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What changed in Workhorse Group Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Workhorse Group Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+382 added−266 removedSource: 10-K (2024-03-12) vs 10-K (2023-03-01)

Top changes in Workhorse Group Inc.'s 2023 10-K

382 paragraphs added · 266 removed · 145 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

36 edited+52 added−35 removed19 unchanged
Biggest changeThe Human Capital Management and Compensation Committee maintains responsibility to review, discuss and set strategic direction for various people-related business strategies, including compensation and benefit programs. Our collective recommendations to the Board of Directors and its committees are how we proactively manage our human capital and care for our employees in a manner that aligns with our core values.
Biggest changeWe do not expect to incur material costs in connection with the RIF. Governance. Our Board of Directors and its committees provide important oversight on certain human capital matters. The Human Resource Management and Compensation Committee maintains responsibility to review, discuss and set strategic direction for various people-related business strategies, including compensation and benefit programs.
Locations and Facilities Our company headquarters, research and development facilities are located in the Greater Cincinnati area in Ohio. We manufacture and test our electric delivery trucks at our manufacturing facility located in Union City, Indiana.
Locations and Facilities Our company headquarters and research and development facilities are located in the Greater Cincinnati area in Ohio. We manufacture and test our electric delivery trucks at our manufacturing facility located in Union City, Indiana.
The CoC is required for vehicles sold in states covered by the Clean Air Act’s standards and the Executive Order is required for vehicles sold in states that have sought and received a waiver from the EPA to utilize California standards.
The CoC is required for vehicles sold in states covered by the Clean Air Act’s standards and the California Executive Order is required for vehicles sold in states that have sought and received a waiver from the EPA to utilize California standards.
We focus on creating opportunities for employee growth, development, training, and education, including opportunities to cultivate talent and identify candidates for new roles from within the Company and management and leadership development programs. 7
We focus on creating opportunities for employee growth, development, training, and education, including opportunities to cultivate talent and identify candidates for new roles from within the Company and management and leadership development programs.
We believe our all-electric commercial vehicles offer fleet operators significant benefits, which include: • Lower total cost-of-ownership as compared to conventional gas/diesel vehicles; • Improved profitability through lower maintenance costs and reduced fuel expenses; • Increased package deliveries per day through use of more efficient delivery methods; • Decreased vehicle emissions and reduced carbon footprint; and • Improved vehicle safety and driver experience.
We believe our all-electric commercial vehicles offer fleet operators significant benefits, which include: • Lower total cost-of-ownership as compared to conventional gas/diesel vehicles; • Improved profitability through lower maintenance costs and reduced fuel expenses; • Increased package deliveries per day through use of more efficient delivery methods; • Decreased vehicle emissions and reduced carbon footprint; and • Improved vehicle safety and operator experience.
We are focused on our core competency of bringing our electric delivery vehicle platforms to serve the last mile delivery market. Commercial Vehicles We are an American-based Original Equipment Manufacturer (“OEM”), and our products are marketed under the Workhorse® brand. All Workhorse last-mile delivery trucks are assembled in our Union City, Indiana production facility.
We are focused on our core competency of bringing our electric delivery vehicle platforms to serve the last mile delivery market. We are an American-based Original Equipment Manufacturer (“OEM”), and our products are marketed under the Workhorse® brand. All Workhorse last-mile delivery trucks are assembled in our Union City, Indiana production facility.
ITEM 1. BUSINESS 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.
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.
The EPA and NHTSA rule also establishes multiple flexibility and incentive programs for manufacturers of alternatively fueled vehicles, such as the Workhorse vehicles, including an engine Averaging, Banking and Trading (“ABT”) program, a vehicle ABT program and additional credit programs for early adoption of standards or deployment of advanced or innovative technologies.
The EPA and NHTSA rule also establishes multiple incentive programs for manufacturers of alternatively fueled vehicles, such as the Workhorse vehicles. Programs include an engine Averaging, Banking and Trading (“ABT”) program, a vehicle ABT program and additional credit programs for early adoption of standards or deployment of advanced or innovative technologies.
As we continue to execute on our new vehicle platforms, we will continue to identify supplier relationship and vehicle platform synergies which may allow us to take advantage of pricing efficiencies from economies of scale.
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 key parts, and we work to qualify multiple supply sources to allow us to take advantage of pricing efficiencies and minimize potential production risks related to supply chain. Regulatory Our electric vehicles are designed to comply with required government regulations and industry standards.
Where available, we will utilize multiple supply sources for key parts, and we will work to qualify multiple supply sources to achieve pricing efficiencies and minimize potential production risks related to supply chain. Regulatory Our electric vehicles are designed to comply with required government regulations and industry standards.
A manufacturer is obligated to recall vehicles if it determines the vehicles do not comply with a safety standard. Should we or NHTSA determine either a safety defect or noncompliance exists with respect to any of our vehicles, the cost of such recall campaigns could be substantial.
A manufacturer is obligated to recall vehicles if it determines the vehicles do not comply with a safety standard. Should we or NHTSA determine either a safety defect or noncompliance exists with respect to any of our vehicles, the cost of such recall campaigns could be substantial. In the United States, the FAA regulates our aerospace vehicles.
The California standards for emissions control for certain regulated pollutants for new vehicles and engines sold in California are set by CARB. States that have adopted the California standards as approved by EPA also recognize the Executive Order for sales of vehicles. Workhorse received Executive Order A-445-0003 for MY2020 vehicles and Executive Order A-445-0004 for MY2021 vehicles.
The California standards for emissions control for certain regulated pollutants for new vehicles and engines sold in California are set by CARB. States that have adopted the California standards as approved by EPA also recognize the Executive Order for sales of vehicles.
Our website is located at www.workhorse.com, and our reports, amendments thereto, proxy statements and other information are also made available on our investor relations website, free of charge, at ir.workhorse.com as soon as reasonably practicable after we electronically file or furnish such information with the SEC. 5 Intellectual Property Our success depends in part upon our ability to protect our core technology and intellectual property.
Our website is located at www.workhorse.com, and our reports, amendments thereto, proxy statements and other information are also made available on our investor relations website, free of charge, at ir.workhorse.com as soon as reasonably practicable after we electronically file or furnish such information with the SEC.
We understand that our innovation leadership is ultimately rooted in people. Competition for qualified personnel in our space is intense, and our success depends in large part on our ability to recruit, develop and retain a productive and engaged workforce.
Competition for qualified personnel in our space is intense, and our success depends in large part on our ability to recruit, develop and retain a productive and engaged workforce.
We are currently focused on adding the ability to integrate Metron Telematics with the internal telematics and data management systems of our clients, as well as expanding our ability to present and analyze data within a proprietary Workhorse interface.
We continue to work on integration of our telematics data with the internal telematics and data management systems of our clients, as well as expanding our ability to present and analyze data within a proprietary Workhorse interface.
Under the agreement, we have exclusive rights to sell Class 4 step vans based on the GreenPower supplied base vehicle. Our Class 4 vehicles are a zero-emission chassis designed to be sold in either a cab chassis version (“W4 CC”) or a step van version (“W750”) made to haul various cargo and take on both mid and last-mile routes.
Our Class 4 vehicles are a zero-emission chassis designed to be sold in either a cab chassis version (“W4 CC”) or a step van version (“W750”) made to haul various cargo and take on both mid and last-mile routes.
We support the overall well-being of our employees from a physical, emotional, financial, and social perspective. Our well-being program includes a long-standing practice of flexible paid time off, life planning benefits, wellness platforms and employee assistance programs. 6 Offer Competitive Compensation and Benefits .
Our well-being program includes a long-standing practice of flexible paid time off, life planning benefits, wellness platforms and employee assistance programs. Offer Competitive Compensation and Benefits .
Our market research and direct customer engagements have helped us provide value to some of the largest and most efficient last mile delivery companies in North America, through deployment of our E-Series, which was produced until 2018.
Our ability to compete relies upon the ability to field high-quality, reliable, and cost-competitive vehicles that deliver lower total-cost-of-ownership benefits to customers. Our market research and direct customer engagements have helped us provide value to some of the largest and most efficient last mile delivery companies in North America, through deployment of our E-Series, which was produced until 2018.
Environmental Protection Agency (“EPA”) and the National Highway Traffic Safety Administration (“NHTSA”) issued a final rule for greenhouse gas emissions and fuel economy requirements for trucks and heavy-duty engines on August 9, 2011, which is applicable for model years 2018 through 2020.
Environmental Protection Agency (“EPA”) and the National Highway Traffic Safety Administration (“NHTSA”) issued final rules for greenhouse gas emissions and fuel economy requirements for trucks and heavy-duty engines which increased the stringency of the standards for model years 2021 through 2027.
Stables & Stalls provides the Company with firsthand experiences of the challenges and benefits independent fleet operators experience while executing last-mile delivery operations and making the transition to electric vehicles.
Stables by Workhorse provides us with firsthand experiences of the challenges and benefits independent fleet operators experience while executing last-mile delivery operations and making the transition to electric vehicles. During 2023 we began the electrification of the Stables fleet, which provides us 2 further experience and data on the benefits and challenges of independent fleet operators experience.
In the United States, the Federal Aviation Administration (“FAA”) substantially regulates our aerospace vehicles. Those regulations govern two important areas: operating rules and aircraft certification rules. The FAA’s operating rules govern all operations of all aerial vehicles in the National Airspace System of the United States.
Those regulations govern two important areas: operating rules and aircraft certification rules. The FAA’s operating rules govern all operations of all aerial vehicles in the National Airspace System of the United States. The FAA’s certification rules help define the safety and reliability requirements of certain aircraft and systems.
The W4 CC became available for sale in 2022 while we expect the W750 will be available for sale in the United States and Canada in 2023. Both are sold under the Workhorse brand and with Workhorse after sales and support service.
The W750 was launched into production and sale in 2023, in addition to the W4 CC, which became available for sale in 2022. Both are sold under the Workhorse brand and with Workhorse after sales and support service.
We have an employee hotline, providing our employees an opportunity to report matters such as safety concerns, fraud or other misconduct. All reported matters are reviewed in accordance with established protocols by our Legal, Human Resources and Internal Audit departments, who monitor the remediation and disposition of any reported matters. Support Employee Well-being and Engagement .
All reported matters are reviewed in accordance with established protocols by our Legal, Human Resources and Internal Audit departments, who monitor the remediation and disposition of any reported matters. Support Employee Well-being and Engagement . We support the overall well-being of our employees from a physical, emotional, financial, and social perspective.
We continue to evolve a governance framework that exercises appropriate oversight of responsibilities at all levels throughout the company. During 2022, we established our first ESG Committee, made up of leaders from across our company, and they began regular presentations on our related initiatives to our Board of Directors, which guides our ESG impacts, initiatives and priorities.
We continue to evolve a governance framework that exercises appropriate oversight of responsibilities at all levels throughout the company. During 2023, the ESG Committee, made up of leaders from across our company, oversaw workforce training to advance the Company's ESG priorities.
The W56, based on long-standing Company know-how in the Class 5 and 6 truck chassis market, is a fully capable medium duty chassis, designed for last-mile delivery and high payload applications and is expected to begin production in 2023.
The W56, based on long-standing Company know-how in the Class 5/6 truck chassis market, is a robust medium-duty chassis, designed for last-mile delivery and high payload work-truck applications. Initially the W56 is delivered in either a stripped chassis or complete step van configuration. We intend to introduce a longer-wheelbase and cab-chassis version of the W56.
