to fund these activities or other aspects of our short and long-term strategy, that our projections of our future capital needs will prove accurate or that any additional funding would be available or sufficient to continue operations in future periods.The unaudited Condensed Consolidated Financial Statements do not include any adjustments that may result from the outcome of this uncertainty.

Reclassifications

Certain prior period balances have been reclassified to conform to the current year presentation in the unaudited Condensed Consolidated Financial Statements and the accompanying notes. These reclassifications have no effect on previously reported results of operations or stockholders’ equity.

Use of Estimates

2. INVENTORY, NET

Inventory, net consisted of the following:


		September 30, 2022		December 31, 2021			September 30, 2023		December 31, 2022
Raw materials	Raw materials	$	33,514,473	$	66,238,615	Raw materials	$	24,032,324	$	42,500,878
Work in process	Work in process	25,129,247		20,826,644		Work in process	1,516,984		25,210,131
Finished goods		100,631		—
Finished goods1						Finished goods1	17,745,316		301,645
		58,744,351		87,065,259			43,294,624		68,012,654
Less: inventory reserves	Less: inventory reserves	(47,176,744)		(76,997,892)		Less: inventory reserves	(2,511,332)		(59,162,512)
Inventory, net	Inventory, net	$	11,567,607	$	10,067,367	Inventory, net	$	40,783,292	$	8,850,142

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

We reserve inventory for any excess or obsolete inventories or when we believe the net realizable value of inventories is less than the carrying value.

As of September 30, ~~2022~~2023 and December 31, ~~2021,~~2022, the Company recorded inventory reserves of ~~$47.2~~$2.5 million and ~~$77.0~~$59.2 million, respectively. The ~~$29.8 million~~period over period decrease in inventory reserves ~~as compared to December 31, 2021 is~~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 efforts to dispose of inventory that is not expected to be used in future production. During 2021, the Company significantly increased its inventory reserves due to its decision to produce the C1000 vehicle platform at low-volume and transition to a new all-electric delivery truck platform in the future. This decision was based on results of ~~extensive testing performed on~~operations during the ~~C1000 vehicles in early 2022.~~

~~During the three~~nine months ended September 30, 2022, we sold inventory which was being carried at zero cost as it had been fully reserved for in prior periods in connection with the Company's decision regarding the future of the C1000 vehicle platform. The Company recognized a gain on the sale of $13.4 million, net of $0.5 million of selling costs, in Other Income in the Condensed Consolidated Statements of Operations. The selling costs of $0.5 million represent a commission paid to a related party who was a former executive of the Company.2023.

3. CONTRACT MANUFACTURING SERVICES AND INVESTMENT IN TROPOS

~~The Company has~~We have a minority ownership investment in Tropos Technologies, Inc. (“Tropos”) ~~with a value of $10.0 million as of September 30, 2022.~~. The investment was obtained ~~pursuant to the transaction with Tropos as described below.~~

On August 8, 2022, the Company entered into a three-year Assembly Services Agreement (the “Assembly Agreement”) with Tropos. Under the Assembly Agreement, the Company will provide services required to assemble a minimum annual quantity of 2,000 vehicles in 2023, 2,000 vehicles in 2024, and 250 vehicles in 2025 for a total of 4,250 vehicles during the ~~term~~third quarter of ~~the agreement at our Union City, Indiana manufacturing facility. In exchange for the assembly services, the Company will receive a service fee from Tropos.~~

~~On August 23,~~ 2022 the Company entered into a Preferred Stock Purchase Agreement (the “Stock Purchase Agreement”) with Tropos. Under the Stock Purchase Agreement, the Company received 605,811 shares of Series B Preferred Stock in Tropos with an option to purchase an additional 424,068 shares of Series B Preferred Stock for an exercise price of $16.51 per share 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. See Note 5,~~ services under an Assembly Services Agreement. The $5.0 million non-cash consideration was recorded as deferred revenue and is recognized as revenue over time as assembly service performance obligations are satisfied.

We record our investment at cost less impairment, if applicable. In accordance with FASB ASC Topic 321, Investments - Equity Securities, we assess our investment for impairment at each reporting period to determine if the fair value has declined below its cost basis and if the impairment is other-than-temporary. As of September 30, 2023, we determined that our

~~Revenue~~,

investment in Tropos is impaired based on the economic conditions and uncertainties that have significantly affected Tropos' performance and financial position. The impairment is considered to be other-than-temporary as the decline in fair value of the investment is not expected to recover in the foreseeable future.

The impairment charge recognized for our investment is $10.0 million, which represents the difference between the original cost of the investment and its fair value as of the impairment assessment date. The impairment loss was recognized in Other Income (Loss) in the unaudited Condensed Consolidated ~~Financial~~ Statements of Operations for ~~treatment~~the three and nine months ended September 30, 2023.

The impairment of ~~the $5.0 million of non-cash consideration received~~our investment as of September 30, ~~2022.~~

The Company utilized the measurement alternative allowed under GAAP to record the investment of the Series B Preferred Stock at cost, less any impairment, as of September 30, 2022. As of September 30, 2022,2023 did not release the Company ~~recorded~~from its obligation to perform assembly services under the ~~investment at a cost of $10.0 million with no impairment.~~agreement.

4. PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets consisted of the following:


		September 30, 2022		December 31, 2021			September 30, 2023		December 31, 2022
Prepaid purchases(1)	Prepaid purchases(1)	$	35,150,883	$	24,101,695	Prepaid purchases(1)	$	26,252,384	$	34,611,649
Less: prepaid purchases reserve(2)	Less: prepaid purchases reserve(2)	(22,020,805)		(23,912,025)		Less: prepaid purchases reserve(2)	(17,419,622)		(22,163,338)
Prepaid purchases, net	Prepaid purchases, net	13,130,078		189,670		Prepaid purchases, net	8,832,762		12,448,311
Prepaid insurance	Prepaid insurance	1,203,158		2,205,608		Prepaid insurance	1,260,313		1,198,769
Right of return asset		—		1,620,000

Other	Other	613,699		342,551		Other	612,829		505,401
Prepaid expenses and other current assets	Prepaid expenses and other current assets	$	14,946,935	$	4,357,829	Prepaid expenses and other current assets	$	10,705,904	$	14,152,481

(1) The Company’s prepaid purchases ~~consists~~consist primarily of deposits made to our suppliers for non-recurring engineering costs, capital expenditures, and production parts. The ~~increase~~decrease in prepaid purchases as compared to December 31, ~~2021~~2022 is primarily due to ~~deposits~~receiving inventory on supplier orders related to our W4 CC, W750 and W56 vehicle programs, with limited new supplier orders requiring prepayment. Additionally, we wrote-off prepaid purchases related to the ~~Company’s W4CC and W750~~C-Series vehicle ~~platform.~~program, 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,~~program, 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 was a result of the write-off of prepaid purchases related to the C-Series vehicle program, 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 September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Sales, net of returns and allowances	$	2,570,250	$	1,336,792	$	7,292,417	$	1,336,792
Other sales	458,295		212,006		1,396,006		238,860
Total sales, net of returns and allowances	$	3,028,545	$	1,548,798	$	8,688,423	$	1,575,652

Sales for the three months ended September 30, 2023 included the reversal of a $2.4 million sales allowance related to W4 CC vehicle sales. Sales for the nine months ended September 30, 2023 and 2022 consisted primarily of W4 CC vehicle sales. Other sales for the three and nine months ended September 30, 2023 consisted of delivery services, service parts and other services.

Three Months Ended September 30, Nine Months Ended
September 30,
2022 2021 2022 2021
Sales, net of returns and allowances $ 1,336,695 $ (605,000) $ 1,336,792 $ 1,032,400
Other sales 212,103 28,398 238,860 114,934
Total sales, net of returns and allowances $ 1,548,798 $ (576,602) $ 1,575,652 $ 1,147,334

Revenue is recognized when obligations under the terms of a contract with our customer are satisfied. Generally, this occurs when we transfer control of our vehicles, parts, or accessories, or provide services. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services. For the majority of sales, this occurs when products are shipped from our manufacturing facility. At the time of revenue recognition, we reduce the transaction price and record a sales return and allowance reserve against revenue for estimated variable considerations related to future product returns. Such estimates are based on an analysis of known pending returns and historical experience. We adjust our estimate of revenue at the earlier of when the value of consideration we expect to receive changes or when the consideration becomes fixed.

Sales and other taxes we collect concurrent with revenue-producing activities are excluded from revenue. The expected costs associated with our base warranties and field service actions are recognized as expense when the products are sold. We do not have any material significant payment terms as payment is received at or shortly after the point of sale.

~~We have elected to recognize the cost for freight and shipping when control over vehicles, parts, or accessories has transferred to the customer as an expense in Cost of Sales.~~

Deferred revenue is related to any non-refundable amounts that are collected from customers related to our unsatisfied assembly services. Deferred revenue is recognized as revenue as the performance obligation is satisfied.

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 ~~$4.9~~$4.7 million and ~~zero~~$5.4 million as of September 30, ~~2022 and 2021, respectively.~~

~~Of the total deferred revenue for assembly services, we expect to recognize $3.4 million of revenue in the next 12 months.~~

~~Accounts Receivable~~

Accounts receivable primarily include amounts related to sales of our products and services rendered. We provide an allowance against accounts receivable for the amount we expect to be uncollectible. We write-off accounts receivable against the allowance when they are deemed uncollectible.

6. ~~DEBT~~

~~4.0% Senior Secured Convertible Notes Due 2024 (“2024 Notes”)~~

~~The fair value of the 2024 Notes as of September 30, 2022~~2023 and December 31, ~~2021~~2022, respectively.

