Workhorse(WKHS) - 2023 Q2 - Quarterly Report

PART I FINANCIAL INFORMATION This section presents the unaudited condensed consolidated financial statements and management's discussion and analysis Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements and notes Condensed Consolidated Balance Sheets This section provides a snapshot of the company's financial position, detailing assets, liabilities, and equity Condensed Consolidated Balance Sheets (Key Metrics) | Metric | June 30, 2023 | December 31, 2022 | | :-------------------------- | :-------------- | :------------------ | | Cash and cash equivalents | $62,379,740 | $99,276,301 | | Inventory, net | $34,623,566 | $8,850,142 | | Total Assets | $176,926,596 | $182,742,475 | | Total Liabilities | $69,538,875 | $74,155,544 | | Total Stockholders' Equity | $107,387,721 | $108,586,931 | Condensed Consolidated Statements of Operations This section presents the company's financial performance, detailing revenues, expenses, and net loss Condensed Consolidated Statements of Operations (Key Metrics) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Sales, net | $3,966,463 | $12,555 | $5,659,878 | $26,854 | | Gross loss | $(4,460,914) | $(3,007,649) | $(8,095,618) | $(6,916,701) | | Loss from operations | $(23,523,176) | $(21,064,853) | $(49,072,572) | $(40,896,098) | | Net loss | $(23,017,676) | $(21,160,272) | $(48,016,713) | $(43,214,807) | | Net loss per share (Basic & Diluted) | $(0.12) | $(0.13) | $(0.27) | $(0.28) | Condensed Consolidated Statements of Stockholders' Equity This section outlines changes in the company's equity, including stock issuance, compensation, and net loss Changes in Stockholders' Equity (Six Months Ended June 30, 2023) | Item | Amount | | :------------------------------------ | :------------- | | Balance as of December 31, 2022 | $108,586,931 | | Common stock issued through ATM offering | $40,291,607 | | Stock-based compensation | $6,801,485 | | Net loss | $(48,016,713) | | Balance as of June 30, 2023 | $107,387,721 | Condensed Consolidated Statements of Cash Flows This section details cash flows from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows (Six Months Ended June 30) | Activity | 2023 | 2022 | | :------------------------------------ | :-------------- | :-------------- | | Net cash used in operating activities | $(65,800,126) | $(55,462,470) | | Net cash used in investing activities | $(10,472,730) | $(5,658,776) | | Net cash provided by (used in) financing activities | $39,376,295 | $(465,573) | | Change in cash and cash equivalents | $(36,896,561) | $(61,586,819) | | Cash and cash equivalents, end of period | $62,379,740 | $140,060,575 | Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the financial statements 1. SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING PRINCIPLES This note provides an overview of the company's business, liquidity, and significant accounting policies Overview This section provides a general overview of the company's business and operational focus - Workhorse Group Inc. is an American technology company focused on pioneering the transition to zero-emission commercial vehicles by designing and manufacturing all-electric delivery trucks and drone systems[28] Liquidity and Capital Resources This section discusses the company's financial liquidity, capital management, and ability to meet obligations Liquidity and Capital Resources (Six Months Ended June 30, 2023) | Metric | Amount | | :-------------------------------- | :---------------- | | Sales | $5.7 million | | Net loss | $48.0 million | | Cash used in operating activities | $65.8 million | | Cash and cash equivalents (as of June 30, 2023) | $62.4 million | | Working capital (as of June 30, 2023) | $66.2 million | | Accumulated deficit (as of June 30, 2023) | $675.7 million | - Management expects to generate additional sales and reduce discretionary spending to alleviate substantial doubt about the company's ability to continue as a going concern, but there is no assurance of success or sufficient funding[31] - The company intends to raise additional funds through equity issuance, including the At-The-Market (ATM) offering program, which could have a dilutive effect on existing stockholders[33] Principles of Consolidation This section outlines principles for consolidated financial statements, including subsidiaries and intercompany transactions - The Condensed Consolidated Financial Statements are prepared in conformity with U.S. GAAP and include the accounts and operations of wholly-owned subsidiaries, with all intercompany balances and transactions eliminated[34] Reclassifications This section explains reclassifications of prior period balances to conform to current presentation - Certain prior period balances have been reclassified to conform to the current year presentation, with no effect on previously reported results of operations or stockholders' equity[36] Use of Estimates This section highlights management's estimates and assumptions in financial statement preparation - The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs, expenses, and related disclosures[37] 2. INVENTORY, NET This note details the company's inventory, including raw materials, work in process, finished goods, and reserves Inventory, net | Category | June 30, 2023 | December 31, 2022 | | :--------------- | :-------------- | :------------------ | | Raw materials | $26,673,327 | $42,500,878 | | Work in process | — | $25,210,131 | | Finished goods | $10,281,415 | $301,645 | | Total | $36,954,742 | $68,012,654 | | Less: inventory reserves | $(2,331,176) | $(59,162,512) | | Inventory, net | $34,623,566 | $8,850,142 | - The period-over-period decrease in inventory reserves was primarily driven by efforts to sell and dispose of C-Series vehicle program inventory, which was fully reserved as the program was discontinued at the end of 2022[39] 3. CONTRACT MANUFACTURING SERVICES AND INVESTMENT IN TROPOS This note details the company's investment in Tropos Technologies, Inc. and related contract manufacturing services - The company holds a minority ownership in Tropos Technologies, Inc., valued at $10.0 million as of June 30, 2023, and December 31, 2022[40] - The investment was obtained in exchange for a $5.0 million cash payment and a $5.0 million non-cash contribution representing a deposit from Tropos for future assembly services, initially recorded as deferred revenue[40] 4. PREPAID EXPENSES AND OTHER CURRENT ASSETS This note provides a breakdown of prepaid expenses and other current assets, explaining significant changes Prepaid Expenses and Other Current Assets | Category | June 30, 2023 | December 31, 2022 | | :-------------------------------- | :-------------- | :------------------ | | Prepaid purchases, net | $8,208,462 | $12,448,311 | | Prepaid insurance | $414,803 | $1,198,769 | | Other | $827,475 | $505,401 | | Total | $9,450,740 | $14,152,481 | - The decrease in prepaid purchases is primarily due to receiving inventory on supplier orders for W4 CC, W750, and W56 vehicle platforms, and writing off prepaid purchases related to the discontinued C-Series vehicle platform[42] 5. REVENUE This note details the company's revenue recognition policies and provides a breakdown of sales Revenue Recognition This section outlines the company's policies for recognizing revenue from customer contracts Sales, net of returns and allowances | Period | June 30, 2023 | June 30, 2022 | | :----------------------- | :------------- | :----------- | | Three Months Ended | $3,966,463 | $12,555 | | Six Months Ended | $5,659,878 | $26,854 | - Sales for the three and six months ended June 30, 2023, consisted primarily of W4 CC vehicle sales, representing a significant increase from the prior year[43] - Deferred revenue was $4.8 million as of June 30, 2023, with $1.4 million expected to be recognized in the next 12 months[44][45] 6. ACCRUED AND OTHER CURRENT LIABILITIES This note provides a breakdown of accrued and other current liabilities, including legal reserves and warranty liabilities Accrued and other current liabilities This section details the composition of accrued and other current liabilities Accrued and Other Current Liabilities | Category | June 30, 2023 | December 31, 2022 | | :-------------------------- | :-------------- | :------------------ | | Legal reserve (Note 13) | $35,500,000 | $35,000,000 | | Compensation and related costs | $3,138,072 | $4,967,187 | | Other | $4,411,671 | $6,240,244 | | Total | $43,049,743 | $46,207,431 | Warranties This section outlines the company's warranty policies and liability activity Warranty Liability Activity (Six Months Ended June 30) | Metric | 2023 | 2022 | | :-------------------------- | :-------------- | :-------------- | | Warranty liability, beginning of period | $2,207,674 | $4,583,916 | | Warranty costs incurred | $(595,313) | $(698,958) | | Provision for warranty | $310,219 | $(562,746) | | Warranty liability, end of period | $1,922,580 | $3,322,212 | 7. LEASES This note provides information on the company's lease arrangements, expenses, assets, and liabilities Total Lease Expense (Six Months Ended June 30) | Period | 2023 | 2022 | | :----------------------- | :------------- | :------------- | | Total lease expense | $1,267,172 | $1,186,975 | Lease Right-of-Use Assets and Liabilities | Category | June 30, 2023 | December 31, 2022 | | :-------------------------- | :-------------- | :------------------ | | Total lease right-of-use assets | $11,158,562 | $11,706,803 | | Total lease liabilities | $9,562,552 | $10,125,094 | | Long-term portion of lease liabilities | $8,076,135 | $8,840,062 | 8. STOCK-BASED COMPENSATION This note details the company's stock-based compensation plans, expenses, options, and restricted awards Stock-based compensation expense This section reports total stock-based compensation expense and shares available for future awards Total Stock-Based Compensation Expense (Six Months Ended June 30) | Period | 2023 | 2022 | | :-------------------------- | :------------- | :------------- | | Total