Our research and development activity over the past year has focused on the development of the W56 and the WNext platforms. Metron We continue to develop and maintain our Metron remote data management system that tracks the performance of all the vehicles we deploy, providing a service management system and the communication channel between our customers and partners.
We continue to develop and maintain our remote data telematics system that tracks the performance of all the vehicles we deploy, providing vehicle operational and service data to our customers and partners.
The additional credit programs will allow manufacturers of engines and vehicles to be eligible to generate credits if they demonstrate improvements more than the standards established in the rule prior to the model year the standards become effective or if they introduce advanced or innovative technology engines or vehicles. 4 The Clean Air Act requires that we obtain a Certificate of Conformity (“CoC”) issued by the EPA and a California Executive Order issued by the California Air Resource Board (“CARB”) requires we obtain a CoC with respect to emissions and mileage requirements for our vehicles.
The additional credit programs will allow manufacturers of engines and vehicles to be eligible to generate credits if they demonstrate improvements more than the standards established in the rule prior to the model year the standards become effective or if they introduce advanced or innovative technology engines or vehicles. 4 On April 12, 2023, the EPA announced a proposal for more stringent standards to reduce greenhouse gas emissions from heavy-duty (“HD”) vehicles beginning in model year (“MY”) 2027.
Accordingly, investing in our employees and their well-being, offering competitive compensation and benefits, promoting diversity and inclusion, adopting progressive human capital management practices and community outreach constitute core elements of our corporate strategy. Governance. Our Board of Directors and its committees provide important oversight on certain human capital matters.
Accordingly, investing in our employees and their well-being, offering competitive compensation and benefits, promoting diversity and inclusion, adopting progressive human capital management practices and community outreach constitute core elements of our corporate strategy. We are in the process of completing a reduction in force (the “RIF”) pursuant to which we terminated approximately 20% of our total workforce, excluding direct labor.
We believe Workhorse vehicles would be considered “vocational vehicles” and “heavy-duty pickup trucks and vans” under the rules.
The rules provide emission standards for CO2 and fuel consumption standards for three main categories of vehicles: (i) combination tractors; (ii) heavy-duty pickup trucks and vans; and (iii) vocational vehicles. We believe Workhorse vehicles would be considered “vocational vehicles” and “heavy-duty pickup trucks and vans” under the rules.
In addition, we have successfully demonstrated the drone’s enhanced functionality working with local, state and federal government agencies to validate other, new cases. For example, in January 2022 we received a grant from the US Department of Agriculture in support of enhanced mapping and data analysis of farmland in underserved communities in the States of Mississippi and Arkansas.
We have successfully demonstrated our DaaS enhanced functionality working with local, state and federal government agencies to validate other, new cases, including supporting the US Department of Agriculture's National Resource Conservation Service (“NRCS”) where we provided enhanced geographical mapping and data analysis for the LiDar missions.
Human Capital As of December 31, 2022, our full-time headcount for our employees was 331. None of our U.S. employees are represented by a labor organization or are party to any collective bargaining arrangement. We have never experienced a strike or similar work stoppage, and we consider our relations with our employees to be good.
The Committee provides regular presentations on ESG related initiatives to our Board of Directors, which guides our ESG impacts, initiatives and priorities. Human Capital As of December 31, 2023, we had 298 full-time employees. None of our U.S. employees are represented by a labor organization or are party to any collective bargaining arrangement.
The other is a product designed and developed for use in more austere operating environments for humanitarian assistance and logistical operations ("HALO"). All Workhorse drone systems are designed and built in our Mason, Ohio facility.
All Workhorse drone systems are designed and built in our Mason, Ohio facility.
In 2022 we began development of Metron 2.0, a brand new software architecture that will be the base for Workhorse telematics and a suite of business applications such as fleet management and service and repair, which is expected to launch in 2023. Workhorse also has a patented flight control system.
In 2023 we continued the development of a 2.0 level release of our prior offering, with a new software and data management architecture that is the base for Workhorse telematics and a future suite of business applications such as fleet management and service and repair. 3 Competition We believe that our last-mile delivery EVs compete in both the internal combustion delivery vehicle space and delivery EV space.
The WNext platform will be our second generation, low floor, advanced content offering for the truck chassis market and is expected to begin production in 2025. In order to accelerate time-to-market for customers seeking delivery of electric vehicles during 2022, we entered into a strategic supply agreement (the “Supply Agreement”) with GreenPower Motor Company Inc. (“GreenPower”).
Our product roadmap also includes the WNext, which we will be our second generation, low floor, advanced content offering for the truck chassis market, expanding our vehicle foundation and is expected to begin production in late 2025 or 2026.
Our management team administers all employment matters, such as recruiting and hiring, onboarding and training, compensation and rewards, performance management and professional development. We continuously evaluate and enhance our internal policies, process and practices to increase employee engagement and productivity.
We continuously evaluate and enhance our internal policies, process and practices to increase employee engagement and productivity. 6 We have an employee hotline, providing our employees an opportunity to report matters such as safety concerns, fraud or other misconduct.
This opportunity also provides the Company unique and valuable research and data into how our customers access reliable vehicles, plan for and manage adequate charging infrastructure, as well as training and maintenance services which is critical for small fleet operators that choose to make the electric vehicle ("EV") transition.
The entire fleet is expected to be electrified in 2024. The initiative is designed to provide valuable insights into how our customers can plan for and manage the transition to Electric Vehicle (“EV”) operations, including how to develop adequate charging infrastructure, training and maintenance services and the associated total cost of EV transition and ownership.
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Electric Delivery Truck Platforms Product Roadmap Workhorse has made significant progress executing on its revised strategic product roadmap for our electric vehicle delivery offerings. The foundation of this plan is the development of two new truck chassis platforms, the W56 and what we call the WNext .
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ITEM 1. BUSINESS Recent Developments Going Concern; Possible Financing As discussed more fully under Risk Factors and Liquidity and Capital Resources; Going Concern , below, our ability to continue as a going concern is contingent upon successful execution of management’s intended plan over the next twelve months to improve the Company’s liquidity and working capital requirements.
Removed
C-Series Electric Delivery Truck We announced the development of the C-Series electric delivery truck in 2017, a vehicle aimed at the Class 3 truck market which leveraged an ultra-low floor delivery vehicle platform. We utilized our extensive customer experience gained from working with our E-Series customers to design this product.
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A vital component of such plan is the consummation of a financing in the immediate future to address these requirements in the short term. Accordingly, the Company is in the process of negotiating with potential financing sources for a financing transaction that would make liquidity available both in the short term and over time (a “Possible Financing”).
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During 2022, after thorough engineering review, durability testing and careful consideration, the Company determined the increasing time, cost and resources being devoted to the C1000 were better allocated to the development and production of its other vehicles and products.
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The Company intends to consummate a Possible Financing in the near future.
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In December 2022, the Company announced that it was discontinuing the C1000 program and we are now transitioning our manufacturing focus from the C1000 to the Class 4 - 6 vehicles, W4 CC, W750, W56 and WNext platforms.
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Although the terms of a Possible Financing remain under negotiation, the Company currently expects that any such financing would have a cost of capital materially higher than the cost of capital of its existing financing arrangements and a substantial potentially dilutive equity component, whether through a conversion feature, significant warrant coverage or both.
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E-Series Electric Delivery Vans Workhorse E-100 battery-electric and E-GEN range-extended delivery vans are used by our customers on daily routes across the United States. We have built and delivered approximately 360 electric and range-extended medium-duty delivery trucks, 1 many of which remain in active service, to our customers with a combined mileage total of more than 9 million miles.
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A Possible Financing may also contain terms that limit the Company’s ability to sell common stock under its ATM Agreement and ELOC Agreement and to incur new debt. There is no assurance that any Possible Financing will be available on any terms.
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Our customers include companies such as FedEx Ground and United Parcel Service. Stables & Stalls In 2022, Workhorse purchased ESG Logistics Corp., a provider of package pickup and delivery services, and began operating a series of FedEx Ground delivery routes in the greater Cincinnati area under an initiative known as Stables & Stalls.
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If we are not able to complete a Possible Financing or find another source of liquidity in the immediate future, we may be unable to continue our operations or may need to substantially reduce them.
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Aero HorseFly™ As part of our growing technology portfolio, the Company has been developing small Unmanned Aerial Systems (“UAS”) for several years. We have 2 product lines in the UAS space. One is a package delivery drone known as Horsefly.
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Additional Cost Reduction Measures Another vital component of management’s intended plan over the next twelve months to improve our liquidity and working capital requirements is reducing our operating costs to, among other things, reduce demands on the liquidity that is available to us.
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Our HorseFly UAS includes a custom-designed, purpose-built, all-electric Unmanned Aerial Vehicle (“UAV”), a proprietary Ground Control Station (“GCS”), and equipment that supports integrating the UAS with our delivery trucks and other applications. The HorseFly UAV is an airborne work truck, that can carry a significant payload for 10 miles.
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Accordingly, in the first quarter of 2024 we took the measures described below. • We are in the process of completing a reduction in force (the “RIF”) pursuant to which we terminated approximately 20% of our total workforce, excluding direct labor.
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Our rugged components are designed to support the high volumes, long duty days and ease of maintenance demanded by the commercial package delivery industry. In 2020, Workhorse began the Federal Aviation Administration’s (“FAA”) Type Certification (“TC”) process for our Horsefly UAS.
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We do not expect to incur material costs in connection with the RIF. • Each of our executive officers agreed to defer payment of approximately 20% of their cash compensation into the second quarter of 2024. • As described more fully below, we decided to fully transition our Aero business from a design and manufacturing drone business to Drones as a Service business.
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Compliance with FAA regulations governing TC helps set a very high bar for system performance and we believe it is important to have a TC system in our product offerings. We believe safety, reliability and capability are the primary points of value in a commercial UAS. Presently, the FAA allows some exceptions for commercial operations to use non-certificated drone systems.
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This transition has resulted in, among other things, our stopping production and development of both drone product lines and the termination of employees who performed the related work.
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As the industry matures, we expect the FAA will require certificated aircraft in most commercial operations. We have developed subsystems and many discrete functions to improve the safety, reliability and performance of our systems. One subsystem is a proprietary winch that can lower and raise significant payloads from safe altitudes.
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These measures are in addition to cost-reduction measures that we have implemented in prior periods, including those described in Note 16, Subsequent Events , to the consolidated financial statements included in this Annual Report on Form 10-K.
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Another is a truck integration system that allows continuous operations from a truck in the field. Our Ground Control Software software allows remote pilots in command to control more than one aircraft simultaneously.
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Management plans to continue to seek additional opportunities to reduce costs and, in particular, cash expenditures, in a manner intended to minimize their adverse impact on our core operations.
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Workhorse was granted a patent on our UAS, and though initially designed as a complimentary system delivering packages from our electric trucks, the latest iteration of our UAS supports package delivery point-to-point, enabling deliveries to and from anywhere, allowing it to serve a broader customer base.
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There can be no assurance that the measures described above, or any other cost-cutting measures we may implement in the future will be sufficient to address our immediate or longer-term liquidity and working capital needs. Moreover, it is possible that such measures will have an adverse effect on our operations.
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In tests and demonstrations, Workhorse has flown thousands of missions in the National Airspace System, demonstrating package deliveries for large multi-national companies in Ohio, Michigan, Florida and California. Our aircraft has proven to be safe, reliable, and capable.