Revenue recognized from the deferred revenue balance was ~~zero~~$0.1 million and ~~$24.7~~$0.2 million ~~respectively. The contractual principal balance of~~for the ~~2024 Notes as of~~three and nine months ended September 30, ~~2022~~2023, respectively, and ~~December 31, 2021 was~~ zero ~~and $27.5 million, respectively.~~

In April 2022, the Company exchanged the remaining $27.5 million in aggregate principal of the 2024 Notes for approximately 7.8 million shares of the Company’s common stock. The number of shares issued was calculated by dividing $29.4 million, which represented 107% of the principal amount of the notes, plus $0.3 million of interest accrued on the notes, by the average of the daily volume weighted average price for the 10 days immediately preceding April 21, 2022. The Company recognized a loss of $1.8 million in the first quarter of 2022, which included a $0.4 million adjustment to the fair value of the convertible notes to the value of the shares issued under the exchangethree and ~~a $1.4 million adjustment related to the realization of the amount previously recognized in Accumulated Other Comprehensive Loss. The total loss was recorded in Interest Expense for the~~ nine months ended September 30, 2022.

~~Subsequent to the exchange, the Company has no convertible notes outstanding and the indenture and related security agreement under which the 2024 Notes were issued have been terminated.~~

Interest on the 2024 Notes was payable quarterly beginning January 15, 2021 at a rate of 4.0% per annum. The following table summarizes contractual interest expense related to the 2024 Notes for the period indicated:

Three Months Ended September 30, Nine Months Ended
September 30,
2022 2021 2022 2021
Contractual interest expense $ — $ 2,000,000 $ 332,707 $ 5,977,777

~~See Note 14,~~ ~~Fair Value Measurements, for additional information regarding the fair value measurement of the 2024 Notes.~~

~~PPP Term Note~~

On April 14, 2020, the Company entered into a Paycheck Protection Program Term Note (“PPP Term Note”) under the Paycheck Protection Program of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). The Company received total proceeds of approximately $1.4 million. In accordance with the requirements of the CARES Act, the Company used the proceeds primarily for payroll costs. Interest accrued on the PPP Term Note at the rate of 1.0% per annum. The Company elected to account for the PPP Term Note as debt and accrued interest over the term of the note.

On January 15, 2021, the outstanding principal and interest accrued on the PPP Term Note were fully forgiven. The Company recognized approximately $1.4 million in gain on the forgiveness of the PPP Term Note, which was recorded in Interest Income for the nine months ended September 30, 2021.

7.6. ACCRUED AND OTHER CURRENT LIABILITIES

Accrued and other current liabilities consisted of the following:

September 30, 2022 December 31, 2021
Accrued commissions $ 750,000 $ 4,000,000
Compensation and related costs 4,367,022 4,030,085
Accrued interest — 232,222
Legal reserve (Note 15) 35,000,000 —
Sales returns and allowances — 2,410,000
Other 4,708,947 4,080,520
Total accrued and other current liabilities $ 44,825,969 $ 14,752,827


	September 30, 2023		December 31, 2022

Legal reserve (Note 13)	$	—	$	35,000,000
Compensation and related costs	2,852,605		4,967,187


Other	3,006,149		6,240,244
Total accrued and other current liabilities	$	5,858,754	$	46,207,431

Warranties

We generally offer warranty coverage for our products. We accrue warranty related costs under standard warranty terms and for certain claims outside the contractual obligation period that we choose to pay as accommodations to our customers.

Provisions for estimated assurance warranties are recorded at the time of sale and are periodically adjusted to reflect actual experience. The amount of warranty liability accrued reflects management’s best estimate of the expected future cost of honoring Company obligations under its warranty plans. Historically, the cost of fulfilling the Company’s warranty obligations has principally involved replacement parts, towing and transportation costs, labor and travel for any field retrofit campaigns. The Company’s estimates are based on historical experience, the extent of pre-production testing, the number of units involved, and the extent of features/components included in product models. The Company reviews actual warranty claims experience to determine if there are systemic defects that would require a field campaign.

Although we believe the estimates and judgments discussed herein are reasonable, actual results could differ and we may be exposed to increases or decreases in our warranty accrual that could be material.

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


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2022		2021		2022		2021			2023		2022		2023		2022
Warranty liability, beginning of period	Warranty liability, beginning of period	$	3,322,212	$	4,866,213	$	4,583,916	$	5,400,000	Warranty liability, beginning of period	$	1,922,580	$	3,322,212	$	2,207,674	$	4,583,916
Warranty costs incurred	Warranty costs incurred	(387,584)		(379,215)		(1,086,542)		(1,113,002)		Warranty costs incurred	(289,404)		(387,584)		(884,717)		(1,086,542)
Provision for warranty	Provision for warranty	404,856		405,000		(157,890)		605,000		Provision for warranty	144,344		404,856		454,563		(157,890)
Warranty liability, end of period	Warranty liability, end of period	$	3,339,484	$	4,891,998	$	3,339,484	$	4,891,998	Warranty liability, end of period	$	1,777,520	$	3,339,484	$	1,777,520	$	3,339,484

8.7. 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 unaudited 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 lease liabilities are recognized based on the present value of lease payments over the lease term at commencement date. Because most of our leases do not provide an implicit rate of return, we used our incremental borrowing rate based on the information available at lease commencement date in determining the present value of lease payments.

Our leases may include options to extend the lease term for up to 5 years. Some of our leases also include options to terminate the lease prior to the end of the agreed upon lease term. For purposes of calculating lease liabilities, lease terms include options to extend or terminate the lease when it is reasonably certain we will exercise such options.

During the second quarter of 2022, we entered into a lease agreement for additional office and warehouse space. We obtained a Letter of Credit (“LOC”) in the amount of $0.5 million to secure the lease, which bears interest at 5.0% per annum. Under the terms of the agreement, the landlord may use the whole or any part of the LOC for the payment of any amount as to which we are in default or to compensate the landlord for certain specified losses or damage.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Short-term lease expense	$	74,058	$	179,704	$	200,733	$	603,712
Operating lease expense	614,060		521,566		1,754,557		1,284,533
Total lease expense	$	688,118	$	701,270	$	1,955,290	$	1,888,245

~~Lease expense for operating leases is recognized on a straight-line basis over the lease term as either cost of sales or operating expenses depending on the nature of the leased asset.~~

Three Months Ended September 30, Nine Months Ended
September 30,
2022 2021 2022 2021
Short-term lease expense $ 179,704 $ 190,178 $ 603,712 $ 539,961
Operating lease expense 521,566 — 1,284,533 —
Total lease expense $ 701,270 $ 190,178 $ 1,888,245 $ 539,961

Lease right-of-use assets consisted of the following:


		September 30, 2022		December 31, 2021			September 30, 2023		December 31, 2022
Operating leases	Operating leases	$	5,604,800	$	1,538,852	Operating leases	$	5,207,130	$	5,884,865
Finance leases	Finance leases	5,872,127		—		Finance leases	5,671,370		5,821,938
Total lease right-of-use assets	Total lease right-of-use assets	$	11,476,927	$	1,538,852	Total lease right-of-use assets	$	10,878,500	$	11,706,803

Lease liabilities consisted of the following:


		September 30, 2022		December 31, 2021			September 30, 2023		December 31, 2022
Operating leases	Operating leases	$	6,539,980	$	1,554,767	Operating leases	$	6,516,981	$	6,977,896
Finance leases	Finance leases	3,301,751		—		Finance leases	2,703,576		3,147,198
Total lease liabilities	Total lease liabilities	9,841,731		1,554,767		Total lease liabilities	9,220,557		10,125,094
Less: current portion	Less: current portion	(1,105,016)		(363,714)		Less: current portion	(1,561,769)		(1,285,032)
Long-term portion	Long-term portion	$	8,736,715	$	1,191,053	Long-term portion	$	7,658,788	$	8,840,062

9.8. STOCK-BASED COMPENSATION

~~The Company maintains,~~We maintain, as approved by the board of directors and the stockholders, the 2017 Incentive Stock Plan, ~~and~~ 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 market value of ~~the Company’s~~our common stock on the grant date. Awards under the ~~Plan~~Plans may be either vested or unvested options, or unvested restricted stock. The Plans have authorized ~~13.0~~17.5 million shares for issuance of stock-based awards. As of September 30, ~~2022~~2023 there were ~~approximately 2.0~~approximately 2.9 million shares available for issuance of future stock awards under the Plans.

Stock-based compensation expense

The following table summarizes stock-based compensation expense for the periods indicated:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2022		2021		2022		2021			2023		2022		2023		2022
Stock options	Stock options	$	245,867	$	181,558	$	732,830	$	273,180	Stock options	$	244,887	$	245,867	$	727,996	$	732,830
Restricted stock awards	Restricted stock awards	2,047,989		1,039,647		5,954,098		2,980,366		Restricted stock awards	2,385,351		2,047,989		6,952,423		5,954,098
Performance-based restricted stock awards	Performance-based restricted stock awards	691,419		—		1,941,049		—		Performance-based restricted stock awards	890,166		691,419		2,641,470		1,941,049
Total stock-based compensation expense	Total stock-based compensation expense	$	2,985,275	$	1,221,205	$	8,627,977	$	3,253,546	Total stock-based compensation expense	$	3,520,404	$	2,985,275	$	10,321,889	$	8,627,977

Stock options

A summary of stock option activity for the nine months ended September 30, ~~2022~~2023 is as follows:

Number of Options Weighted
Average
Exercise Price
per Option Weighted
Average
Remaining
Contractual Life
(Years)
Balance, December 31, 2021 495,836 $ 6.80 6.5
Exercised (69,710) 1.48
Forfeited (2,500) 22.30
Balance, September 30, 2022 423,626 $ 7.63 6.7
Number of options exercisable at September 30, 2022 218,006 $ 5.48 4.6


	Number of Options	Weighted Average Exercise Price per Option		Weighted Average Remaining Contractual Life (Years)
Balance, December 31, 2022	423,626	$	7.6	6.7
Exercised	(50,200)	1.1
Forfeited	(80,997)	1.7
Balance, September 30, 2023	292,429	$	10.3	8.3

Number of options exercisable at September 30, 2023	204,213	$	10.3	8.3

As of September 30, ~~2022,~~2023, unrecognized compensation expense was ~~$1.9~~$0.9 million for unvested options which is expected to be recognized over the next ~~1.9~~0.9 years.