stock-based compensation expense | $6,801,485 | $5,642,702 | - As of June 30, 2023, approximately 3.1 million shares were available for issuance of future stock awards under the Plans[53] Stock options This section details stock option activity and unrecognized compensation expense Stock Option Activity (Six Months Ended June 30, 2023) | Metric | Number of Options | Weighted Average Exercise Price | | :-------------------------- | :---------------- | :------------------------------ | | Balance, December 31, 2022 | 423,626 | $7.6 | | Exercised | (200) | $1.8 | | Forfeited | (70,997) | $1.8 | | Balance, June 30, 2023 | 352,429 | $8.8 | | Options exercisable at June 30, 2023 | 204,213 | $7.8 | - Unrecognized compensation expense for unvested options was $1.1 million as of June 30, 2023, expected to be recognized over the next 1.2 years[56] Restricted stock awards This section details restricted stock award activity and unrecognized compensation expense Restricted Stock Award Activity (Six Months Ended June 30, 2023) | Metric | Number of Unvested Shares | Weighted Average Grant Date Fair Value | | :-------------------------- | :------------------------ | :------------------------------------- | | Balance, December 31, 2022 | 3,525,331 | $4.9 | | Granted | 3,753,965 | $1.5 | | Vested | (1,090,357) | $4.4 | | Forfeited | (276,051) | $2.6 | | Balance, June 30, 2023 | 5,912,888 | $2.9 | - Unrecognized compensation expense for unvested restricted stock awards was $14.0 million as of June 30, 2023, expected to be recognized over the next 1.7 years[57] Performance share units ("PSUs") This section details performance share unit activity and unrecognized compensation expense - As of June 30, 2023, there were 3.1 million unvested PSUs, with vesting conditioned upon achievement of certain performance objectives over periods ending December 31, 2024, and 2025[58] - Fifty percent of PSUs vest based on the company's total shareholder return (TSR PSUs) compared to peers, and fifty percent based on cumulative adjusted EBITDA targets (EBITDA PSUs)[58] - Unrecognized compensation expense for unvested TSR PSUs was $5.9 million as of June 30, 2023, expected to be recognized over the next 1.8 years[61] 9. STOCKHOLDERS' EQUITY This note provides information on changes in stockholders' equity, including ATM sales At-The-Market Sales Agreement This section details the company's At-The-Market (ATM) equity offering program - Under the ATM Program, the company may offer and sell shares of common stock with an aggregate sales price of up to $175.0 million[63] ATM Program Activity (Six Months Ended June 30) | Period | Shares Issued | Net Proceeds | | :----------------------- | :-------------- | :------------- | | 2023 | 38.68 million | $40.3 million | | 2022 | 0.1 million | $0.2 million | - As of June 30, 2023, $120.7 million remained available under the ATM Program[64] 10. INCOME TAXES This note discusses the company's income tax position, deferred tax assets, and liabilities - As of June 30, 2023, and December 31, 2022, the company's deferred tax liability was zero, and cumulative deferred tax assets were fully reserved due to insufficient evidence of realizability[65] - No current liability or benefit for federal or state income taxes was included in the Condensed Consolidated Financial Statements due to losses for the periods[65] 11. EARNINGS (LOSS) PER SHARE This note provides the computation of basic and diluted earnings (loss) per share Potentially Dilutive Shares Excluded from Diluted Net Loss Per Share (Six Months Ended June 30) | Category | 2023 | 2022 | | :-------------------------- | :----------- | :----------- | | Stock-based awards and warrants | 10,199,166 | 6,765,581 | | Convertible notes | — | 7,833,666 | - Potentially dilutive shares were excluded from the computation of diluted net loss per share because their effect was anti-dilutive[68] 12. RECENT ACCOUNTING PRONOUNCEMENTS This note describes the impact of recently adopted and not-yet-adopted accounting standards Accounting Standards and Pronouncements Recently Adopted This section identifies recently adopted accounting standards and their impact - There are no accounting standards or pronouncements recently adopted that impact the company[69] Accounting Standards and Pronouncements Not Yet Adopted This section identifies not-yet-adopted accounting standards and their potential future impact - There are no accounting standards or pronouncements not yet adopted that impact the company[70] 13. COMMITMENTS AND CONTINGENCIES This note discloses the company's commitments and contingencies, including legal and regulatory matters General Matters This section provides general information regarding the company's legal and regulatory matters - The company is party to various negotiations and legal proceedings, providing reserves when a loss is probable and reasonably estimable, and management believes the ultimate disposition will not have a material adverse effect[71] Federal Motor Vehicle Safety Standards ("FMVSS") Certification