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NASDAQ Listing Requirements; Proposed Reverse Stock Split As previously disclosed, o n September 22, 2023, we received notice from Nasdaq indicating that the closing bid price for our common stock had fallen below the $1.00 minimum bid price for continued listing for 30 consecutive trading days and was no longer in compliance with the minimum bid requirement.
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During 2022, we opened an engineering and technical design center in Wixom, Michigan as well as an engineering, technical design and production facility for our drone systems in Mason, Ohio. 2 Marketing There are over 350,000 last-mile delivery trucks replaced annually and the last mile delivery industry is the fastest growing vehicle industry in an approximately $22.0 billion industry space.
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In order for the Company to regain compliance, the closing bid price of our common stock must be equal to or above the $1.00 minimum bid price for a period of 10 consecutive trading days prior 1 to March 20, 2024.
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Our sales team is focused on building our market share in this space by targeting commercial transportation companies and developing a dealer network. We have established the commercial delivery vehicles as our core business and strive to be the best choice for a vehicle in this industry.
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Based on recent trading prices of our common stock, we believe that it is highly unlikely that we will be able to meet this requirement by that date. Accordingly, we intend to regain compliance by effecting a reverse split of our common stock (the “Reverse Split”) following the 2024 Annual General Meeting of our stockholders.
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Our sales plan is to meet with the top potential customers and obtain purchase orders for new electric vehicles to be manufactured in our production facility.
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We will be able to effect the Reverse Split only if our stockholders vote to approve it. It is possible that our stockholders will not approve the Reverse Split, and we may not be able to regain compliance with the NASDAQ continuing listing requirements if we do not effect the Reverse Split.
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Strategic Relationships GreenPower Motor Company Inc.: On February 28, 2022, Workhorse entered into a strategic vehicle purchase and supply agreement with GreenPower Motor Company, Inc. to purchase base vehicles in the Class 4, medium-duty vehicle class. Under the agreement, GreenPower provides Workhorse with base vehicles for completion at our Union City, Indiana manufacturing facility.
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The Reverse Split also presents certain other risks to the Company and its stockholders, including the risk of a decline in the aggregate market value of our outstanding common stock. Please see Item 1A.
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Workhorse began accepting deliveries of the base vehicles in July of 2022 and began executing on the exclusive rights to sell the vehicles under the Workhorse brand and with Workhorse after sales and support service in the United States and Canada. Tropos Technologies, Inc.
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Risk Factors, “ We are currently out of compliance with the Nasdaq’s continuing listing requirements and if we fail to satisfy all such applicable Nasdaq continued listing requirements, our common stock may be delisted from Nasdaq, which could have an adverse impact on the liquidity and market price of our common stock, and our plan to regain compliance with these requirements may have an adverse effect on the Company and its stockholders' for more information.
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("Tropos"): O n August 8, 2022, the Company entered into an Assembly Services Agreement (the “Assembly Agreement”) with Tropos. The Assembly Agreement provides for assembly services at its Union City, Indiana manufacturing facility to assemble an 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.
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Commercial Vehicles We currently manufacture Class 4 and 5/6 commercial delivery vehicles. During 2023, we launched the W56, a new truck chassis platform, which is the foundation of our revised strategic product roadmap.
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Workhorse began accepting deliveries of the vehicle kits to be assembled in December of 2022. Mitsubishi HC Capital Inc ("Mitsubishi"): Mitsubishi (formerly Hitachi Capital America) continues to be our primary financing partner to market and distribute our electric vehicles through an existing and well-established commercial vehicle dealer network throughout North America.
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To accelerate time-to-market for customers seeking delivery of electric vehicles during 2023, we produced and sold Class 4 vehicles using a supplied base vehicle.
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Mitsubishi enables Workhorse to have our vehicles sold and financed from the moment they roll off the production line, into a shared pool of vehicles, where they become visible and available to every Mitsubishi connected dealer. The dealer can configure additional equipment, schedule upfit integration and delivery in a seamless manner.
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We generally sell our vehicles through our Certified Dealer Program, which is our official network of verified dealers trained to safely maintain and repair the electric components of our vehicles to support our customers.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

60 edited+51 added−17 removed86 unchanged
Biggest changeThe equity trading markets may experience periods of volatility, which could result in highly variable and unpredictable pricing of equity securities. The market price of our common stock could change in ways that may or may not be related to our business, our industry or our operating performance and financial condition.
Biggest changeThe market price of our common stock could change in ways that may or may not be related to our business, our industry or our operating performance and financial condition. In addition, the trading volume in our common stock may fluctuate and cause significant price variations to occur. We have experienced significant volatility in the price of our stock.
We have relatively limited experience to date in manufacturing electric vehicles at high volumes. To be successful, we will need to implement, maintain, and ramp-up efficient and cost-effective manufacturing capabilities, processes and supply chains and achieve the design tolerances, high quality and output rates planned at our Union City manufacturing facility.
We have relatively limited experience to date in manufacturing electric vehicles at high volumes. To be successful, we will need to implement, maintain, and ramp-up efficient and cost-effective manufacturing capabilities, processes and supply chains and achieve the design tolerances, high quality and output rates planned at our Union City, IN manufacturing facility.
We believe these factors include: • the difference in the initial purchase prices of commercial electric vehicles and vehicles with comparable gross vehicle weight powered by internal combustion engines, both including and excluding the impact of government and other subsidies and incentives designed to promote the purchase of electric vehicles; • the total cost of ownership of the vehicle over its expected life, which includes the initial purchase price and ongoing operating and maintenance costs; • the availability and terms of financing options for purchases of vehicles and, for commercial electric vehicles, financing options for battery systems; • the availability of tax and other governmental incentives to purchase and operate electric vehicles and future regulations requiring increased use of nonpolluting vehicles; • government regulations and economic incentives promoting fuel efficiency and alternate forms of energy; • fuel prices, including volatility in the cost of diesel; • the cost and availability of other alternatives to diesel fueled vehicles, such as vehicles powered by natural gas; • corporate sustainability initiatives; • commercial electric vehicle quality, performance and safety (particularly with respect to lithium-ion battery packs); • the quality and availability of service for the vehicle, including the availability of replacement parts; • the range over which commercial electric vehicles may be driven on a single battery charge; • access to charging stations and related infrastructure costs, and standardization of electric vehicle charging systems; • electric grid capacity and reliability; and • macroeconomic factors.
We believe these factors include: 12 • the difference in the initial purchase prices of commercial electric vehicles and vehicles with comparable gross vehicle weight powered by internal combustion engines, both including and excluding the impact of government and other subsidies and incentives designed to promote the purchase of electric vehicles; • the total cost of ownership of the vehicle over its expected life, which includes the initial purchase price and ongoing operating and maintenance costs; • the availability and terms of financing options for purchases of vehicles and, for commercial electric vehicles, financing options for battery systems; • the availability of tax and other governmental incentives to purchase and operate electric vehicles and future regulations requiring increased use of nonpolluting vehicles; • government regulations and economic incentives promoting fuel efficiency and alternate forms of energy; • fuel prices, including volatility in the cost of diesel; • the cost and availability of other alternatives to diesel fueled vehicles, such as vehicles powered by natural gas; • corporate sustainability initiatives; • commercial electric vehicle quality, performance and safety (particularly with respect to lithium-ion battery packs); • the quality and availability of service for the vehicle, including the availability of replacement parts; • the range over which commercial electric vehicles may be driven on a single battery charge; • access to charging stations and related infrastructure costs, and standardization of electric vehicle charging systems; • electric grid capacity and reliability; and • macroeconomic factors.
As a result, growth in the electric vehicle industry depends on many factors outside our control, including, but not limited to: • continued development of product technology, especially batteries; • perceptions about electric vehicle quality, safety, design, performance and cost; • perceptions about the total cost of ownership of electric vehicles, including the initial purchase price and operating and maintenance costs; • the environmental consciousness of customers; • the ability of electric vehicles to successfully compete with vehicles powered by internal combustion engines; • the availability of other alternative fuel vehicles, including plug-in hybrid electric vehicles; and • the availability of tax and other governmental incentives to purchase and operate electric vehicles or future regulation requiring increased use of nonpolluting vehicles.
As a result, growth in the electric vehicle industry depends on many factors outside our control, including, but not limited to: • continued development of product technology, especially batteries; • perceptions about electric vehicle quality, safety, design, performance and cost; 14 • perceptions about the total cost of ownership of electric vehicles, including the initial purchase price and operating and maintenance costs; • the environmental consciousness of customers; • the ability of electric vehicles to successfully compete with vehicles powered by internal combustion engines; • the availability of other alternative fuel vehicles, including plug-in hybrid electric vehicles; and • the availability of tax and other governmental incentives to purchase and operate electric vehicles or future regulation requiring increased use of nonpolluting vehicles.
The provisions in our certificate of incorporation and bylaws: • limit who may call stockholder meetings; • do not provide for cumulative voting rights; and • provide that all vacancies may be filled by the affirmative vote of a majority of directors then in office, even if less than a quorum. There are limitations on director/officer liability.
The provisions in our certificate of incorporation and bylaws: • limit who may call stockholder meetings; • do not provide for cumulative voting rights; and 18 • provide that all vacancies may be filled by the affirmative vote of a majority of directors then in office, even if less than a quorum. There are limitations on director/officer liability.
As a result of our charter provision and Nevada law, stockholders may have limited rights to recover against directors or officers for breach of fiduciary duty. In addition, our certificate of incorporation provides that we shall indemnify our directors and officers to the fullest extent permitted by law. 17 ITEM 1B. UNRESOLVED STAFF COMMENTS None.
As a result of our charter provision and Nevada law, stockholders may have limited rights to recover against directors or officers for breach of fiduciary duty. In addition, our certificate of incorporation provides that we shall indemnify our directors and officers to the fullest extent permitted by law. ITEM 1B. UNRESOLVED STAFF COMMENTS None.
Our business, financial position, results of operations, cash flows and liquidity could be adversely affected if we experience disruptions in our supply chain, if we cannot obtain materials of sufficient quality at reasonable prices or if we are unable to scale our Union City facility. We depend upon key personnel and need additional personnel.
Our business, financial position, results of operations, cash flows and liquidity could be adversely affected if we experience 13 disruptions in our supply chain, if we cannot obtain materials of sufficient quality at reasonable prices or if we are unable to scale our Union City, IN facility. We depend upon key personnel and need additional personnel.
To the extent the laws change, or if we introduce new vehicles in the future (including, without limitation, the new truck chassis platforms we are developing), some or all of our vehicles may not comply with applicable federal, state, or local laws. Further, certain federal, state, and local laws and industrial standards currently regulate electrical and electronics equipment.
To the extent the laws change, or if we introduce new vehicles in the future (including, without limitation, the new truck chassis platforms we are developing), some or all of our vehicles may not comply with applicable federal, state, or local 10 laws. Further, certain federal, state, and local laws and industrial standards currently regulate electrical and electronics equipment.
Any of the foregoing would have a material adverse effect on our business, financial position, results of operations, cash flows and liquidity. 8 We may experience delays in launching and ramping up production or we may be unable to control our manufacturing costs. We have previously experienced and may in the future experience launch and production ramp-up delays.
Any of the foregoing would have a material adverse effect on our business, financial position, results of operations, cash flows and liquidity. We may experience delays in launching and ramping up production or we may be unable to control our manufacturing costs. We have previously experienced and may in the future experience launch and production ramp-up delays.