Restricted stock awards

A summary of restricted stock award activity for the nine months ended September 30, ~~2022~~2023 is as follows:

Number of Unvested Shares Weighted Average Grant Date Fair Value per Share
Balance, December 31, 2021 1,617,192 $ 9.33
Granted 2,838,164 3.10
Vested (709,607) 6.71
Forfeited (149,833) 6.27
Balance, September 30, 2022 3,595,916 $ 5.06


	Number of Unvested Shares	Weighted Average Grant Date Fair Value per Share
Balance, December 31, 2022	3,525,331	$	4.9
Granted	3,962,731	1.5
Vested	(1,516,409)	4.5
Forfeited	(311,998)	2.7
Balance, September 30, 2023	5,659,655	$	2.7

As of September 30, ~~2022,~~2023, unrecognized compensation expense was ~~$15.3~~$11.7 million for unvested restricted stock awards which is expected to be recognized over the next ~~2.2~~1.6 years.

Performance share units (“PSUs”)

~~On February 23, 2022,~~As of September 30, 2023, the ~~Company issued 0.9 million~~number of unvested PSUs ~~to certain executives.~~was 3.1 million. The vesting of the PSUs is conditioned upon achievement of certain performance objectives over a performance ~~period~~periods ending December 31, 2024 and 2025 as defined in each award agreement. Fifty percent of the PSUs vest based upon the Company’s total shareholder return as compared to a group of peer companies (“TSR PSUs”), and fifty percent of the PSUs vest based upon ~~the Company’s~~our performance on certain measures including a cumulative adjusted EBITDA target (“EBITDA PSUs”). Depending on the actual achievement onof the performance objectives, the grantee may earn between 0% and 200% of the target PSUs.

A summary of the activity for PSU awards with total shareholder return performance objectives for the nine months ended September 30, ~~2022~~2023 is as follows:


		Number of Unvested Shares	Weighted Average Grant Date Fair Value per Share			Number of Unvested Shares	Weighted Average Grant Date Fair Value per Share
Balance, December 31, 2021		306,197	$	11.79
Balance, December 31, 2022					Balance, December 31, 2022	738,751	$	11.8
Granted	Granted	454,832	11.79		Granted	986,144	1.9
Forfeited	Forfeited	(22,278)	11.79		Forfeited	(22,278)	1.9
Balance, September 30, 2022		738,751	$	11.79
Balance, September 30, 2023					Balance, September 30, 2023	1,702,617	$	6.2

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 September 30, ~~2022,~~2023, unrecognized compensation expense was ~~$6.6~~$5.0 million for unvested TSR PSUs, which is expected to be recognized over the next ~~2.3~~1.5 years.

A summary of the PSU awards with cumulative adjusted EBITDA targets for the nine months ended September 30, ~~2022~~2023 is as follows:


			Number of Unvested Shares
Balance, December 31, ~~2021~~2022			—432,546
Granted			~~454,822~~986,144
Forfeited			~~(22,276)~~(22,278)
Balance, September 30, ~~2022~~2023			~~432,546~~1,396,412

The fair value of performance 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 EBITDA-based performance conditions. Future stock-based compensation expense for unvested EBITDA PSUs will be based on the fair value of the awards as of the grant date, which has not yet occurred, as the cumulative adjusted EBITDA target condition is not yet defined.

9. STOCKHOLDERS’ EQUITY

Securities Litigation Settlement

On September 1, 2023, we issued 25.4 million shares of common stock with an aggregate value of $20.0 million in connection with the settlement of the Securities Litigation as described below in Note 13, Commitments and Contingencies. The number of shares was based on the market price per share of our common stock on August 31, 2023. This transaction was recorded as a noncash operating activity.

As a result of the settlement, we no longer have any obligation related to the securities litigation and, as such, the $15.0 million insurance receivable previously recorded in Other Receivable and $35.0 million legal reserve previously recorded in Accrued and Other Current Liabilities were zero as of September 30, 2023.

At-The-Market Sales Agreement

On March 10, 2022, we entered into the ATM Program, under which we may offer and sell shares of our common stock having an aggregate sales price of up to $175.0 million.

During the three and nine months ended September 30, 2023, we issued 24.6 million and 63.3 million shares, respectively, under the ATM Program for net proceeds of $12.5 million and $52.8 million, respectively. During the three and nine months ended September 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. The remaining aggregate sales available under the ATM Program was $108.0 million as of September 30, 2023.

10. INCOME TAXES

As of September 30, ~~2022~~2023 and December 31, ~~2021,~~2022, the Company's deferred tax liability was zero. Cumulative deferred tax assets are fully reserved as 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 unaudited Condensed Consolidated Financial Statements due to the loss for the periods.

11. ~~EARNINGS (LOSS)~~LOSS PER SHARE

Basic loss per share of common stock is calculated by dividing net loss by the weighted-average shares outstanding for the period. Potentially dilutive shares, which are based on the weighted-average shares of common stock underlying 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 computation of diluted net loss per share of common stock, because their effect was anti-dilutive:


		Three Months Ended September 30,		Nine Months Ended September 30,			Three Months Ended September 30,		Nine Months Ended September 30,
		2022	2021	2022	2021		2023	2022	2023	2022
Stock-based awards and warrants	Stock-based awards and warrants	3,364,289	3,987,285	10,129,870	3,987,285	Stock-based awards and warrants	10,094,146	3,364,289	10,094,146	10,129,870
Convertible notes(1)	Convertible notes(1)	—	—	7,833,666	—	Convertible notes(1)	—	—	—	7,833,666

(1) Represents shares issued in exchange of convertible notes in April 2022. ~~See Note 6,~~ ~~Debt, for additional information regarding shares issued subsequent to the date of the Condensed Consolidated Financial Statements.~~

12. RECENT ACCOUNTING PRONOUNCEMENTS

Accounting Standards and Pronouncements Recently Adopted

There are no accounting standards or pronouncements recently adopted impacting the Company.

~~In August 2020, the Financial~~ Accounting Standards ~~Board issued Accounting Standards Update (“ASU”) 2020-06,~~ ~~Accounting for Convertible Instruments~~ and ~~Contracts in an Entity’s Own Equity. The ASU simplifies~~Pronouncements Not Yet Adopted

There are no accounting standards or pronouncements not yet adopted impacting the accounting for certain convertible instruments, amends the guidance on derivative scope exceptions for contracts in an entity’s own equity and requires the use of the if-converted method for calculating diluted earnings per share. The ASU removes separation models for convertible debt with a cash conversion feature. Such convertible instruments will be accounted for as a single liability measured at amortized cost. The Company adopted the ASU as of January 1, 2022. The adoption of this guidance did not have a material impact on the Company's financial condition and results of operations.Company.

13.~~OTHER TRANSACTIONS~~

On October 31, 2019, the Company and ST Engineering Hackney, Inc. (“Hackney”) entered into an Asset Purchase Agreement to purchase certain assets and assume certain liabilities of Hackney. Upon execution of the agreement, the Company deposited approximately 2.3 million shares of its common stock into an escrow account that were to be released to Hackney if certain conditions were met.

The Company believes that such conditions were not met and does not expect to make further payments to Hackney in connection with the Asset Purchase Agreement. Further, the Company expects the shares of its common stock to be released from escrow in 2022.

~~14.~~ ~~FAIR VALUE MEASUREMENTS~~

Accounting guidance on fair value measurements for certain financial assets and liabilities requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories:

~~Level 1 — Quoted market prices in active markets for identical assets or liabilities.~~

~~Level 2 — Observable market-based inputs or unobservable inputs that are corroborated by market data.~~

~~Level 3 — Unobservable inputs reflecting the reporting entity’s own assumptions or external inputs from inactive markets.~~

A financial asset or liability’s classification within the hierarchy is determined based on the lowest level of input that is significant to the fair value measurement. Assets and liabilities measured at fair value and fair value measurement level were as follows:

September 30, 2022 December 31, 2021
Fair Value Level 1 Level 2 Level 3 Fair Value Level 1 Level 2 Level 3
Liabilities
Convertible notes $ — $ — $ — $ — $ 24,705,000 $ — $ — $ 24,705,000
Total liabilities at fair value $ — $ — $ — $ — $ 24,705,000 $ — $ — $ 24,705,000

~~Convertible Notes~~

The Company's convertible notes were measured at fair value using Level 3 inputs upon issuance and at each reporting date. Considerable judgment was required in interpreting market data to develop the estimates of fair value. Accordingly, the Company’s estimates are not necessarily indicative of the amounts that the Company, or holders of the instruments, could have realized in a current market exchange. Significant assumptions used in the fair value model included estimates of the redemption dates, credit spreads and the market price and volatility of the Company’s common stock. The use of different assumptions and/or estimation methodologies could have had a material effect on the estimated fair values.

The Company recognized changes in fair value of the convertible notes related to changes in credit spread, if any, in Other Comprehensive Loss and the remaining changes in fair value in Interest Expense (Income).

~~15.~~ COMMITMENTS AND CONTINGENCIES

General Matters

The Company is party to various negotiations and legal proceedings arising in the normal course of business. The Company provides reserves for these matters when a loss is probable and reasonably estimable. The Company does not disclose a range of potential loss because the likelihood of such a loss is remote. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company’s financial position, results of operations, cash flows or liquidity.