and Other Regulatory Matters This section refers to disclosures regarding FMVSS certification and other regulatory matters - Information regarding FMVSS Certification and other regulatory matters is referenced in Note 17 of the company's Annual Report on Form 10-K for the year ended December 31, 2022[72] Legal Proceedings This section details the company's ongoing legal proceedings, including securities and shareholder derivative litigations Securities Litigation This section provides an update on the securities class action, including settlement details - On July 24, 2023, the Court granted final approval of the settlement for the Securities Class Action, resolving all claims[75] - The settlement fund consists of $15 million in cash and $20 million in common stock (expected 19,782,394 shares, subject to adjustment based on VWAP)[75][76] - A $15 million insurance receivable and a $35 million legal reserve were recorded in the Consolidated Balance Sheet at June 30, 2023, related to this settlement[74] Shareholder Derivative Litigation This section provides an update on the shareholder derivative litigation, including settlement details and governance changes - On June 21, 2023, the State District Court of Nevada granted final approval of the settlement for the Shareholder Derivative Litigation[80] - Under the settlement, the company will receive $12.5 million from its D&O insurers (to be delivered to the Securities Class Action settlement) and agreed to adopt various corporate governance changes[80] - The company is responsible for $0.5 million of the $4.0 million fee to the derivative plaintiffs' attorneys[80] 14. SUBSEQUENT EVENT This note discloses significant events that occurred after the reporting period - On August 10, 2023, a subsidiary entered into a Floorplan and Security Agreement with Mitsubishi HC Capital America, Inc., providing a revolving floorplan line of credit with a maximum borrowing limit of $5.0 million[81] - The line of credit is intended to finance the acquisition of inventory for W4 CC and W750 vehicles, with interest charged at a variable rate (SOFR + 4.86%) and secured by eligible inventory[82][83] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on financial performance, liquidity, and capital resources Overview This section provides a general overview of the company's business, strategic focus, and growth objectives - Workhorse Group Inc. is an American technology company focused on pioneering the transition to zero-emission commercial vehicles by designing and manufacturing all-electric trucks and drone systems[86] - The company aims to grow organically and expand relationships with existing and new customers, bringing product innovations to market[87] Recent Developments This section highlights key operational and strategic developments impacting the company Certified Dealer Program This section details the expansion of the company's Certified Dealer Program - The company expanded its Certified Dealer Program in the second quarter, adding dealers trained to repair and maintain electric components of its vehicles in new states[88] - Certified dealers invest in EV charging infrastructure, tooling, and spare parts inventory to ensure high-quality vehicle maintenance and support customer vehicle deployment[88] Vehicles in Production This section provides an update on vehicle production, sales, and new platform development - The company experienced increased sales of W4CC, W750, and HorseFly vehicles and continued developing and commercializing package delivery trucks and drones[89] - Progress on W750 production supports the Stables & Stalls initiative, providing firsthand data on challenges and benefits of electrifying last-mile delivery fleets[89] - The company intends to generate demand and brand awareness by improving vehicle performance and functionality, and by developing new vehicle platforms such as the W56 and WNext[89] Securities Litigation and Shareholder Derivative Litigation This section provides an update on the settlements of the securities class action and shareholder derivative litigation - On July 24, 2023, the U.S. District Court granted final approval of the settlement for the Securities Class Action, involving a $15 million cash payment and $20 million in common stock for a settlement fund[90] - On June 21, 2023, the State District Court of Nevada granted final approval of the settlement for the Shareholder Derivative Litigation, where the company will receive $12.5 million from D&O insurers and implement corporate governance changes[91] Recent Trends and Market Conditions This section analyzes the impact of current market trends and macroeconomic factors Commodities This section discusses commodity price volatility and its impact on material costs - Commodity prices remain volatile, with expected price increases for base metals and raw materials used in EV batteries (e.g., lithium, cobalt, nickel) and other material inputs, leading to higher overall material costs[94] Supply Chain This section outlines