We cannot provide assurance such claims and/or recalls will not be made in the future. Our success may be dependent on protecting our intellectual property rights. We rely on trade secret protections to protect our proprietary technology as well as several registered patents and patent applications.
We cannot provide assurance such claims and/or recalls will not be made in the future. 15 Our success may be dependent on protecting our intellectual property rights. We rely on trade secret protections to protect our proprietary technology as well as several registered patents and patent applications.
Customers are only required to pay us upon delivery of vehicles. If a customer fails to take delivery of an ordered vehicle or fails to pay for such vehicle, we may not receive cash to offset the production expenses of such vehicle, which could adversely affect our cash flows.
Customers are only required to pay us upon delivery of vehicles. If a customer fails to take delivery of an ordered vehicle or fails to pay for 11 such vehicle, we may not receive cash to offset the production expenses of such vehicle, which could adversely affect our cash flows.
We could also have our financial and other information systems and network infrastructure impaired, property damaged and customer and employee information stolen; experience substantial loss of revenues, response costs and other financial loss; and be subject to increased 16 regulation, litigation, penalties and damage to their reputation.
We could also have our financial and other information systems and network infrastructure impaired, property damaged and customer and employee information stolen; experience substantial loss of revenues, response costs and other financial loss; and be subject to increased regulation, litigation, penalties and damage to their reputation.
We could incur substantial costs, in addition to the great amount of 15 time lost and negative publicity, in defending any patent or trademark infringement suits or in asserting any patent or trademark rights, in a suit with another party.
We could incur substantial costs, in addition to the great amount of time lost and negative publicity, in defending any patent or trademark infringement suits or in asserting any patent or trademark rights, in a suit with another party.
Any reduction, elimination or discriminatory application of government subsidies and incentives because of budgetary challenges, policy changes, the reduced need for such subsidies and incentives due to the perceived success of electric vehicles or other reasons may result in the diminished price competitiveness of the alternative fuel vehicle industry.
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.
New securities class action and/or shareholder derivative suits against us and/or our officers and directors could result in substantial additional costs to the Company and divert our management’s time and attention, which would otherwise be used to benefit our business.
New securities class action and/or shareholder derivative suits against us and/or our officers and directors could result in substantial additional costs to us and divert our management’s time and attention, which would otherwise be used to benefit our business.
Our products are subject to environmental and safety compliance with various federal and state regulations, including regulations promulgated by the Environmental Protection Agency, NHTSA, FAA and various state boards, and compliance certification is required for each new model year. NHTSA is active in requesting information from vehicle manufactures regarding potential product defects and safety measures.
Our products are subject to environmental and safety compliance with various federal and state regulations, including regulations promulgated by the EPA, NHTSA, FAA and various state boards, and compliance certification is required for each new model year. NHTSA is active in requesting information from vehicle manufactures regarding potential product defects and safety measures.
We continually work on cost-down initiatives to reduce our cost structure so we may effectively compete. If we do not reduce our costs and expenses, our net losses will continue. The demand for commercial electric vehicles depends, in part, on the continuation of current trends resulting from dependence on fossil fuels.
We continually work on cost-down initiatives to reduce our cost structure so we may effectively compete. If we are unable to reduce our costs and expenses, our net losses will continue. The demand for commercial electric vehicles depends, in part, on the continuation of current trends resulting from dependence on fossil fuels.
Our business also will at times require significant amounts of working capital to support our growth of additional platforms.
Our business also will require significant amounts of working capital to support our growth of additional platforms.
Federal, state and local laws and regulations may change from time to time and our compliance with new or amended laws and regulations in the future may materially increase our costs and could adversely affect our results of operations and competitive position.
We are subject to extensive government regulations. Federal, state and local laws and regulations may change from time to time and our compliance with new or amended laws and regulations in the future may materially increase our costs and could adversely affect our results of operations and competitive position.
We have yet to achieve positive cash flow and, given our projected funding needs, our ability to generate positive cash flow is uncertain. We had negative cash flow from operating activities of $93.8 million and $132.6 million for the years ended December 31, 2022 and 2021, respectively.
We have yet to achieve positive cash flow and, given our projected funding needs, our ability to generate positive cash flow is uncertain. We had negative cash flow from operating activities of $123.0 million and $93.8 million for the years ended December 31, 2023 and 2022, respectively.
In order to raise additional capital, we may in the future offer additional shares of our common stock or other securities convertible into or exchangeable for our common stock at prices that may not be the same as the price per share in our prior offerings.
In order to raise additional capital, we may in the future offer additional shares of our common stock, including under our ATM Agreement and ELOC, or other securities convertible into or exchangeable for our common stock at prices that may not be the same as the price per share in our prior offerings.
We may continue to have negative cash flow from operating and investing activities for 2023 as we expect to incur research and development, sales and marketing, and general and administrative expenses and make capital expenditures in our efforts to increase sales and ramp up operations at our Union City, Indiana and Mason, Ohio facilities.
We may continue to have negative cash flow from operating and investing activities for 2024 as we expect to incur research and development, sales and marketing, and general and administrative expenses and make capital expenditures in our efforts to increase sales and ramp up operations at our Union City, IN facility.
The loss of any of these customers could materially harm our business. A significant portion of our projected future revenue is expected to be generated from a limited number of dealers and fleet customers. Additionally, much of our business model is focused on building relationships with a few large dealers and fleet customers.
A significant portion of our projected future revenue is expected to be generated from a limited number of dealers and fleet customers. Additionally, much of our business model is focused on building relationships with a few large dealers and fleet customers.
If the market for commercial electric vehicles does not develop as we expect or develops more slowly than we expect, our business, prospects, financial condition and operating results will be adversely affected. As part of our sales efforts, we must educate fleet managers as to the economical savings we believe they will achieve over the life of the vehicle.
If the market for commercial electric vehicles does not develop broadly and quickly than is currently developing, our business, prospects, financial condition and operating results will be adversely affected. As part of our sales efforts, we must educate fleet managers as to the economical savings we believe they will achieve over the life of the vehicle.
If the cost of petroleum-based fuel decreased significantly, the outlook for the long-term supply of oil to the United States improved, the government eliminated or modified its regulations or economic incentives related to fuel efficiency and alternative forms of energy, or if there is a change in the perception that the burning of fossil fuels negatively impacts the environment, the demand for commercial electric vehicles could be reduced, and our business and revenue may be harmed. 11 Diesel and other petroleum-based fuel prices have been extremely volatile, and we believe this volatility will persist.
If the cost of petroleum-based fuel decreased significantly, the outlook for the long-term supply of oil to the United States improved, the government eliminated or modified its regulations or economic incentives related to fuel efficiency and alternative forms of energy, or if there is a change in the perception that the burning of fossil fuels negatively impacts the environment, the demand for commercial electric vehicles could be reduced, and our business and revenue may be harmed.
If we are unable to scale our operations at our Union City facility in an expedited manner from our limited low volume production to high volume production, our business, financial position, results of operations, cash flows and liquidity will be adversely affected. We are assembling our vehicles at our Union City facility which has been acceptable for our historical orders.
If we are unable to scale our operations at our Union City, IN facility in an expedited manner from our limited low volume production to high volume production, our business, financial position, results of operations, cash flows and liquidity will be adversely affected.
Lower diesel or other petroleum-based fuel prices over extended periods of time may lower the perception in government and the private sector that cheaper, more readily available energy alternatives should be developed and produced.
Diesel and other petroleum-based fuel prices have been extremely volatile, and we believe this volatility will persist. Lower diesel or other petroleum-based fuel prices over extended periods of time may lower the perception in government and the private sector that cheaper, more readily available energy alternatives should be developed and produced.
We cannot assure you that we will be successful in executing our business plan, which envisions the development of two new truck chassis platforms for production in 2023 and 2025 and the continued provision of a new delivery van to customers which commenced in late 2022.
We cannot assure you that we will be successful in executing our business plan, which envisions selling recently developed truck chassis and the continued provision of a new delivery van to customers which commenced in late 2022.
Any delay or other complication in ramping up the production of our current products or the development, manufacture, launch and production ramp-ups of our future products, features and services, or in doing so cost-effectively and with high quality, may harm our brand, business, prospects, financial condition, and operating results .
Any delay or other complication in ramping up the production of our current products or the development, manufacture, launch and production ramp-ups of our future products, features and services, or in doing so cost-effectively and with high quality, may harm our brand, business, prospects, financial condition, and operating results . 9 Our results of operations have not resulted in profitability and we may not be able to achieve profitability going forward.
To satisfy increased demand, we will need to quickly scale operations in our Union City facility as well as scale our supply chain including access to batteries. Such a substantial and rapid increase in operations may strain our management capabilities.
We are assembling our vehicles at our Union City, IN facility which has been acceptable for our historical orders. To satisfy increased demand, we will need to quickly scale operations in our Union City, IN facility as well as scale our supply chain including access to batteries. Such a substantial and rapid increase in operations may strain our management capabilities.
Although we believe we have sufficient capital resources and capital availability to meet our needs for the remainder of 2023, we expect that we will not be able to maintain the levels of capital and operating expenditures necessary to perform our current business plan, including the development of our W56 and WNext truck chassis platforms unless we generate additional cash from operations or obtain additional financing.
More generally, expect that we will not be able to maintain the levels of capital and operating expenditures necessary to perform our current business plan, including the development of our W56 variants and WNext truck chassis platforms unless we generate additional cash from operations or obtain additional financing.
Any such adverse publicity related to the suitability of lithium-ion cells for automotive applications, the social and environmental impacts of mineral mining or procurement associated with the constituents of lithium-ion cells, or any future incident involving lithium-ion cells, such as a vehicle or other fire could adversely affect our reputation, business, prospects, financial condition and operating results.
Any such adverse publicity related to the suitability of lithium-ion cells for automotive applications, the social and environmental impacts of mineral mining or procurement associated with the constituents of lithium-ion cells, or any future incident involving lithium-ion cells, such as a vehicle or other fire could adversely affect our reputation, business, prospects, financial condition and operating results. 16 We face risks associated with security breaches through cyber-attacks, cyber intrusions, or otherwise, which could pose a risk to our systems, networks and services.
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.
The unavailability, reduction, elimination or adverse application of government subsidies and, incentives and, or any failure by states or other governmental entities to adopt or enforce regulations, could have an adverse effect on our business, prospects, financial condition and operating results.
We have not paid cash dividends in the past and have no immediate plans to pay cash dividends. We plan to reinvest all of our earnings, to the extent we have earnings, in order to develop our products, deliver on our orders and cover operating costs and to otherwise become and remain competitive.
We plan to reinvest all of our earnings, to the extent we have earnings, in order to develop our products, deliver on our orders and cover operating costs and to otherwise become and remain competitive. We do not plan to pay any cash dividends with respect to our securities in the foreseeable future.
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, which could have an adverse impact on our operations and financial performance.
The current conflicts in Ukraine and Israel and any resulting sanctions could have an adverse impact on our current operations. Further, such conflicts are likely to lead to market disruptions, including significant volatility in commodity prices, credit and capital markets, as well as supply chain interruptions for equipment, which could have an adverse impact on our operations and financial performance.
We believe the availability of government subsidies and incentives, including those available in California and other areas, is an important factor considered by our customers when purchasing our vehicles, and our growth depends in part on the availability and amounts of these subsidies and incentives.