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

~~On September 22, 2021, we announced the Company decided to suspend deliveries of C-1000 vehicles~~For information regarding certain regulatory matters, see Note 17, “Commitments and ~~recall the vehicles we had already delivered to customers. The Company determined additional testing~~Contingencies – Federal Motor Vehicle Safety Standards (“FMVSS”) Certification and modifications to existing vehicles are required to bring the C-1000 vehicles into full compliance with FMVSS. The Company further announced that it filed a report with the National Highway Traffic Safety Administration (“NHTSA”) regarding the need for additional testingOther Regulatory Matters” included in Item 8, “Financial Statements and vehicle modifications to bring our C-1000 vehicles into full compliance with FMVSS. We indicated our previous statements related to the C-1000’s compliance with NHTSA standards cannot be relied upon and so notified the Securities and Exchange Commission. We also disclosed we identified a number of enhancements to our production process and the designSupplementary Data” of the ~~C-1000 vehicles to address customer feedback, primarily related to payload capacity.~~Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

The certification testing was completed in February 2022. Upon completion of this review, the C-1000 platform was determined to be eligible for certification and reintroduction as a limited production vehicle with constrained cargo capacity.~~In 2022, Workhorse decided to repurchase all of the C-1000 vehicles involved in the recall announced in September 2021 instead~~

1513

~~of repairing them and so notified NHTSA. Because the Company repurchased all of the C-1000 vehicles involved in the recall, it has no further obligations under the recall.~~

Due to the uncertainties and many variables involved in NHTSA matters, we cannot estimate the ultimate resolution of this matter and whether it will have a material adverse effect on the Company's financial position, results of operations, cash flows or liquidity. We cooperated with NHTSA with respect to the now-completed recall announced in September 2021. However, we cannot assure that NHTSA or other government authorities will not attempt to impose potentially significant fines and penalties in response to the recall.

On October 19 and November 1, 2021, the Company received letters from the SEC requesting that it voluntarily provide information relating to (a) the events and trading in its securities leading up to the announcement of the award of a contract by the U.S. Postal Service (the “USPS”) for the manufacture of a postal service vehicle fleet and (b) recognition of revenue, if any, related to purchases of vehicles by certain of the Company’s customers. On November 5, 2021, the Department of Justice (“DOJ”) orally informed the Company that it had a related open investigation covering the Company. The Company has not received any subpoena or other request for documents or other information from the DOJ with respect to this investigation. On May 9, 2022, the Company received a letter from the SEC requesting that it voluntarily provide information relating to certain customer sales and customer complaints. The Company is cooperating with the SEC and DOJ investigations. At this time, the Company cannot predict the ultimate scope, duration, or outcome of these matters.

During the second quarter of 2021, the Company became aware of a regulatory compliance issue related to our E-Series vehicles that will require retrofitting of such vehicles. Management continues to work on remediation of this issue and does not expect it to have a material impact on the Company’s financial condition and operations. Due to the uncertainties and many variables involved in regulatory matters, we cannot estimate the ultimate resolution of this issue and actual results may differ from our expectations.

Legal Proceedings

Securities Litigation

~~The~~On October 24, 2022, the Company ~~Duane Hughes, Steve Schrader, Robert Willison and Gregory Ackerson are defendants in~~entered into a binding term sheet to resolve the putative class action (the “Securities Class Action”) brought in the Central District of California (Case No.2:21-cv-02072) on behalf of purchasers of the Company’s securities from March 10, 2020 through May 10, 2021. ~~The amended complaint in this action, filed by lead plaintiff, Timothy M. Weis, on July 16, 2021, alleges~~On January 13, 2023, the defendants violated the federal securities laws by intentionally or recklessly making material misrepresentations and/or omissions regarding the Company’s participation in the bidding process to manufacture the new fleetparties executed a Stipulation of USPS next generation delivery vehicles, the prospect of the USPS awarding the contract to Workhorse given alleged deficiencies in Workhorse’s proposal, the Company’s manufacturing abilities generally and the Company’s nonbinding “backlog” in its vehicles. Lead plaintiff seeks certification of a class and monetary damages in an indeterminate amount. The Court denied the Company’s motion to dismiss in substantial part, and the Securities Class Action is currently scheduled to begin trial on March 19, 2024.

~~On October 24, 2022, the Company entered into a binding term sheet to resolve this litigation as well as the related Shareholders Derivative Litigation described below. Under~~Settlement setting forth the terms of the settlement of the class action and in resolution of all claims.

On July 28, 2023 (the “Judgment Date”), the Court entered an order (the “Order”) granting final approval of the Stipulation of Settlement, resolving the Securities Class Action. Pursuant to the Stipulation of Settlement, in exchange for a release of all claims ~~Workhorse will pay $15~~and dismissal with prejudice of the Securities Class Action, the Company agreed to create a settlement fund with an escrow agent (the “Settlement Fund”), consisting of $15.0 million in cash ~~which will be funded fully by proceeds of available insurance,~~ and ~~$20~~$20.0 million ~~payable~~ in shares of ~~Workhorse stock.~~common stock of the Company (the “Settlement Shares”) from which class members will receive payment. The ~~settlement will~~escrow agent may sell the Settlement Shares and deposit the proceeds from such sales into the Settlement Fund or may distribute the Settlement Shares to class members.

Pursuant to the Stipulation of Settlement, the number of Settlement Shares to be ~~subject to final documentation, public notice and approval by~~issued was based on the ~~Court, and there can~~volume weighted average price (“VWAP”) of the Company’s common stock for the 15 trading days immediately preceding the Judgment Date. The VWAP would be ~~no assurance~~adjusted if, at market close on the trading day before the date the Company deposits the Settlement Shares, the market price per share of the Company’s common stock deviated more than 25% above or below the VWAP Price. Upon such deviation, the number of Settlement Shares would be adjusted, upward or downward, such that the settlement will be approved on those terms or at all. The Company recorded a $15 million insurance receivable in Other receivable and a $35 million legal reserve in Accrued liabilities and other in the Condensed Consolidated Balance Sheet at September 30, 2022. The Company also recognized a $20 million expense which was recognized in Selling, general and administrativeaggregate value of the ~~Condensed Consolidated~~Settlement Shares equals $20.0 million. Consistent with the foregoing, the Company issued 25,380,711 shares of its common stock into the Settlement Fund as Settlement Shares in September 2023.

For additional information regarding the Securities Class Action, see Note 17, “Commitments and Contingencies – Legal Proceedings – Securities Litigation” included in Item 8, “Financial Statements and Supplementary Data” of ~~Operations~~the Company’s Annual Report on Form 10-K for the ~~three and nine months~~year ended ~~September 30,~~December 31, 2022.

~~Shareholder Derivative Litigation~~

A total 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 violate 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.

The three derivative cases filed in the Central District of California were consolidated into a single action on June 21, 2021 (under Case No. 2:21-cv-04202). On April 18, 2022, the plaintiffs filed their consolidated amended complaint in the consolidated action. On June 2, 2022, the defendants filed motions to dismiss, which the Company joined in with respect to the arguments related to the plaintiffs’ lack of standing, as well as a motion to stay the case pending resolution of the Securities Class Action. On October 3, 2022, the Court granted the Defendants’ motion to stay the action pending resolution of the Securities Class Action. On October 2, 2022, the Court granted the Defendants' motion to stay the action pending resolution of the Securities Class Action.

A fourth case, originally filed in the Southern District of Ohio, was transferred to the Central District of California on November 5, 2021 (under Case No. 2:21-cv-08734) and assigned to the same judge who presides over the Securities Class Action and the consolidated Central District of California derivative action. Plaintiffs filed their first amended complaint on May 2, 2022. On July 22, 2022, the Court granted the Defendants’ motion to stay the action pending resolution of the Securities Class Action.

Two further actions, both filed in the Eight Judicial District Court of the State of Nevada in and for Clark County, were consolidated on January 7, 2022 (under Case No. A-21-833050-B). On January 24, 2022, the plaintiffs in the consolidated action in Nevada state court filed their consolidated amended complaint, which was also revised to include the additional allegations made in the Amended Complaint in the Securities Class Action discussed above. On March 22, 2022, the defendants and the Company filed a motion to stay the Nevada state court consolidated action, and the defendants filed motions to dismiss the consolidated action, which the Company joined in with respect to the arguments related to the plaintiffs’ lack of standing. Plaintiffs’ oppositions to these motions were filed on June 3, 2022. Defendants’ replies were filed on July 15, 2022. On August 4, 2022, the court denied the defendants' motion to dismiss the consolidated action, but granted the defendants' motion to stay the action pending resolution of the Securities Class Action.

The seventh shareholder derivative action was filed on June 22, 2022 in the United States District Court for the District of Nevada under Case No. 2:22-cv-00980. On October 17, 2022, the Court granted the parties’ stipulation to stay the case pending resolution of the Securities Class Action.

~~The eighth shareholder derivative action was filed on August 19, 2022 in the Common Pleas Court of Hamilton County, Ohio under Case No. A 2203019.~~14. DEBT~~By stipulation of the parties, the deadline for defendants and nominal defendant to respond to the complaint has been extended to November 16, 2022.~~

As discussed more fully above, on October 24, 2022, the Company and the individual defendants entered into a binding term sheet to resolve the shareholder derivative actions pending in the Central District of California, the United States District Court for the District of Nevada and State District Court of Nevada as well as the related Securities Class Action.The settlement will be subject to final documentation, public notice and court approval by the State District Court of Nevada, and there can be no assurance that the settlement will be approved on those terms or at all. The parties have 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.

Although these actions purport to seek recovery on behalf of the Company, the Company will incur certain expenses due to indemnification and advancement obligations with respect to the defendants. The Company understands that defendants believe these actions are without merit and intends to support them as they pursue all legal avenues to defend themselves fully.

~~Products Liability Litigation~~

On August 10, 2023, the Company entered into a Floorplan and Security Agreement (the “Agreement”) with Mitsubishi HC Capital America, Inc. Pursuant to this arrangement, the Company has obtained a revolving floorplan line of credit with a maximum borrowing limit of $5.0 million, which remained undrawn and fully available as ofSeptember ~~20, 2022, Reinier Angulo filed~~30, 2023.

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 sales.