strategies for managing the supply chain and mitigating production risks - The company continues to develop relationships with global suppliers for key parts and aims to identify synergies for pricing efficiencies and minimize production risks by qualifying multiple supply sources[95] Inflation This section addresses the impact of inflation on operations and future financing costs - Inflation continues to impact operations due to supply and demand imbalances and energy costs, resulting in near-term business impacts and potentially higher future financing costs due to central bank interest rate hikes[96] Results of Operations This section provides a detailed analysis of financial results, explaining key drivers Sales, net of returns and allowances This section details net sales, explaining primary drivers of revenue changes Sales, net of returns and allowances | Period | 2023 | 2022 | Change (YoY) | | :----------------------- | :------------- | :----------- | :----------- | | Three Months Ended Jun 30 | $3,966,463 | $12,555 | +31,500% | | Six Months Ended Jun 30 | $5,659,878 | $26,854 | +21,000% | - The significant increase in sales is primarily driven by sales of the W4 CC vehicle during the first six months of 2023[100] Cost of sales This section analyzes cost of sales, explaining factors contributing to production cost changes Cost of Sales | Period | 2023 | 2022 | Change (YoY) | | :----------------------- | :------------- | :------------- | :----------- | | Three Months Ended Jun 30 | $8,427,377 | $3,020,204 | +179% | | Six Months Ended Jun 30 | $13,755,496 | $6,943,555 | +98% | - The increase in cost of sales for the six months ended June 30, 2023, was primarily due to a $5.6 million increase in costs related to vehicle sales and a $1.7 million increase in employee compensation and related expenses[102] - This increase was partially offset by a $0.5 million decrease in inventory reserves, driven by the disposition of C-Series inventory items in 2022[102] Selling, general and administrative expenses This section details selling, general and administrative expenses, highlighting key drivers Selling, General and Administrative (SG&A) Expenses | Period | 2023 | 2022 | Change (YoY) | | :----------------------- | :------------- | :------------- | :----------- | | Three Months Ended Jun 30 | $14,002,517 | $13,030,143 | +7.5% | | Six Months Ended Jun 30 | $28,692,360 | $24,940,402 | +15% | - The increase in SG&A for the six months ended June 30, 2023, was primarily driven by a $3.9 million increase in employee compensation (including non-cash stock-based compensation), a $0.6 million increase in IT-related expenses, a $0.5 million increase in insurance premiums, and a $1.0 million increase in professional services[104] - This increase was partially offset by a $2.4 million decrease in legal expenses[104] Research and development expenses This section analyzes research and development expenses, explaining investments in new vehicle programs Research and Development (R&D) Expenses | Period | 2023 | 2022 | Change (YoY) | | :----------------------- | :------------- | :------------- | :----------- | | Three Months Ended Jun 30 | $5,059,745 | $5,027,061 | +0.6% | | Six Months Ended Jun 30 | $12,284,594 | $9,038,995 | +36% | - The increase in R&D for the six months ended June 30, 2023, was primarily due to a $1.7 million increase in employee compensation, a $1.0 million increase in prototype expenses, and a $0.2 million increase in consulting expenses related to the development of HorseFly™, W56, W750, and W4 CC vehicle programs[106] Interest income (expense), net This section details net interest income or expense, explaining sources and changes Interest Income (Expense), net | Period | 2023 | 2022 | Change (YoY) | | :----------------------- | :------------- | :------------- | :----------- | | Three Months Ended Jun 30 | $505,500 | $(95,419) | Shift to income | | Six Months Ended Jun 30 | $1,055,859 | $(2,318,709) | Shift to income | - Net interest income in the current period is driven by interest earned on cash in the money market investment account, contrasting with prior period interest expense related to convertible notes[108] Income taxes This section discusses the company's income tax position - The benefit for income taxes was zero for both the three and six months ended June 30, 2023[109] Liquidity and Capital Resources This section provides an overview of liquidity, capital resources, and funding strategies Liquidity and Capital Resources Summary This section summarizes key liquidity metrics and plans to address going concern uncertainties Liquidity and Capital Resources (Six Months Ended June 30, 2023) | Metric | Amount | | :-------------------------------- | :---------------- | | Sales | $5.7 million | | Loss from operations | $49.1 million | | Cash used in operating activities | $65.8 million | | Cash and cash equivalents (as of June 30, 2023) | $62.4 million | | Working capital (as of June 30, 2023) | $66.2 million | | Accumulated deficit (as of