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.
Changes in business conditions, pandemics, wars, including the Russian invasion of Ukraine and world sanctions on Russia, Belarus, and related parties, governmental changes, and other factors beyond our control or which we do not presently anticipate could negatively affect our ability to 14 receive components.
Changes in business conditions, pandemics, wars, including the conflicts in Ukraine and Israel and resulting sanctions, and other factors beyond our control or which we do not presently anticipate could negatively affect our ability to receive components.
If, in weighing these factors, operators of commercial vehicle fleets determine there is not a compelling business justification for purchasing commercial electric vehicles, particularly those we produce and sell, then the market for commercial electric vehicles may not develop as we expect or may develop more slowly than we expect, which would adversely affect our business, prospects, financial condition and operating results. 12 We currently do not have and do not expect to have a significant number of long-term supply contracts with guaranteed pricing which exposes and will expose us to fluctuations in component, materials and equipment prices.
If, in weighing these factors, operators of commercial vehicle fleets determine there is not a compelling business justification for purchasing commercial electric vehicles, particularly those we produce and sell, then the market for commercial electric vehicles may not develop as we expect or may develop more slowly than we expect, which would adversely affect our business, prospects, financial condition and operating results.
Our success will, in part, depend on our ability to operate without infringing on the proprietary rights of others. Although we have conducted searches and are not aware of any patents and trademarks which our products or their use might infringe, we cannot be certain that infringement has not or will not occur.
Although we have conducted searches and are not aware of any patents and trademarks which our products or their use might infringe, we cannot be certain that infringement has not or will not occur.
Even if we are able to make new truck platforms that meet regulatory requirements and offer the Class 4 delivery van, we may be unable to launch and ramp up production as necessary, we may experience unexpected costs, delays or service burdens, we may be unable to deliver such vehicles on an economical basis and our customers may not find our vehicles are acceptable for their use.
We may be unable to launch and ramp up production as necessary, we may experience unexpected costs, delays or service burdens, we may be unable to deliver such vehicles on an economical basis and our customers may not find our vehicles are acceptable for their use.
We may incur costs, expenses and penalties related to regulatory matters, governmental investigations, legal proceedings and other claims, which could have a material adverse effect on the Company's business, financial position, results of operations, cash flows or liquidity. We are subject to extensive government regulations.
The cost of these compliance activities and the risks, delays, and expenses incurred in connection with such compliance could be substantial. We may incur costs, expenses and penalties related to regulatory matters, governmental investigations, legal proceedings and other claims, which could have a material adverse effect on the Company's business, financial position, results of operations, cash flows or liquidity.
To date, although there has been a recent surge in the electric vehicle industry, demand for electric vehicles has been slower than forecasted by industry experts.
Although a significant number of suppliers entered the electric vehicle industry in recent years, demand for electric vehicles has been slower than forecasted by industry experts.
While we perform extensive internal testing on our vehicles, we currently have a limited frame of reference by which to evaluate detailed long-term quality, reliability, durability and performance characteristics of our battery packs, powertrains and vehicles.
While we perform extensive internal testing on our vehicles, we currently have a limited frame of reference by which to evaluate detailed long-term quality, reliability, durability and performance characteristics of our battery packs, powertrains and vehicles. There can be no assurance that any of our products will perform in accordance with our published specifications, consistently or at all.
The price per share at which we sell additional shares of our common stock, or securities convertible or exchangeable into common stock, in future transactions may be higher or lower than the price per share paid by our historical investors. Our charter documents and Nevada law may inhibit a takeover that stockholders consider favorable.
The price per share at which we sell additional shares of our common stock, or securities convertible or exchangeable into common stock, in future transactions may be higher or lower than the price per share paid by our historical investors. In addition, the expected terms of a Possible Financing may be dilutive to investors.
Our results of operations have not resulted in profitability and we may not be able to achieve profitability going forward. We had an accumulated deficit of $627.6 million as of December 31, 2022. Except for the year ended December 31, 2020, we have had net losses every year since our inception. We will continue to incur net losses in 2023.
We had an accumulated deficit of $751.6 million as of December 31, 2023. Except for the year ended December 31, 2020, we have had net losses every year since our inception. We expect we will continue to incur net losses in 2024.
We do not plan to pay any cash dividends with respect to our securities in the foreseeable future. We cannot assure common stockholders that we would, at any time, generate sufficient surplus cash that would be available for distribution to the holders of our common stock as a dividend.
We cannot assure common stockholders that we would, at any time, generate sufficient surplus cash that would be available for distribution to the holders of our common stock as a dividend. Therefore, common stockholders should not expect to receive cash dividends on our common stock. Stockholders may experience future dilution as a result of future financings.
In light of our operating history and the expected schedule for bringing our W56 and WNext platforms to market, we expect that it will be necessary to obtain additional financing, through our At-the-Market offering program. We cannot be certain that additional financing will be available to us on favorable terms when required, or at all.
In light of our operating history and the expected schedule for bringing our W56 variants and WNext platforms to market, we expect that it will be necessary to obtain additional financing, through Possible Financing, and through our ATM Agreement.
Each of these competitors has the potential to capture significant market share in our target markets, which could have an adverse effect on our position in our industry and on our business and operating results. 13 Our electric vehicles compete for market share with vehicles powered by other vehicle technologies that may prove to be more attractive than ours.
Each of these competitors has the potential to capture significant market share in our target markets, which could have an adverse effect on our position in our industry and on our business and operating results.
We face risks associated with security breaches through cyber-attacks, cyber intrusions, or otherwise, which could pose a risk to our systems, networks and services. We face risks associated with cyber-attacks, including hacking, viruses, malware, denial of service attacks, ransomware or other data security breaches.
We face risks associated with cyber-attacks, including hacking, viruses, malware, denial of service attacks, ransomware or other data security breaches.
There can be no assurance that any of our products will perform in accordance with our published specifications, consistently or at all. 9 We currently have a limited number of customers and prospective customers, we do not have long-term agreements with existing customers, and we expect that a significant portion of our future sales will be from a limited number of customers.
We currently have a limited number of customers and prospective customers, we do not have long-term agreements with existing customers, and we expect that a significant portion of our future sales will be from a limited number of customers. The loss of any of these customers could materially harm our business.
Our failure to execute our business plan would have a material adverse effect on the Company’s business, financial position, results of operations, cash flows and liquidity. We have developed a revised strategic product roadmap for our electric vehicle delivery offerings.
Our failure to execute our business plan would have a material adverse effect on our business, financial position, results of operations, cash flows and liquidity. During 2023, we launched the W56, a new truck chassis platform, which is the foundation of our revised strategic product roadmap. We also intend to introduce a longer-wheelbase and cab-chassis version of the W56.
In addition, if we raise additional capital through issuances of equity, through the ATM or otherwise, our stockholders could experience dilution. Uncertain global macro-economic and political conditions could materially adversely affect our results of operations and financial condition.
In addition, if we raise additional capital through issuances of equity, through our ATM Agreement, ELOC or otherwise, our stockholders could experience dilution.
As a result, in the event of a material cyber security breach, our results of operations could be materially, adversely affected. Risks Related to Owning Our Common Stock Our stock price and trading volume may be volatile, which could result in substantial losses for our stockholders.
As a result, in the event of a material cyber security breach, our results of operations could be materially, adversely affected.
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.
Our operational costs are similarly impacted by such macroeconomic, geopolitical and industry conditions, which has and may continue to adversely impact our margins and profitability. Current or potential customers may delay or decrease spending on our products and services as their business and/or budgets are impacted by economic conditions.
See Note 17, Commitment and Contingencies , to the Consolidated Financial Statements included in this Annual Report on Form 10-K. As described in Note 17, Commitments and Contingencies, to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K, we are party to class action litigation alleging violation of the securities laws.
See Note 15, Commitment and Contingencies , to the Consolidated Financial Statements included in this Annual Report on Form 10-K. In 2023, we settled a class action lawsuit alleging violation of the securities laws and agreed to create a settlement fund consisting of $15.0 million in cash and $20.0 million in shares of our common stock.
Substantial increases in these prices would increase our operating costs and could adversely affect our business, financial position, results of operations, cash flows or liquidity.
We currently do not have and do not expect to have a significant number of long-term supply contracts with guaranteed pricing which exposes and will expose us to fluctuations in component, materials and equipment prices. Substantial increases in these prices would increase our operating costs and could adversely affect our business, financial position, results of operations, cash flows or liquidity.
In addition, the trading volume in our common stock may fluctuate and cause significant price variations to occur. We have experienced significant volatility in the price of our stock. In addition, the stock markets in general can experience considerable price and volume fluctuations.
In addition, the stock markets in general can experience considerable price and volume fluctuations. We have not paid cash dividends in the past and have no immediate plans to pay cash dividends.
In addition, deterioration of conditions in worldwide credit markets could limit our ability to obtain financing to fund our operations and capital expenditures. The current invasion of Ukraine by Russia has escalated tensions among the United States, the North Atlantic Treaty Organization (“NATO”) and Russia.
The inability of current and potential customers to pay us for our products and services may adversely affect our earnings and cash flows. In addition, deterioration of conditions in worldwide credit markets could limit our ability to obtain financing to fund our operations and capital expenditures.
Therefore we may be subject to disputes with our employees over ownership of any new technologies or enhancements such employees help to develop. An inability to successfully manage the implementation of our new commercial enterprise resource planning (ERP) system could adversely affect our operations and operating results. We are in the process of implementing a new commercial ERP system.
Therefore we may be subject to disputes with our employees over ownership of any new technologies or enhancements such employees help to develop. We may be exposed to liability for infringing upon the intellectual property rights of other companies. Our success will, in part, depend on our ability to operate without infringing on the proprietary rights of others.
Also, in order to accelerate time-to-market for customers seeking delivery of electric vehicles during 2022 and early 2023, in 2022, we announced a strategic supply agreement with GreenPower pursuant to which we offer our customers a Class 4 delivery van.
To accelerate time-to-market for customers seeking delivery of electric vehicles during 2023, we produced and sold Class 4 vehicles to be sold in either a cab chassis version (“W4 CC”) or a step van version (“W750”) made to haul various cargo and take on both mid and last-mile routes.
Removed
ITEM 1A. RISK FACTORS Operational Risks We will elect to raise additional financing in 2023 and beyond, and such financing may not be available to us on acceptable terms or at all.
Added
ITEM 1A. RISK FACTORS Operational Risks Substantial doubt exists regarding the Company’s ability to continue as a going concern through the twelve months following the date of the issuance of the financial statements accompanying this Form 10-K.
Removed
Our results of operations are materially affected by economic and political conditions in 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.
Added
We have incurred net losses of $123.9 million and $117.3 million for the fiscal years ended December 31, 2023 and December 31, 2022, respectively.
Removed
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 on our current operations.
Added
As a result of our recurring losses from operations, accumulated deficit, projected working capital needs and delays in bringing our vehicles to market, and, accordingly, slower market demand than previously expected, substantial doubt exists as to the Company’s ability to continue as a going concern over the twelve months from the date of the issuance of the audited financial statements accompanying this Form 10-K.
Removed
This roadmap contemplates the development of two new truck chassis platforms, the W56 and WNext, which are targeted for production in 2023 and 2025, respectively. Product development involves numerous risks and uncertainties.