The terms of the floorplan lending line of credit include interest charged on the outstanding borrowings and may also include other fees and covenants. Interest is typically charged at a ~~Complaint~~variable rate based on a reference interest rate, such as the Secured Overnight Financing Rate (“SOFR”), plus 4.86%.

The floorplan lending line of credit is secured by a security interest in the ~~United States District Court for~~eligible inventory. The term of the ~~Southern District~~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 ~~Florida (Civil Action No. 1:22-cv-22489-CMA) against~~financing to support its inventory management and sales operations. However, the Agreement also exposes the Company to risks related to changes in ~~connection with injuries suffered while operating a W-62 truck on February 5, 2020, claiming strict liability, negligence, and negligent failure to warn.~~The Company does not believe it manufactured the W-62 that is the subject to the Complaint. On October 27, 2022, the Company timely filed a motion to dismiss for lack of personal jurisdiction, advising the courtinterest rates, inventory values, and the ~~Plaintiff that the Company had insufficient contacts with the state~~availability of Florida to justify the exercise of jurisdiction in Florida and was not the manufacturer of the subject W-62 truck. On October 31, the Court denied the Company’s motion to dismiss, without prejudice, and granted the Plaintiff leave to file aneligible inventory.

~~amended complaint.The Plaintiff filed an amended complaint on November 1, 2022, and the Company’s response is due on November 15, 2022.~~

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

Overview

We are an American technology company with 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. We design and manufacture 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~~programs 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. We are evaluating a broad range of strategic alternatives for our drone vehicles which may include a sale, strategic partnership, another transaction, or the continued execution of our strategic plan for drone vehicle production within Workhorse.

Recent Developments

~~Investment in Tropos Technologies, Inc.~~

The Company has a minority ownership in Tropos Technologies, Inc. (“Tropos”) with a value of $10.0 million as of September 30, 2022. The investment was obtained pursuant to the transaction with Tropos as described below.Certified Dealer Program

~~On August 8, 2022,~~During the ~~Company entered~~three months ended September 30, 2023, we continued to add dealers to our Certified Dealer Program, expanding the official network of verified dealers trained to safely repair and maintain the electric components of our vehicles into new states to support our customers. The Certified Dealer Program allows us to establish a ~~three-year Assembly Services Agreement (the “Assembly Agreement”~~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. Our California dealers are eligible to participate in the California Air Resources Board (“CARB”) Hybrid and Zero-Emission Truck and Bus Incentive Project (“HVIP”) program as a result of our recent approval by CARB to participate as an intermediate-stage manufacturer.

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 three months ended September 30, 2023, we began production of our W56 vehicle program in both strip chassis and Step Van variants. We also recognized sales of W4CC, W750 and HorseFly vehicles, and continued to develop and commercialize our package delivery trucks and drones. Our progress on the W750 production supports the electrification of the fleet of trucks being utilized by our Stables & Stalls initiative, which operates FedEx Ground delivery routes in the greater Cincinnati area. The electrification of the fleet provides us with ~~Tropos. Under~~firsthand data on the ~~Assembly Agreement,~~benefits and challenges 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 ~~Company will provide~~transition to EV operations, including how to develop adequate charging infrastructure, training and maintenance services. Despite concluding that our equity investment in Tropos was impaired during the period based on the economic conditions and uncertainties that have significantly affected Tropos' performance and financial position, we continued executing our assembly services ~~at its Union City, Indiana manufacturing facility required~~for the Tropos vehicles. In addition to ~~assemble a minimum annual quantity of 2,000 vehicles~~our ongoing production ramp in 2023, ~~2,000 vehicles in 2024,~~we intend to continue to generate demand and ~~250 vehicles in 2025 for a total of 4,250 vehicles during~~brand awareness by improving our vehicles’ performance and functionality, and by developing new vehicle programs, including new W56 variants and the ~~term~~WNext platform. We expect to continue to benefit from ongoing electrification of the ~~agreement. In exchange for the assembly services, the Company will receive a service fee from Tropos.~~automotive sector and increasing environmental awareness.

Securities Litigation and Shareholder Derivative Litigation

On August 23, 2022, the Company entered into a Preferred Stock Purchase Agreement (the “Stock Purchase Agreement”) with Tropos. Under the Stock Purchase Agreement, the Company received 605,811 shares of Series B Preferred Stock in Tropos with an option to purchase an additional 424,068 shares of Series B Preferred Stock 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. See Note 5,
~~Revenue, of the Condensed Consolidated Financial Statements for treatment of the $5.0 million of non-cash consideration received as of September 30, 2022.~~

The Company utilized the measurement alternative allowed under GAAP to record the investment of the Series B Preferred Stock at cost, less any impairment, as of September 30, 2022. As of September 30, 2022, the Company recorded the investment at a cost of $10.0 million with no impairment.

~~Asset Purchase Agreement with ESG Logistics Corp.~~

During July 2022, we entered into an Asset Purchase Agreement (the "Asset Purchase Agreement") with ESG Logistics Corp. (“ESG”), a provider of package pickup and delivery services. ESG was party to an agreement with FedEx Package System, Inc. (“FXG”) under which ESG provided services to FXG on an exclusive basis in its business segments known as FedEx delivery throughout a geographic territory consisting of certain ZIP codes located in the Cincinnati, Ohio metropolitan area. Under the Asset Purchase Agreement, we purchased substantially all of the assets relating to ESG's business, including ESG's rights and interests under the FXG agreement, motor vehicles, intellectual property, and other miscellaneous equipment for a purchase price of $0.6 million.

~~Stables & Stalls~~

During the third quarter ~~we began operating~~of 2023, each of the ~~FedEx delivery route under~~previously disclosed securities class action and shareholder derivative action settled in accordance with the ~~FXG agreement using the historical motor vehicles and equipment acquired through the Asset Purchase Agreement. This effort, known as Stables & Stalls, is designed to have~~terms of their respective terms of settlement without the Company ~~experience, firsthand,~~owing any further financial obligations. As previously disclosed, during the ~~challenges facing independent operators executing last mile delivery~~three months ended September 30, 2023, we issued 25.4 million shares of common stock in settlement of our previously disclosed securities class action litigation, pursuant to the stipulation of settlement. For further information regarding each the securities class action and ~~to develop~~shareholder derivative litigation and the ~~appropriate business model as the contractors’ transition to electric vehicle fleets. As part~~respective settlement thereof, please see Note 13, “Commitments and Contingencies – Shareholder Derivative Litigation” included in Item 1 of this ~~effort, Workhorse is outfitting a fully functional services site,~~Form 10-Q, and Note 17, “Commitments and Contingencies – Legal Proceedings” included in Item 8 of the ~~‘Stable’, and charging infrastructure,~~Company’s Annual Report on Form 10-K for the ‘Stalls’, designed to support small fleet operators as they make the transition to EV’s. We intend to transition the fleet of motor vehicles operating the FedEx delivery route to electric vehicles by the second quarter of 2023.

~~GreenPower Motor Company Inc. Supply Agreement~~

In February 2022, we entered into a three-year vehicle purchase and supply agreement (the “Supply Agreement”) with GreenPower Motor Company Inc. (“GreenPower”) to facilitate the manufacturing and delivery of medium-duty Class 4 step vans into the North American market. Under the Supply Agreement, we will purchase 1,500 base vehicles from GreenPower,year ended December 31, 2022.

1915

and complete the manufacturing process on the base vehicles. We will market two versions of the vehicle, a cab chassis version known as the W4 CC and a complete vehicle with a step van body, known as the W750, to customers in the United States and Canada. The W4 CC will have a payload capacity of 5,000 pounds and the W750 is expected to have a payload capacity of 5,000 pounds. Both the W4 CC and the W750 will feature up to 150 miles of all-electric range. Delivery of base vehicles under the Supply Agreement and production of the W4 CC began in the third quarter of 2022.

~~Securities Exchange Agreement~~

In April 2022, we entered into a securities exchange agreement to exchange the remaining $27.5 million in aggregate principal of our convertible notes for approximately 7.8 million shares of our common stock. The number of shares issued was calculated by dividing $29.4 million, which represents 107% of the principal amount of the notes, plus $0.3 million of interest accrued on the notes, by the average of the daily volume weighted average price for the 10 days immediately preceding April 21, 2022. We recognized a loss of $1.8 million in the first quarter of 2022, which includes a $0.4 million adjustment to the fair value of the convertible notes to the value of the shares issued under the exchange and a $1.4 million adjustment related to the realization of the amount previously recognized in Accumulated Other Comprehensive Loss. The total loss was recorded in Interest Expense for the nine months ended September 30, 2022.

~~Subsequent to the exchange, we have no convertible notes outstanding, and the indenture and related security agreement under which the 2024 Notes were issued have been terminated.~~

~~Securities Litigation Settlement~~

~~On October 27, 2022, the Company entered into a binding settlement term sheet to resolve the Securities Class Action litigation as well as the related Shareholder Derivative Litigation.~~Under the terms of the settlement and in resolution of all claims, Workhorse will pay $15 million in cash, which will be funded fully by proceeds of available insurance, and $20 million payable in Workhorse stock. The settlement will be subject to final documentation, public notice and approval by the Court. The Company recorded a $15 million insurance receivable in Other receivable and a $35 million legal reserve in Accrued liabilities and other in the Condensed Consolidated Balance Sheet at September 30, 2022. The Company also recognized a $20 million expense which was recognized in Selling, general and administrative of the Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2022.

~~Shareholder Derivative Litigation Settlement~~

~~As more fully described above, the Company and the individual defendants entered into a binding term sheet to resolve the~~

Shareholder Derivative Litigation as well as the related Securities Class Action. The settlement will be subject to final documentation, public notice and court approval by the State District Court of Nevada.