Added
To the extent we are unable to satisfy these capital needs, we will need to significantly modify or terminate our operations and our planned business activities. We are currently negotiating possible financing to meet our immediate liquidity needs, and the terms of the financing, if consummated, may have adverse effects on us and our stockholders.
Removed
We cannot assure you that we will be able to develop these new truck platforms on a timely basis or at all or that, if developed, these new truck platforms will meet applicable regulatory requirements (including Federal Motor Vehicle Safety Standards).
Added
As discussed in “Recent Developments,” above, a vital component of management’s plan to address our liquidity and working capital needs, and to reduce the short-term risk that we may not be able to continue as a going concern, is the consummation of a financing in the immediate future to address these requirements for the short term.
Removed
We began accepting deliveries of the base vehicles from GreenPower in July 2022 and in September 2022 began executing on the exclusive rights to sell the vehicles under the Workhorse brand and with Workhorse after sales and support service in the United States and Canada.
Added
Although there can be no assurance that a Possible Financing will be consummated and its possible terms are under negotiation, if it is consummated, we expect that it will have a materially higher cost of capital than our existing financing arrangements and contain provisions that may be 7 dilutive to both existing and future stockholders of the Company.
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The cost of these compliance activities and the risks, delays, and expenses incurred in connection with such compliance could be substantial. See Note 17, Commitment and Contingencies , to the Consolidated Financial Statements included in this Annual Report on Form 10-K.
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A Possible Financing may also contain terms that limit the Company’s ability to sell common stock under its ATM Agreement and ELOC and to obtain new debt financing. Further, if a Possible Financing includes a convertibility feature, warrants or both, sales by investors of the underlying common stock may directly or indirectly reduce the market price of the common stock.
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On October 24, 2022, we entered into a binding term sheet to resolve this litigation as well as related shareholders derivative litigation. On January 13, 2023, the parties executed a Stipulation of Settlement setting forth the terms of the settlement of the class action and resolution of all claims.
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Our continued access to capital markets is essential for us to meet our current and long-term obligations, fund operations, and fund our strategic initiatives. We cannot be certain that additional financing will be available to us on favorable terms when required, or at all. An interruption in our access to external financing could affect our business prospects and financial condition.
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Under these terms, we will pay $15 million in cash, which will be funded fully by proceeds of available insurance, and issue shares of our stock with a value of $20 million. On February 14, 2023, the Court granted preliminary approval of the settlement and set the final approval hearing for July 24, 2023.
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We are currently out of compliance with the Nasdaq’s continuing listing requirements and if we fail to satisfy all such applicable Nasdaq continued listing requirements, our common stock may be delisted from Nasdaq, which could have an adverse impact on the liquidity and market price of our common stock.
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The settlement is subject to approval by the Court and there can be no assurance that the settlement will be approved on those terms or at all.
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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.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeITEM 2. PROPERTIES We operate facilities in Ohio, Indiana and Michigan. Our corporate headquarters and research and development facility is located in Greater Cincinnati area in Ohio and our primary manufacturing facility is located in Union City, Indiana.
Biggest changeITEM 2. PROPERTIES We operate facilities in Ohio, Indiana and Michigan. Our corporate headquarters and research and development facility is located in the Greater Cincinnati area in Ohio and our primary manufacturing facility is located in Union City, Indiana.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeITEM 3. LEGAL PROCEEDINGS For a description of certain material legal proceedings, please see Note 17, Commitments and Contingencies , to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K. See also Management's Discussion and Analysis of Financial Condition and Results of Operations - Overview for a discussion of certain regulatory matters. ITEM 4.
Biggest changeITEM 3. LEGAL PROCEEDINGS For a description of certain material legal proceedings, please see Note 15, Commitments and Contingencies , to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K. See also Management's Discussion and Analysis of Financial Condition and Results of Operations - Overview for a discussion of certain regulatory matters. ITEM 4.
MINE SAFETY DISCLOSURES Not applicable. 18 PART II
MINE SAFETY DISCLOSURES Not applicable. 20 PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeAny future determination to declare cash dividends will be made at the discretion of our Board of Directors, subject to applicable laws, and will depend on our financial condition, results of operations, capital requirements, general business conditions and other factors that our Board of Directors may deem relevant. 19 Stock Performance Graph This performance graph shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or incorporated by reference into any filing of Workhorse Group Inc. under the Securities Act of 1933, as amended (the “Securities Act”), or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.
Biggest changeAny future determination to declare cash dividends will be made at the discretion of our Board of Directors, subject to applicable laws, and will depend on our financial condition, results of operations, capital requirements, general business conditions and other factors that our Board of Directors may deem relevant.
Purchases of Equity Securities by the Issuer During the quarter ended December 31, 2022, no shares of our common stock were repurchased by the Company. ITEM 6. [RESERVED] 21
Purchases of Equity Securities by the Issuer During the quarter ended December 31, 2023, no shares of our common stock were repurchased by the Company. ITEM 6. [RESERVED] 21
This does not include persons whose stock is in nominee or "street name" accounts through banks, brokers and other financial institutions. Dividend Policy We have never declared or paid cash dividends on our common stock. We currently intend to retain future earnings, if any, to finance the expansion of our business.
This does not include persons whose stock is in nominee or “street name” accounts through banks, brokers and other financial institutions. Dividend Policy We have never declared or paid cash dividends on our common stock. We currently intend to retain future earnings, if any, to finance the expansion of our business.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information Our common stock is traded on the NASDAQ Capital Market under the symbol “WKHS”. Holders of our Common Stock As of February 1, 2023, we had approximately 200 shareholders of record.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information Our common stock is traded on the NASDAQ Capital Market under the symbol “WKHS”. Holders of our Common Stock As of February 1, 2024, we had approximately 150 shareholders of record.
Our current peer group, reference in the graph above, consists of Arrival Ltd., Canoo Inc., Fisker Inc., Lightning eMotors, Inc., The Lion Electric Company, Lordstown Motors Corp., Nikola Corporation, Proterra Inc., REE Automotive Ltd., The Shyft Group, Inc., and XL Fleet Corp. 20 Recent Sales of Unregistered Securities and Use of Proceeds During the quarter ended December 31, 2022, the Company issued 244,035 shares of its common stock to Mitsubishi as payment for services rendered in connection with the Stables & Stalls program, relying on the exemption set forth under Section 4(a)(2) of the Securities Act.
Recent Sales of Unregistered Securities and Use of Proceeds During the quarter ended December 31, 2023, the Company issued 228,650 shares of its common stock to Mitsubishi as payment for services rendered in connection with the Stables by Workhorse program, relying on the exemption set forth under Section 4(a)(2) of the Securities Act.
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The following graph shows a comparison, from January 1, 2017 through December 31, 2022, of the cumulative total return on our common stock, The NASDAQ Composite Index and a peer group of companies determined by us. Such returns are based on historical results and are not intended to suggest future performance.
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Data for The NASDAQ Composite Index and the peer group companies assumes an investment of $100 on January 1, 2017 and reinvestment of dividends. We have never declared or paid cash dividends on our common stock nor do we anticipate paying any such cash dividends in the foreseeable future.
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We do not believe there is a single published industry or line of business index that is appropriate for comparing stockholder returns. As a result, we have selected a peer group comprised of companies that compete with us directly or indirectly in the electric vehicle OEM market.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeThe comments should be read in conjunction with our Consolidated Financial Statements and related Notes thereto included in Part II of this Annual Report on Form 10-K. 25 Results of Operations Our Consolidated Statements of Operations financial information is as follows: For the Years Ended December 31, 2022 2021 2020 Sales, net of returns and allowances $ 5,023,072 $ (851,922) $ 1,392,519 Cost of sales 37,672,308 132,492,110 13,067,108 Gross loss (32,649,236) (133,344,032) (11,674,589) Operating expenses Selling, general and administrative 73,220,088 40,160,795 20,157,658 Research and development 23,213,540 11,610,027 9,148,931 Total operating expenses 96,433,628 51,770,822 29,306,589 Loss from operations (129,082,864) (185,114,854) (40,981,178) Interest expense, net 1,837,882 12,644,164 190,520,337 Other income (loss) 13,646,528 (225,432,884) 323,111,944 (Loss) income before (benefit) provision for income taxes (117,274,218) (423,191,902) 91,610,429 (Benefit) provision for income taxes — (21,847,089) 21,833,930 Net (loss) income $ (117,274,218) $ (401,344,813) $ 69,776,499 Revenue Sales increased $5.9 million in the year ended December 31, 2022 as compared to the year ended December 31, 2021, primarily due to an increase in sales volume in 2022 compared to sales returns and allowances recorded in 2021 in connection with the recall of our C1000 vehicles announced in the third quarter of 2021.
Biggest changeResults of Operations Our consolidated statements of operations financial information is as follows: For the Years Ended December 31, 2023 2022 Sales, net of returns and allowances $ 13,094,752 $ 5,023,072 Cost of sales 38,350,545 37,672,308 Gross loss (25,255,793) (32,649,236) Operating expenses Selling, general and administrative 55,574,740 73,220,088 Research and development 24,467,933 23,213,540 Total operating expenses 80,042,673 96,433,628 Loss from operations (105,298,466) (129,082,864) Interest expense, net (8,731,247) (1,837,882) Other (loss) income (10,000,000) 13,646,528 Loss before for income taxes (124,029,713) (117,274,218) Benefit from income taxes (110,524) — Net loss $ (123,919,189) $ (117,274,218) 27 Revenue Sale s increased $8.1 million i n the year ended December 31, 2023 as compared to the year ended December 31, 2022, primarily due to an increase in W4 CC volumes.
The preparation of the consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect certain reported amounts and disclosures. We base our estimates on historical experience, as appropriate, and an various other assumptions that we believe to be reasonable under the circumstances. Accordingly, actual results could differ from those estimates.
The preparation of the consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect certain reported amounts and disclosures. We base our estimates on historical experience, as appropriate, and on various other assumptions that we believe to be reasonable under the circumstances. Accordingly, actual results could differ from those estimates.
We write-down inventory for any excess or obsolete inventories or when we believe the net realizable value of inventories is less than the carrying value. Assumptions and Approach Used: We review our inventory to determine whether its carrying value exceeds the net amount realizable upon the ultimate sale of the inventory.
We write-down inventory for any excess or obsolete inventories or when we believe the net realizable value of inventories is less than the carrying value. 31 Assumptions and Approach Used: We review our inventory to determine whether its carrying value exceeds the net amount realizable upon the ultimate sale of the inventory.
For more detailed descriptions of the impact and risks to our business, please see certain risk factors described in Part I, Item 1A, Risk Factors in this Annual Report on Form 10-K. Commodities .
For more detailed descriptions of the impact and risks to our business, please see certain risk factors described in Part I, Item 1A, Risk Factors in this Annual Report on Form 10-K. Market Demand.
Ultimately, 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.
Recent Trends and Market Conditions We continue to monitor macroeconomic conditions to remain flexible and to optimize and evolve our business as appropriate, and we will have to accurately project demand and infrastructure requirements globally and deploy our production, workforce and other resources accordingly.
Research and Development Expenses Research and development (“R&D”) expenses consist primarily of personnel costs for our teams in engineering and research, manufacturing engineering and manufacturing test organizations, prototyping expense, and contract and professional services. R&D expenses increased $11.6 million in the year ended December 31, 2022 as compared to the year ended December 31, 2021.
Research and Development Expenses Research and development (“R&D”) expenses consist primarily of personnel costs for our teams in engineering and research, manufacturing engineering and manufacturing test organizations, prototyping expense, and contract and professional services. R&D expenses increased $1.3 million in the year ended December 31, 2023 as compared to the year ended December 31, 2022.
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 years ended December 31, 2022 and 2021, net cash used in operating activities was $93.8 million and $132.6 million, respectively.
Our operating cash flows are also affected by our working capital needs to support fluctuations in inventory, personnel expenses, accounts payable and other current assets and liabilities. 30 During the years ended December 31, 2023 and 2022, net cash used in operating activities was $123.0 million and $93.8 million, respectively.
As the Company has made significant progress executing on its revised strategic product roadmap for our electric vehicle delivery offerings, 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 non-contracted capital expenditures and other expenses, if necessary.
We have made significant progress executing on our revised strategic product roadmap for our electric vehicle offerings, and we expect to generate additional sales within the next twelve months which will help support our operations. Additionally, management plans to reduce its discretionary spend related to non-contracted capital expenditures and other expenses.
If 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 platforms, will be materially and adversely affected. This could affect future vehicle program production and sales.
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.
During 2022, we began producing and selling the W4 CC, a Class 4 vehicle, under the Workhorse brand and with Workhorse after sales and support service, providing us with an accelerated time-to-market for customers seeking delivery of electric vehicles.
The W4 CC is a Class 4 vehicle, under the Workhorse brand and with Workhorse after sales and support service, providing us with an accelerated time-to-market for customers seeking delivery of electric vehicles.
There can be no assurance that the Company will be successful in implementing its plans or acquiring additional funding, that the Company’s projections of its future working capital needs will prove accurate, or that any additional funding would be sufficient to continue operations in future years.
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.
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.
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 have generated divergence in price movements across different commodities.
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 to raise interest rates which will likely raise the cost of any financing the Company may undertake in the future.
We are seeing a near-term impact on our business due to inflationary pressure. In an effort to dampen inflationary pressures, central banks have continued to raise interest rates which will likely raise the cost of any financing the Company may undertake in the future. The following section provides a narrative discussion of our financial condition and results of operations.
Off-Balance Sheet Arrangements The Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. 29 Critical Accounting Estimates We consider an accounting estimate to be critical if: (1) the accounting estimate requires us to make assumptions about matters that were highly uncertain at the time the accounting estimate was made, and (2) changes in the estimate that are reasonably likely to occur from period to period, or use of different estimates that we reasonably could have used in the current period, would have a material impact on our financial condition or results of operations.
Critical Accounting Estimates We consider an accounting estimate to be critical if: (1) the accounting estimate requires us to make assumptions about matters that were highly uncertain at the time the accounting estimate was made, and (2) changes in the estimate that are reasonably likely to occur from period to period, or use of different estimates that we reasonably could have used in the current period, would have a material impact on our financial condition or results of operations.
Cash Flows from Financing Activities During the year ended December 31, 2022, net cash provided by financing activities was $11.5 million compared to net cash used of $6.8 million in 2021.
Cash Flows from Financing Activities During the year ended December 31, 2023, net cash provided by financing activities was $78.3 million compared to $11.5 million in 2022.
Failure to obtain additional equity financing will have a material, adverse impact on the Company’s business operations. There can be no assurance that we will be able to obtain the financing needed to achieve our goals on acceptable terms or at all. Additionally, any equity financings would likely have a dilutive effect on the holdings of the Company’s existing stockholders.
Failure to obtain additional financing will have a material, adverse impact on our business operations. There can be no assurance that we will be able to obtain the financing needed to 29 achieve our goals on acceptable terms or at all.
We also made significant progress on the step van version, known as the W750, which will have approximately 750 cubic foot capacity and will feature up to 150 miles of all-electric range, with a payload capacity of five thousand pounds. We expect the first deliveries of the W750 will occur later in 2023.
We also launched and started selling the step van version, known as the W750, which has approximately 750 cubic foot capacity and will feature up to 150 miles of all-electric range, with a payload capacity of five thousand pounds.
Under the 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.
Under the ATM Agreement, 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 year ended December 31, 2023, we issued 89.3 million shares under the ATM Agreement for net proceeds of $63.5 million.
Refer to Note 11, Income Taxes, to the consolidated financial statements for information regarding the income tax provision. Recent Accounting Pronouncements See Note 14, Recent Pronouncements , to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
Recent Accounting Pronouncements See Note 12, Recent Pronouncements , to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
Net cash provided by financing activities in 2022 was primarily attributable to the issuance of common stock under our ATM Program which provided net proceeds of approximately $12.9 million, compared to $4.4 million used in 2021 for the exercise of stock options and warrants.
Net cash provided by financing activities in 2023 was primarily attributable to the issuance of common stock under our ATM Agreement which provided net proceeds of approximately $62.2 million , compared to net proceeds of approximately $12.9 million in the prior year.
Summary of Cash Flows For the Years Ended December 31, 2022 2021 2020 Net cash used in operating activities $ (93,818,664) $ (132,577,103) $ (70,278,949) Net cash (used in) provided by investing activities (20,019,519) 99,812,549 (5,728,130) Net cash provided by (used in) financing activities 11,467,090 (6,817,119) 292,367,730 Cash Flows from Operating Activities Our cash flows from operating activities are affected by our cash investments to support the business in research and development, manufacturing, selling, general and administration.
Summary of Cash Flows For the Years Ended December 31, 2023 2022 Net cash used in operating activities $ (123,024,049) $ (93,818,664) Net cash used in investing activities (18,687,451) (20,019,519) Net cash provided by financing activities 78,281,114 11,467,090 Cash Flows from Operating Activities Our cash flows from operating activities are affected by our cash investments to support the business in research and development, manufacturing, selling, general and administration.
The foundation of this plan is the development of two new truck chassis platforms, the W56 and the WNext. 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.
Despite the impairment, we continued to perform assembly services. 26 Management Opportunities, Challenges, Risks and 2024 Outlook 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.
As of December 31, 2022, the Company had $99.3 million in cash and cash equivalents, positive working capital of $74.9 million, accumulated deficit of $627.6 million, and during the year ended December 31, 2022 incurred a loss from operations of $117.3 million and used $93.8 million of cash in operating activities.
As of December 31, 2023, we had total working capital of $40.5 million, including $35.8 million in cash, cash equivalents and restricted cash, and accumulated deficit of $751.6 million. During the year ended December 31, 2023, we incurred a loss from operations of $105.3 million and used $123.0 million of cash in operating activities.
During the year ended December 31, 2022, we issued 4.9 million shares under the ATM Program for net proceeds of $12.9 million, leaving shares of common stock having an aggregate offering price of up to $162.1 million available for issuance under the ATM Program.
During the year ended December 31, 2022, we issued 4.9 million shares under the ATM Agreement for net proceeds of $12.9 million. As of December 31, 2023 we had approximately $85.6 million available through the issuance of shares of common stock under the ATM Agreement.
We are focused on our core competency of bringing our electric delivery vehicle platforms to market. During 2022, we were focused on our goals of increasing our vehicle production and capacity, increasing the affordability of our vehicles, and developing and introducing our next generation of products.
Overview and 2023 Highlights During 2023, we were focused on our goals of launching new vehicle platforms, increasing our vehicle production and capacity, increasing the affordability of our vehicles, and developing plans for our next generation of products.
Cost of Sales Cost of sales includes direct and indirect materials, labor costs, manufacturing overhead, including depreciation costs of tooling and machinery, shipping and logistics costs, and reserves for estimated warranty expenses.
The W750 and W56 products, which launched in 2023, Stables by Workhorse and drones as a service also contributed to the increase. Cost of Sales Cost of sales includes direct and indirect materials, labor costs, manufacturing overhead, including depreciation costs of tooling and machinery, shipping and logistics costs, and reserves for estimated warranty expenses.
Our future funding requirements will depend upon many factors, including, but not limited to: • our ability to acquire or license other technologies that we may seek to pursue; • our ability to manage our growth; • competing technological and market developments; • the costs and timing of obtaining, enforcing and defending our patent and other intellectual property rights; and • expenses associated with any litigation or regulatory proceedings.
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 may seek to pursue; • our ability to manage our growth and operational expenses; and • competing technological and market developments.
SG&A expenses increased $33.1 million in the year ended December 31, 2022 as compared to the year ended December 31, 2021. The increase was driven by a $23.9 million increase in legal & professional expenses, attributable to the securities and shareholder derivative litigation.
SG&A expenses decreased $17.6 million in the year ended December 31, 2023 as compared to the year ended December 31, 2022. The decrease was driven by a $25.2 million decrease in expenses attributable to the securities and derivative litigation settlements and legal expenses recognized in the same period last year.
Management Opportunities, Challenges and Risks and 2023 Outlook Commercial Vehicles Product Roadmap Workhorse started executing its revised strategic product roadmap for our electric vehicle delivery offerings by laying the foundation of this plan through the development of two new truck chassis platforms, the W56 and WNext.
Commercial Vehicles In 2023, we launched the production of two new delivery EVs, the W750 and W56, highlighting our continued success in executing our revised strategic product roadmap for our electric vehicle delivery offerings. The foundation of this plan is the development of the W56 truck chassis platform.
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.
(“Tropos”) which was obtained during the third quarter of 2022 in exchange for a cash payment of $5.0 million and a $5.0 million contribution of non-cash consideration representing a deposit from Tropos for future assembly services under an Assembly Services Agreement.
For the years ended December 31, 2022 and 2021, we maintained an investment in a bank money market fund and a cash investment account. 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.
During the year ended December 31, 2023, the Company did not sell any shares of common stock pursuant to the ELOC Purchase Agreement. For the year ended December 31, 2023, we maintained an investment in a bank money market fund. Cash in excess of immediate requirements is invested with regard to liquidity and capital preservation.
The W56, based on long-standing Company know-how in the Class 5 and 6 truck chassis market, is expected to begin production in 2023. The WNext platform will be our second generation, low floor, advanced content offering and is expected to begin production in 2025.
Our product roadmap also includes the WNext platform, which will be our second generation, low floor, advanced content offering and is expected to begin production in late 2025 or 2026.
We will continue to monitor 28 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. On March 10, 2022, we entered into an At-the-Market Sales Agreement, which established an at-the-market equity program (the “ATM Program”).
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.
Cost of sales decreased $94.8 million in the year ended December 31, 2022 as compared to the year ended December 31, 2021. The decrease was primarily due to the shift in production to new vehicle platforms at lower volumes compared to the C1000 vehicle platform in production in 2021.
Cost of sales increased $0.7 million in the year ended December 31, 2023 as compared to the year ended December 31, 2022. The increase was primarily due to increased production and overhead costs to support higher sales volumes related to new vehicle platforms and an increase in employee compensation and related expenses compared to 2022 levels.
We continue to focus on product quality, manufacturing capacity and operational planning, and engineering and design to enable increased deliveries and deployments of our products and future revenue growth. During the period, we began executing our revised strategic product roadmap for our electric vehicle delivery offerings.
We continue to focus on product quality, manufacturing capacity and operational planning, as well as engineering and design to enable increased deliveries and deployments of our products and future revenue growth. In addition to our ongoing production ramp in 2023, we intend to continue to generate demand and brand awareness by demonstrating our vehicles’ performance and functionality.
Inflation has significantly risen during 2022, resulting from both supply and demand imbalances as economies continue to recover from the COVID-19 pandemic as well as the impact on the availability and cost of energy and other commodities resulting from Russia's invasion of Ukraine in February 2022, which is ongoing.