Recent Trends and Market Conditions

~~COVID-19.~~ ~~The~~We continue to monitor macroeconomic conditions to remain flexible and to optimize and evolve our business as appropriate, and we will have to accurately project demand and infrastructure requirements globally and deploy our production, workforce and other resources accordingly. For more detailed descriptions of the impact ~~of COVID-19, including pandemic fears~~ and market downturns, and restrictions on business and individual activities, has created significant volatility in the global economy. Recent COVID-19 outbreaks in certain regions have continued to cause intermittent disruptionsrisks to our ~~supply chain~~business, please see the risk factors described in Part I, Item 1A, Risk Factors in our Annual Report on Form 10-K filed with the Securities and ~~although we have been relatively successful~~Exchange Commission (“SEC”) on March 1, 2023 (the Form 10-K”) and Part II, Item 1A, Risk Factors in ~~navigating~~our Quarterly Reports on Form 10-Q filed with the ~~impact of the COVID-19 pandemic, we have previously been affected by temporary manufacturing closures. As of September 30, 2022, our locations~~SEC on May 15, 2023 and ~~most of our primary suppliers are in operation and we continue to work through supplier constraints as a result of the COVID-19 pandemic,~~August 14, 2023, as well as ~~other supply chain difficulties.~~this Quarterly Report on Form 10-Q.

Market Demand. Sales performance during the three and nine month periods ended September 30, 2023 were down largely due to slower-than-anticipated industry wide electric vehicle adoption rates and lack of government subsidies and incentives available to our dealers. On November 8, 2023 CARB approved Workhorse's application to participate in the HVIP program with its W4 CC and W750 vehicles. This approval is part of a first-of-its-kind program that allows vehicle modifiers to list their vehicles directly with HVIP. We will be the first company to participate in the program and will have our own manufacturer's pool for our W4 CC and W750 vehicles. We expect this certification will help drive overall demand for our vehicles.

Commodities. Prices for commodities remain volatile, and we expect to experience price increases for base metals and raw materials that are used in batteries for electric vehicles (e.g., lithium, cobalt, and nickel) as well as steel, aluminum and other material inputs. Global demand and differences in output across sectors as a result of ~~the COVID-19 pandemic~~geopolitical uncertainties have generated divergence in price movements across different commodities. We expect the net impact on us overall will be higher material costs. ~~To help ensure supply~~

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 programs, we will continue to identify supplier relationship and vehicle program synergies which may allow us to take advantage of pricing efficiencies from economies of scale. Where available, we will utilize multiple supply sources for ~~critical components (such as batteries),~~key parts, and we ~~have engaged in multi-year sourcing agreements.~~will work to qualify multiple supply sources to achieve pricing efficiencies and minimize potential production risks related to supply chain.

Inflation. Inflation ~~has significantly risen during the nine months of 2022,~~continues to impact our operations, resulting from both supply and demand imbalances as economies continue to ~~recover from the COVID-19 pandemic~~face constraints as well as the impact on the availability and cost of energy and other commodities ~~resulting from Russia's invasion~~as a result of the ongoing Ukraine ~~in February 2022, which is ongoing.~~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 ~~started~~continued to raise interest rates which will likely raise the cost of any financing the Company may undertake in the future.

The Inflation Reduction Act of 2022 (the “Act”) was signed into law and enacted on August 16, 2022. The Act modifies, expands and enhances incentives, tax provisions and credits to support the investment and use of clean-energy vehicles. The Act also provides incentives and tax credits for electric vehicle manufacturers to invest in domestic manufacturing supply chain production. The new tax credits for commercial EV purchases and investments in clean energy production, supply chains and manufacturing facilities are included in the Act effective beginning in 2023. We are evaluating the potential impact of the Act on our financial results.

The following section provides a narrative discussion about our financial condition and results of operations. The comments should be read in conjunction with our unaudited Condensed Consolidated Financial Statements and related Notes thereto included in Item 1 of this Form 10-Q and in conjunction with ~~our Annual Report on Form~~the 10-K filed with the ~~Securities and Exchange Commission~~SEC on March 1, ~~2022.~~2023.

Results of Operations

The following table sets forth, for the periods indicated, the components of the Company's unaudited Condensed Consolidated Statements of Operations:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2022		2021		2022		2021			2023		2022		2023		2022
Sales, net of returns and allowances	Sales, net of returns and allowances	$	1,548,798	$	(576,602)	$	1,575,652	$	1,147,334	Sales, net of returns and allowances	$	3,028,545	$	1,548,798	$	8,688,423	$	1,575,652
Cost of sales	Cost of sales	9,515,547		11,549,187		16,459,102		32,570,616		Cost of sales	6,557,358		9,515,547		20,312,854		16,459,102
Gross loss	Gross loss	(7,966,749)		(12,125,789)		(14,883,450)		(31,423,282)		Gross loss	(3,528,813)		(7,966,749)		(11,624,431)		(14,883,450)
Operating expenses	Operating expenses									Operating expenses
Selling, general and administrative	Selling, general and administrative	34,753,017		10,579,586		59,693,419		24,470,953		Selling, general and administrative	11,756,291		34,753,017		40,448,651		59,693,419
Research and development	Research and development	6,126,951		2,801,394		15,165,946		8,788,969		Research and development	5,771,588		6,126,951		18,056,182		15,165,946
Total operating expenses	Total operating expenses	40,879,968		13,380,980		74,859,365		33,259,922		Total operating expenses	17,527,879		40,879,968		58,504,833		74,859,365
Loss from operations	Loss from operations	(48,846,717)		(25,506,769)		(89,742,815)		(64,683,204)		Loss from operations	(21,056,692)		(48,846,717)		(70,129,264)		(89,742,815)
Interest income (expense), net	Interest income (expense), net	27,716		18,599,130		(2,290,993)		23,040,886		Interest income (expense), net	410,980		27,716		1,466,839		(2,290,993)
Other income (loss)	Other income (loss)	13,413,500		(77,127,266)		13,413,500		(225,432,884)		Other income (loss)	(10,000,000)		13,413,500		(10,000,000)		13,413,500
Loss before benefit for income taxes	Loss before benefit for income taxes	(35,405,501)		(84,034,905)		(78,620,308)		(267,075,202)		Loss before benefit for income taxes	(30,645,712)		(35,405,501)		(78,662,425)		(78,620,308)
Benefit for income taxes	Benefit for income taxes	—		2,919,491		—		21,833,930		Benefit for income taxes	—		—		—		—
Net loss	Net loss	$	(35,405,501)	$	(81,115,414)	$	(78,620,308)	$	(245,241,272)	Net loss	$	(30,645,712)	$	(35,405,501)	$	(78,662,425)	$	(78,620,308)

Sales, net of returns and allowances

Sales, net of returns and allowances for the three months ended September 30, 2023 and 2022 were $3.0 million and ~~2021 were~~ $1.5 million, ~~and $(0.6)~~respectively. The increase in sales was primarily driven by the reversal of a $2.4 million ~~respectively.~~ sales allowance in the current period related to the sale of W4 CC vehicles in the second quarter of 2023.

Sales, net of returns and allowances for the nine months ended September 30, 2023 and 2022 were $8.7 million and ~~2021 were~~ $1.6 ~~and $1.1,~~million, respectively. The increase in ~~net~~ sales iswas primarily ~~due to the sale~~driven by sales of W4 CC vehicles during ~~the third quarter of 2022 compared to a $1.1 million refund liability recorded during the third quarter of 2021 related to the recall of our C1000 vehicles.~~2023.

Cost of sales

Cost of sales for the three months ended September 30, 2023 and 2022 ~~and 2021~~ were ~~$9.5~~$6.6 million and ~~$11.5~~$9.5 million, respectively. The decrease ~~in cost of sales~~ was primarily due to a ~~$1.4~~$2.9 million decrease in inventory ~~write-downs~~reserves and ~~related~~ adjustments ~~and~~recognized in the prior year period as a result of the disposition of C-Series inventory. Additionally, lower sales volume in the current period led to a $1.0 million decrease in costs which were offset by a $1.2 million ~~decrease in consulting and warranty expenses. The decrease in cost of sales was partially offset by an~~ increase in ~~costs~~employee compensation and related ~~to vehicles sales during the period.~~expenses.

Cost of sales for the nine months ended September 30, 2023 and 2022 ~~and 2021~~ were ~~$16.5~~$20.3 million and ~~$32.6~~$16.5 million, respectively. The ~~decrease in cost of sales~~increase was primarily due to higher sales volume during the current period, resulting in a ~~$6.0~~$5.1 million ~~decrease~~increase in ~~inventory write-downs and related adjustments, a $2.2 million decrease in cost due to a reduction in volume of C1000~~ production costs and a ~~$1.3~~$2.8 million decrease in consulting expenses. Additionally, the decrease in cost of sales was due to a $1.2 million decrease in warranty expense primarily related to a reduction in the number of vehicles remaining under warranty, a $1.0 million decreaseincrease in employee compensation and related ~~expenses primarily due to decreased headcount,~~expenses. These increases were partially offset by a $3.9 million decrease in inventory reserves and ~~a reduction~~adjustments, which was driven by the disposition of C-Series inventory in ~~costs associated with the initial production of the C-Series vehicle platform.~~

2022.

Selling, general and administrative expenses

Selling, general and administrative (“SG&A”) expenses during the three months ended September 30, 2023 and 2022 ~~and 2021~~ were ~~$34.8~~$11.8 million and ~~$10.6~~$34.8 million, respectively. The ~~increase~~decrease was primarily driven by ~~the $20.0~~a $23.9 million ~~legal settlement expense and an increase of $3.1 million~~decrease in ~~professional and legal services primarily related to~~expenses associated with the securities and ~~shareholder~~ derivative ~~litigation. Additionally, there was a $3.1 million increase~~litigation settlements recognized in ~~employee~~the same period last year. Employee compensation and related expenses, ~~primarily due to increased headcount,~~including non-cash stock-based compensation expense, decreased by $0.4 million compared to the prior period. These decreases were partially offset by a $0.8 million increase in professional services and ~~the appointments of our new executive leadership team.~~other expenses.

SG&A expenses during the nine months ended September 30, 2023 and 2022 ~~and 2021~~ were ~~$59.7~~$40.4 million and ~~$24.5~~$59.7 million, respectively. The ~~increase~~decrease was primarily driven by ~~the $20.0~~a $26.3 million ~~legal settlement expense and a of $5.8 million increase~~decrease in ~~professional and legal services primarily related to~~expenses associated with the securities and ~~shareholder~~ derivative ~~litigation. There~~litigation settlements recognized in the same period last year. This decrease was ~~also an $9.3~~partially offset by a $3.5 million

increase in employee compensation and related expenses, ~~from increased headcount,~~including non-cash stock-based compensation expense, a $2.0 million increase in professional services and ~~the appointments of our new executive leadership team.~~other expenses and a $0.6 million increase in corporate insurance expenses.

Research and development expenses

Research and development (“R&D”) expenses during the three months ended September 30, 2023 and 2022 were $5.8 million and ~~2021 were~~ $6.1 million, respectively. The decrease was driven by a $0.9 million decrease in consulting expenses, partially offset by a $0.5 million increase in employee compensation and ~~$2.8~~related expenses.

R&D expenses during the nine months ended September 30, 2023 and 2022 were $18.1 million and $15.2 million, respectively. The increase was primarily driven by an increase of ~~$1.6~~$1.9 million in employee compensation and related expenses ~~due to increased headcount. Additionally, there was a $1.1 million increase in consulting expenses~~ and a ~~$0.4 million increase in prototype expenses related to the continued development of our HorseFly™, W56, W750 and W4 CC vehicle programs.~~

R&D expenses during the nine months ended September 30, 2022 and 2021 were $15.2 million and $8.8 million, respectively. The increase was primarily driven by an increase of $4.2 million in employee compensation and related expenses due to increased headcount. Additionally, there was an increase of $0.9 million increase in prototype ~~expenses and~~expenses. These increases were partially offset by a ~~$0.8~~$0.7 million ~~increase~~decrease in consulting ~~expenses related to the continued development of our HorseFly™, W56, W750 and W4 CC vehicle programs.~~expenses.

~~Net interest~~Interest income (expense)

~~The following table sets forth, for the periods indicated, the components of~~, net ~~interest income (expense):~~

Three Months Ended September 30, Nine Months Ended
September 30,
2022 2021 2022 2021
Realization of accumulated other comprehensive loss $ — $ — $ (1,402,500) $ —
Change in fair value of convertible notes and loss on conversion to common stock — 20,600,000 (367,357) 27,600,000
Contractual interest expense — (2,000,000) (332,707) (5,977,777)
Gain on forgiveness of PPP Term Note — — — 1,411,000
Other 27,716 (870) (188,429) 7,663
Total interest income (expense), net $ 27,716 $ 18,599,130 $ (2,290,993) $ 23,040,886

Net interest income for the three months ended September 30, ~~2022 and 2021~~2023 was ~~$27.7 thousand and $18.6~~$0.4 million ~~respectively. The decrease in net interest income was primarily due to a $20.6 million change in fair value of the 2024 Notes during the three months ended September 30, 2021,~~ as compared to ~~no changes in fair value during~~$27.7 thousand of interest expense for the three months ended September 30, 2022. ~~Additionally, contractual~~Net interest ~~expense~~income in the current period is driven by interest earned on ~~the 2024 Notes~~cash in our money market investment account.

Net interest income for the ~~three~~nine months ended September 30, ~~2021~~2023 was ~~$2.0~~$1.5 million as compared to ~~zero for the three months ended September 30, 2022.~~

~~Net~~$2.3 million interest expense for the nine months ended September 30, ~~2022 was $2.3 million as compared to $23.0 million of~~2022. Net interest income in the current period was driven by interest earned on cash in our money market investment account. Net interest expense in the prior year period was primarily related to fair value adjustments, contractual interest expense, and loss on conversion of our former convertible notes, which were exchanged for shares of our common stock during 2022.

Other income (loss)

Other (loss) for the three and nine months ended September 30, ~~2021. The change in net interest income (expense)~~2023 was primarily due to a $27.6 million change in fair value of our convertible notes during the nine months ended September 30, 2021, as compared to $0.4 changes in fair value during the nine months ended September 30, 2022. Additionally, contractual interest expense on the 2024 Notes for the nine months ended September 30, 2021 was $6.0$10.0 million as compared to ~~$0.3~~$13.4 million ~~for the nine months ended September 30, 2022. Further, we recognized a gain of $1.4 million on the forgiveness of our prior PPP Term Note during the nine months ended September 30, 2021.~~

The changes in net interest income (expense) described above are primarily due to the exchange of the remaining aggregate principal of 2024 Notes for shares of the Company's common stock during the second quarter of 2022. A description of the exchange is contained in Note 6, ~~Debt, of the Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q.~~

~~Other income (loss)~~

~~Other~~other income for the three and nine months ended September 30, ~~2022~~2022. Other (loss) in the current period represents the impairment of our investment in Tropos. Other income in the prior year period was ~~$13.4 million, which was recognized in connection with a~~represents proceeds from the sale of C-Series inventory ~~carried at a net realizable value of zero. A description of the sale is contained in Note 2,~~ ~~Inventory, in the Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q.~~that was previously fully reserved.

During the three and nine months ended September 30, 2021, we recognized a loss of $77.1 million and $225.4 million, respectively, attributable to unfavorable changes in fair value of our prior investment in Lordstown Motors Corp (“LMC”).

~~Benefit for income~~Income taxes

Benefit for income taxes during the three and nine months ended September 30, ~~2022~~2023 was zero. During the three and nine months ended September 30, 2021, we recognized a benefit for income taxes of $2.9 million and $21.8 million, respectively, attributable to an increase to the valuation allowance recorded against deferred tax assets due to the sale of our prior investment in LMC and the uncertainty about our ability to utilize our remaining deferred tax assets in future years.

Liquidity and Capital ~~Resources~~Resources; Going Concern

We ~~have financed our operations primarily through~~had $8.7 million of sales ~~of equity securities and issuance of debt. We have utilized this capital~~ for ~~R&D and to fund designing, building and delivering vehicles to customers and for working capital purposes.~~

the nine months ended September 30, 2023.As of September 30, ~~2022,~~2023, we had ~~approximately $120.1~~total working capital of $71.9 million, including $38.9 million in cash and cash equivalents, ~~compared~~and accumulated deficit of $706.3 million. During the nine months ended September 30, 2023, we incurred a loss from operations of $70.1 million and used $95.5 million of cash in operating activities.

Our ability to ~~approximately $201.6 million~~continue as a going concern is contingent upon successful execution of ~~December 31, 2021, resulting in a decrease of $81.5 million. The decrease was primarily attributable~~management’s intended plan over the next twelve months to ~~cash used in operations~~improve the Company’s liquidity and working capital requirements. We have made significant progress executing on our revised strategic product roadmap for our electric vehicle offerings, and we expect to generate additional sales revenue within the next twelve months which will help support our operations. Additionally, management plans to reduce its discretionary spend related to ~~compensation related costs, consulting and professional services,~~non-contracted capital expenditures and ~~inventory build.~~other expenses, if necessary. 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 our future capital needs will prove accurate, or that any additional funding would be sufficient to continue operations in future years. As a result of our losses, current liquidity level and our projected capital needs, substantial doubt exists about the Company’s ability to continue as a going concern over the next twelve months from the date of the accompanying unaudited Condensed Consolidated Financial Statements.

~~On March 10, 2022,~~

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

•our ability to produce our current generation of vehicles at required scale and to sell such vehicles to customers;

•our ability to acquire or license other technologies we ~~entered into an At-The-Market Sales Agreement,~~may seek to pursue;

•our ability to manage our growth and operational expenses; and

•competing technological and market developments.

To the extent revenues from operations are insufficient to meet our liquidity requirements, we primarily plan to rely upon a private or public placement of our equity securities, including the continued use of the ATM Program (as further described below), for which ~~established an at-the-market~~there can be no assurance we will be successful in such efforts. We may also rely on debt financing or other sources of capital funding such as through the sale of assets to obtain sufficient financial resources to fund our operating activities.If we are unable to maintain sufficient financial resources, our business, financial condition and results of operations, as well as our ability to continue to develop, produce and market our new vehicle programs and satisfy our obligations as they become due, will be materially and adversely affected. This could affect future vehicle program production and sales. Failure to obtain additional financing will have a material, adverse impact on our business operations. There can be no assurance that we will be able to obtain the financing needed to achieve our goals on acceptable terms or at all. Additionally, any equity ~~program (the “2022 ATM Program”).~~ or equity linked financings would likely have a dilutive effect on the holdings of our existing stockholders.

Under the ~~2022~~ ATM Program, we may offer and sell shares of our 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 nine months ended September 30, 2023, we issued 24.6 million and 63.3 million shares under the ATM Program for net proceeds of $12.5 million and $52.7 million, respectively. During the three and nine months ended September 30, 2022, we issued 0.1 million and 0.1 million shares, respectively, under the ~~2022~~ ATM Program for net proceeds of $0.2 million ~~leaving~~and $0.2 million, respectively. As of September 30, 2023 we have approximately $108.0 million available through the issuance of shares of common stock ~~having an aggregate offering price of up to $174.8 million available for issuance~~ under the ~~2022~~ ATM Program.

We believe our existing capital resources will be sufficient to support our current and projected funding requirements for the next twelve months, after which time additional funding may be required. However, if market conditions are appropriate, we may raise additional capital during the remainder of 2022, including utilization of our 2022 ATM Program.

~~Cash Requirements~~

From time to time in the ordinary course of business, we enter into agreements with vendors for the purchase of components and raw 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 generally do not have 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 accurately project.