We expect the net impact on us overall will be higher material costs. Inflation. Inflation continues to impact our operations, resulting from both supply and demand imbalances as economies continue to face constraints as well as the impact on the availability and cost of energy and other commodities as a result of the ongoing conflicts in Ukraine and Israel.
We will be primarily reliant upon a private or public placement of our equity securities, including the At-the-Market Program, for which there can be no assurance we will be successful in such efforts.
To the extent revenues from operations are insufficient to meet our liquidity requirements, our ability to continue as a going concern will be dependent on effectively raising capital through private or public placement of our equity securities, including the continued use of the ATM Agreement (as further described below), for which there can be no assurance we will be successful in such efforts.
Cash Flows from Investing Activities During the years ended December 31, 2022, net cash used in investing activities was $20.0 million compared to net cash provided of $99.8 million in 2021. The net cash used in investing activities was primarily attributable to spend related to our capital expenditures and investment in Tropos.
Cash Flows from Investing Activities Cash flows used in investing activities and their variability across each period related primarily to capital expenditures to upgrade our administrative, research, and production facilities, which were $18.7 million for the year ended December 31, 2023 and $17.5 million for the year ended December 31, 2022.
Department of Agriculture’s Natural Resources Conservation Service (“NRCS”) to demonstrate our ability to provide small UAS as a service to support NRCS efforts in Mississippi. As part of the pilot program, we offer small UAS services, including monitoring via drone, data procurement and analytics.
Aero During 2023, we entered our third program with the NRCS to demonstrate our ability to provide small UAS DaaS to support NRCS efforts. We started this program as a small pilot in 2021.
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For discussion related to changes in financial condition and the results of operations for fiscal year 2020-related items, refer to Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for fiscal year 2021, which was filed with the Securities and Exchange Commission on March 1, 2022.
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During the period, we began executing our revised strategic product roadmap for our electric vehicle delivery offerings. The foundation of this plan is the development of a new truck chassis platforms, the W56, which entered production during the year.
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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.
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The W56 is our first fully-designed, purpose-built Class 5/6 model chassis platform built from the ground up, is an EV-space leading vehicle which provides a unique blend of high reliability, quality, and serviceability.
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Aerospace HorseFly™ Our HorseFly (“HorseFly”) Unmanned Aerial Vehicle (“UAV”) is the first in a family of custom-built, high-efficiency delivery UAVs being designed to be integrated with our line of electric delivery trucks. The Horsefly is a 4 rotor UAV that can fly fully autonomously and is designed for safety, efficiency, and the rigors of day-to-day delivery service.
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The zero-emission delivery work truck is designed to meet the challenging demands of the commercial vehicle industry, supporting benchmark payload capacity of up to approximately 10,000 pounds and with a range of up to 150 miles.
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The HorseFly system is designed such that a driver or driver’s assistant can maintain line-of-sight operation of the UAV delivery process and to conform to the Federal Aviation Administration (“FAA”) guidelines for UAV operation in the U.S. Our patented flight control system is a custom HorseFly user control center.
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The W56 step van also offers a large 1,000+ cubic foot cargo box with lowered step-in and wide cabin door for easier entry and exit. During 2023, we were focused on bringing our existing W56 vehicles into full compliance with Federal Motor Safety Vehicle Standards (“FMVSS”), which we achieved.
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We built this technology to allow users a variety of planning, control and monitoring options, including monitoring locations of the truck, package and drone, and real-time onboard video of the HorseFly drone systems. 22 During 2022, we began executing on a pilot program with the U.S.
Added
In 2023, we continued producing and selling the W4 CC and delivered the first units of the W750, despite unforeseen production and supply issues affecting the W4 CC and W750 vehicles, which have been resolved.
Removed
Automating the daily audits with the small UAS allows the NRCS to expedite information delivery, increase safety for auditors on the ground, be more cost-effective, increase fidelity of the data gathered, and ultimately create a more efficient procedure.
Added
After over two years of working with the NRCS, farmers and ranchers, we have developed data products that help underserved farmers and ranchers providing LiDar data to stakeholders in reports they can use to increase the efficiency of their land.
Removed
The first phase of the program involved the Company collaborating with NRCS agents to gain a field-level understanding of the program’s deliverables before implementing it’s UAS technology to gather actionable data and insights. 2022 Highlights Discontinuation of C1000 Program During the fourth quarter of 2022, we announced our decision to discontinue the C1000 vehicle platform as the Company determined its resources were best allocated on the development and production of its next platforms of vehicles, including the W4 CC, W750, W56 and WNext platforms.
Added
As part of the pilot program, we offer small UAS services, including monitoring via drone, data procurement and analytics, allowing expedited information delivery, increased safety, cost-effective, and increase fidelity of the data gathered, creating a more efficient procedure. In 2023, we developed and launched the production of two product lines of small UAS.
Removed
In connection with the program discontinuation, we recorded a $19.5 million impairment reserve during the period related to the program for excess or obsolete inventories related to the vehicle platform to bring the net balance of the C1000 inventory to zero as of December 31, 2022.
Added
During the first quarter of 2024, we have made the decision to fully transition from a design and manufacturing drone business to DaaS. This transition resulted in, among other things, our stopping production and development of both product lines and the termination of employees who performed the related work.
Removed
The total inventory reserve as of December 31, 2022 was $59.2 million, as compared to $77.0 as of December 31, 2021.
Added
Certified Dealer Program During 2023, we continued to add dealers to our Certified Dealer Program, expanding the official network of verified dealers trained to safely repair and maintain the electric components of our vehicles into new states to support our customers.
Removed
We also continued to carry a $22.2 million reserve for prepaid purchases related to deposits made on planned future purchases of inventory used in the production of the C1000 vehicle platforms, most of which was related to purchases in 2021 and prior. Investment in Tropos The Company has a $10.0 million minority ownership in Tropos as of December 31, 2022.
Added
The Certified Dealer Program allows us to establish a comprehensive training program enabling dealers to safely assist customers with vehicle maintenance in addition to providing strategies for vehicle deployment into their fleets. To ensure high quality vehicle maintenance, Workhorse certified dealers have also made investments in electric vehicle charging infrastructure, 22 tooling, and building out spare parts inventory.
Removed
The minority investment was obtained pursuant to the transaction with Tropos as described below. On August 8, 2022, the Company entered into an Assembly Services Agreement (the “Assembly Agreement”) with Tropos.
Added
The Certified Dealer Program is designed to provide a strong foundation of safety and reliability in our vehicles for both our dealers and end customers. Our California dealers are eligible to participate in the CARB HVIP as a result of our recent approval by CARB to participate as an intermediate-stage manufacturer.
Removed
Under the Assembly Agreement, the Company will provide services at its Union City, Indiana manufacturing facility required to assemble an 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 of the agreement.
Added
Vehicle Credits and Certifications During 2023, we became certified and obtained several state and federal voucher and tax credit incentive programs supporting the sale of our EV products. All of our MY 2023/2024 Class 4 - 6 products received approval under the New York Truck Voucher Incentive Program (“NYTVIP”) with voucher amounts ranging from $100,000 - $125,000 for eligible vehicles.
Removed
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.
Added
We also received IRS approval as a qualified manufacturer for the Commercial Clean Vehicle Credit as defined in 30D(d)(3) of the Internal Revenue Code. With this approval, Workhorse customers are eligible to receive up to a $40,000 credit for deliveries of all Workhorse vehicles in 2023 and beyond.
Removed
See Note 5, Revenue , of the Consolidated Financial Statements for treatment of the $5.0 million of non-cash consideration received in 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.
Added
During 2023, CARB approved Workhorse's application to participate in the HVIP with its W4CC and W750 work trucks. Workhorse received this approval as part of a first-of-its-kind program that allows vehicle modifiers to list their vehicles directly with HVIP. Workhorse will be the first company to participate in the program.
Removed
The Company recorded a $10.0 million investment in Tropos in the Consolidated Balance Sheet as of December 31, 2022. Stables & Stalls During July 2022, we entered into an Asset Purchase Agreement ("APA") with ESG Logistics Corp. (“ESG Corp.”), a provider of package pickup and delivery services. ESG Corp. was party to an agreement with FedEx Package System, Inc.
Added
These Workhorse vehicles are listed on the HVIP website and we have our own manufacturer's pool for the trucks. We additionally received approval for the W56 Step Van to participate in the HVIP program in late Q4 of 2023 and, as such, all Workhorse vehicles are now eligible for the program.
Removed
(“FXG”) under which ESG Corp. 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.
Added
Stables by Workhorse During 2023, we continued to electrify the fleet of vehicles being used to operate the FedEx delivery route in the greater Cincinnati area of Ohio known as Stables by Workhorse. The electrification of the fleet will provide us with firsthand data on of the challenges and benefits of independent fleet operators experience while executing last-mile delivery operations.
Removed
Under the APA, 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.
Added
The initiative also provides valuable insights into how our customers can plan for and manage the transition to EV, including how to develop adequate charging infrastructure, training and maintenance services. Securities Litigation and Shareholder Derivative Litigation On July 24, 2023, the U.S.
Removed
During the third quarter of 2022, we began operating the FedEx delivery route under the FXG agreement using the historical motor vehicles and equipment acquired through the APA.
Added
District Court for the Central District of California entered an order granting final approval of the Stipulation of Settlement entered into by the parties to the Securities Litigation on January 13, 2023.
Removed
This effort, known as Stables & Stalls, is designed to have the Company experience, firsthand, the challenges facing independent operators executing last mile delivery and to develop the 23 appropriate business model as the contractors’ transition to electric vehicle fleets.
Added
Pursuant to the Stipulation of Settlement, in exchange for a release of all claims and dismissal with prejudice of the Securities Class Action, the Company agreed to create a settlement fund with an escrow agent (the “Settlement Fund”), consisting of $15 million in cash and $20 million in shares of common stock of the Company (the “Settlement Shares”) from which class members would receive payment.
Removed
As part of this effort, Workhorse is outfitting a fully functional services site, the ‘Stable’, and charging infrastructure, 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.
Added
On June 21, 2023, the State District Court of Nevada granted final approval of the settlement of the Shareholder Derivative Litigation.
Removed
Supply Agreement In February 2022, we entered into a vehicle Supply Agreement with 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, and complete the manufacturing process on the base vehicles.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeAccordingly, we have not had any significant exposure to foreign currency rate fluctuations. For further information about our equity investments, please refer to Note 3 and 5 of the Notes to Consolidated Financial Statements included in Part II of this Annual Report on Form 10-K. 31
Biggest changeAccordingly, we have not had any significant exposure to foreign currency rate fluctuations. For further information about our equity investments, please refer to Note 5, Contract Manufacturing Services and Investment in Tropos , of the Notes to Consolidated Financial Statements included in Part II of this Annual Report on Form 10-K. 34
To minimize this risk, we maintain our portfolio of cash equivalents and short-term investments in a variety of securities, including money market funds and government and non-government debt securities and the maturities of each of these instruments is less than one year. In 2022, we maintained an investment portfolio primarily in money market funds.
To minimize this risk, we maintain our portfolio of cash equivalents and short-term investments in a variety of securities, including money market funds and government and non-government debt securities and the maturities of each of these instruments is less than one year. In 2023, we maintained an investment portfolio primarily in money market funds.

Other WKHS 10-K year-over-year comparisons