~~We currently expect our capital expenditures to upgrade our facilities in Indiana, Ohio and Michigan to be between $15.0 and $20.0 million in 2022.~~

As of September 30, 2022, we have no convertible notes outstanding following the consummation of the Company's exchange of the remaining $27.5 million in aggregate principal of the 2024 Notes for shares of the Company's common stock during the second quarter of 2022. A description of the exchange is contained in Note 6, ~~Debt, of the Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q.~~

~~As of September 30, 2022, our total minimum future lease payments are $13.0 million. A description of our lease obligations is contained in Note 8,~~ ~~Leases, of the Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q.~~

~~Sources and Condition of Liquidity~~

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 2022 ATM Program, our stockholders could at that time experience substantial dilution. Any debt financing that we can obtain may include operating covenants that restrict our business.

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

•~~our ability to acquire or license other technologies 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 litigation or other legal proceedings.~~

For the three and nine months ended September 30, ~~2022,~~2023, we maintained an investment in a bank money market 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,					Nine Months Ended September 30,
		2022		2021			2023		2022
Net cash used in operating activities	Net cash used in operating activities	$	(65,979,348)	$	(110,047,537)	Net cash used in operating activities	$	(95,546,635)	$	(65,979,348)
Net cash used in investing activities	Net cash used in investing activities	$	(14,708,699)	$	(3,803,807)	Net cash used in investing activities	$	(16,527,317)	$	(14,708,699)
Net cash used in financing activities		$	(841,485)	$	103,043,701
Net cash provided by (used in) financing activities						Net cash provided by (used in) financing activities	$	51,662,716	$	(841,485)

Cash Flows from Operating Activities

Our cash flows ~~from~~used in operating activities are affected by our cash investments to support the business in 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 nine months ended September 30, ~~2022~~2023 and ~~2021,~~2022, net cash used in operating activities was ~~$66.0~~$95.5 million and ~~$110.0~~$66.0 million, respectively. The ~~decrease~~increase in net cash used in operations was primarily attributable to ~~a decrease~~an increase in spend related to ~~the~~ initial inventory builds as we continue to ramp up our production of the ~~C-Series~~W4 CC, W750 and W56 vehicle ~~platform.~~programs.

Cash Flows from Investing Activities

Cash flows ~~from~~used in investing activities and their variability across each period related primarily to capital expenditures to upgrade our administrative, research, and production facilities, which were $16.5 million for the nine months ended September 30, 2023 and $9.7 million for the nine months ended September 30, ~~2022 and $3.8 million~~2022. The cash flows used in investing activities for the nine months ended September 30, ~~2021. The increase in cash used was~~2022 also ~~attributable to~~included a $5.0 million cash payment made in connection with our investment in

Tropos, which is described in Note 3, Contract Manufacturing Services and Investment in Tropos, of the Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q.

Cash Flows from Financing Activities

Net cash provided by financing activities during the nine months ended September 30, 2023 was $51.7 million, which was primarily attributable to the issuance of common stock under our ATM Program.

Net cash used in financing activities during the nine months ended September 30, 2022 was $0.8 million, which consisted primarily of payments on financing leases and tax payments related to shares withheld for option exercises and vesting of restricted share awards.

Net cash provided by financing activities during the nine months ended September 30, 2021 was $103.0 million, which consisted primarily of $105.1 million net proceeds from the sale of our prior investment in LMC.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our 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 Estimates

~~A discussion of our~~There have been no material changes to the critical accounting estimates is contained in our Annual Report on Form 10-K for the year ended December 31, ~~2021,~~2022, under the caption “Management’s Discussion and Analysis of Financial Condition and 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 unaudited Condensed Consolidated Financial Statements.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

For a discussion of our quantitative 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 year ended December 31, ~~2021,~~2022, under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” There have been no material changes to the information provided in our Annual Report on Form 10-K for the year ended December 31, ~~2021.~~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”), we evaluated, with the participation of management, including our Chief Executive Officer and Chief Financial Officer, the effectiveness of our 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.

Our management, with the participation of our Principal Executive Officer and Principal Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, our Principal Executive Officer and Principal Financial Officer have concluded that, as of the end of the period covered by this 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 three months ended September 30, ~~2022~~2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

For a description of certain material legal proceedings, please see Note ~~15,~~13, Commitments and Contingencies, to the ~~consolidated financial statements~~unaudited 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, ~~2021.~~2022. Except as set forth below, there have been no material changes in the current period regarding our risk factors.

~~Uncertain global macro-economic and political conditions could materially adversely affect our results~~Substantial doubt exists regarding the Company’s ability to continue as a going concern through the twelve months following the date of ~~operations and~~the issuance of the financial ~~condition.~~statements accompanying this Form 10-Q.

~~Our results~~We have incurred net losses of $117.2 million and $401.3 million for the fiscal years ended December 31, 2022 and December 31, 2021, respectively, and net losses of $30.6 million and $78.7 million for the three and nine month periods ended September 30, 2023, respectively. As a result of our recurring losses from operations, ~~are materially affected by economic~~accumulated deficit, projected working capital needs and ~~political conditions~~delays in bringing our vehicles to market, and, accordingly, lower than expected revenue from such vehicles sales, substantial doubt exists as to the ~~United States and internationally,~~

~~including inflation, deflation, interest rates, recession, availability of capital, energy and commodity prices, trade laws and the~~

~~effects of governmental initiatives to manage economic conditions. Current or potential customers may delay or decrease~~

~~spending on our products and services as their business and/or budgets are impacted by economic conditions. The inability of~~

~~current and potential customers to pay us for our products and services may adversely affect our earnings and cash flows. In~~

~~addition, deterioration of conditions in worldwide credit markets could limit our~~Company’s ability to ~~obtain financing~~continue as a going concern over the twelve months from the date of the issuance of the unaudited financial statements accompanying this Form 10-Q. To the extent we are unable to ~~fund~~satisfy these capital needs, we will need to significantly modify or terminate our operations and ~~capital expenditures.~~our planned business activities.

~~The current invasion~~We are currently out of ~~Ukraine by Russia has escalated tensions among~~compliance with the ~~United States, the North Atlantic Treaty Organization (“NATO”)~~Nasdaq’s continuing listing requirements and Russia. The United States and other NATO member states, as well as non-member states, have announced new sanctions against Russia and certain Russian banks, enterprises and individuals. These and any future additional sanctions and any resulting conflict between Russia, the United States and NATO countries could have an adverse impact onif we fail to satisfy all such applicable Nasdaq continued listing requirements, our ~~current operations.~~

~~Further, such invasion, ongoing military conflict, resulting sanctions and related countermeasures by NATO states, the United~~

States and other countries are likely to lead to market disruptions, including significant volatility in commodity prices, credit and capital markets, as well as supply chain interruptions for equipment,common stock may be delisted from Nasdaq, which could have an adverse impact on the liquidity and market price of our ~~operations and financial performance.~~common stock.

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

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

We believe the availability of government subsidies and incentives, including the California Hybrid and Zero-Emission Truck and Bus Voucher Incentive Project (“HVIP”), is an important factor considered by our customers when purchasing our vehicles. Our growth depends in part on the availability and amounts of these subsidies and incentives. Many of our current and prospective customers are seeking to leverage HVIP due to its ease of access and amount of funding available per vehicle. In addition, some of our purchase orders have contingencies related to HVIP funding. If our vehicles, 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.

In addition, these factors could heighten many of our known risks described in Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022.

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

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

~~None.~~Insider Trading Arrangements

During the three and nine months ended September 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.

2723

ITEM 6. EXHIBITS


Exhibit No.						Description
3.1						Certificate of Amendment to the Company’s Articles of Incorporation (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission September 6, 2023)
3.2						Second Amended and Restated Bylaws (incorporated by reference to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission July 12, 2023)
10.1						Floorplan and Security Agreement, dated as of August 10, 2023, by and between Workhorse Technologies Inc. and Mi t s ubishi HC Capital America, Inc. (incorporated b y reference to the Company's Q uarterly Report on Form 10-Q filed with the Securities and Exchange Commission August 14, 202 3
31.1*						Certification 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 ~~2002.~~2002
31.2*						Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of ~~2002.~~2002
32.1*						Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*						Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS						Inline XBRL INSTANCE DOCUMENT
101.SCH						Inline XBRL Taxonomy Extension Schema Document
101.CAL						Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF						Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB						Inline XBRL Taxonomy Extension Labels Linkbase Document
101.PRE						Inline XBRL Taxonomy Extension Presentation Linkbase Document
104						Inline XBRL Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

*Filed herewith.

~~+ Indicates a management contract or compensatory arrangement.~~

2824

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	WORKHORSE GROUP INC.

Dated: November ~~8, 2022~~14, 2023	By:	/s/ Richard Dauch
		Name: Richard Dauch Title: Chief Executive Officer (Principal Executive Officer)


Dated: November ~~8, 2022~~14, 2023	By:	/s/ Robert M. Ginnan
		Name: Robert M. Ginnan Title: Chief Financial Officer (Principal Financial Officer)


~~Dated: November 8, 2022~~	~~By:~~	~~/s/ Gregory T. Ackerson~~
		Name: Gregory T. Ackerson Title: Chief Accounting Officer (Principal Accounting Officer)

2925


	September 30, 2022		December 31, 2021
Accrued commissions	$	750,000	$	4,000,000
Compensation and related costs	4,367,022		4,030,085
Accrued interest	—		232,222
Legal reserve (Note 15)	35,000,000		—
Sales returns and allowances	—		2,410,000
Other	4,708,947		4,080,520
Total accrued and other current liabilities	$	44,825,969	$	14,752,827


	September 30, 2022								December 31, 2021
	Fair Value		Level 1		Level 2		Level 3		Fair Value		Level 1		Level 2		Level 3
Liabilities
Convertible notes	$	—	$	—	$	—	$	—	$	24,705,000	$	—	$	—	$	24,705,000
Total liabilities at fair value	$	—	$	—	$	—	$	—	$	24,705,000	$	—	$	—	$	24,705,000