June 30, 2023) | $675.7 million | - The company expects to generate additional sales revenue and reduce discretionary spending to support operations, but there is no assurance of success in implementing these plans or acquiring additional funding[111] - The company will primarily rely on private or public placement of equity securities, including the continued use of the ATM Program, for future funding, which could have a dilutive effect on existing stockholders[113] Cash Requirements This section outlines anticipated cash needs for capital expenditures and lease payments - Expected capital expenditures for facility upgrades in Indiana, Ohio, and Michigan are between $15.0 million and $25.0 million in 2023[115] - Total minimum future lease payments were $9.6 million as of June 30, 2023[116] Sources and Condition of Liquidity This section details sources of liquidity, including equity offerings, and funding challenges - During the six months ended June 30, 2023, the company issued 38.7 million shares under the ATM Program for net proceeds of $40.3 million[117] - As of June 30, 2023, approximately $120.7 million remained available through the issuance of shares of common stock under the ATM Program[117] - The company does not currently have any committed future funding beyond contingent and royalty payments, and any additional equity financing would likely have a dilutive effect[118] Summary of Cash Flows This section provides a summary of cash flows from operating, investing, and financing activities Cash Flows from Operating Activities This section details net cash used in or provided by operating activities Net Cash Used in Operating Activities (Six Months Ended June 30) | Period | 2023 | 2022 | | :----------------------- | :-------------- | :-------------- | | Net cash used in operating activities | $(65,800,126) | $(55,462,470) | - The increase in net cash used in operations was primarily attributable to an increase in spend related to the initial inventory build for the W4 CC and W750 vehicle platforms[122] Cash Flows from Investing Activities This section details net cash used in or provided by investing activities Net Cash Used in Investing Activities (Six Months Ended June 30) | Period | 2023 | 2022 | | :----------------------- | :-------------- | :-------------- | | Net cash used in investing activities | $(10,472,730) | $(5,658,776) | - Cash flows from investing activities primarily relate to capital expenditures for upgrading administrative, research, and production facilities[123] Cash Flows from Financing Activities This section details net cash used in or provided by financing activities Net Cash Provided by (Used in) Financing Activities (Six Months Ended June 30) | Period | 2023 | 2022 | | :----------------------- | :-------------- | :-------------- | | Net cash provided by (used in) financing activities | $39,376,295 | $(465,573) | - Net cash provided by financing activities in 2023 was primarily attributable to the issuance of common stock under the ATM Program[124] Off-Balance Sheet Arrangements The company has no material off-balance sheet arrangements affecting its financial condition or liquidity - The company does not have any material off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on its financial condition, results of operations, liquidity, capital expenditures, or capital resources[125] Critical Accounting Estimates This section refers to the company's critical accounting estimates in its annual report - A discussion of the company's critical accounting estimates is contained in its Annual Report on Form 10-K for the year ended December 31, 2022[126] Recent Accounting Pronouncements This section refers to recently issued and adopted accounting pronouncements in the financial statements notes - A description of recently issued and adopted accounting pronouncements is contained in Note 12 of the Condensed Consolidated Financial Statements[126] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section refers to the company's Annual Report on Form 10-K for market risk disclosures, noting no material changes - There have been no material changes to the information provided in the Annual Report on Form 10-K for the year ended December 31, 2022, regarding quantitative and qualitative disclosures about market risk[128] Item 4. Controls and Procedures This section reports on the effectiveness of disclosure controls and internal control over financial reporting Evaluation of Disclosure Controls and Procedures This section reports on management's evaluation of the effectiveness of disclosure controls and procedures - Management, including the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the company's disclosure controls and procedures as of the end of the period and concluded they were effective[129][130] Changes in Internal Control over Financial Reporting This section reports on any material changes in internal control over financial reporting - There were no changes in internal control over financial reporting during the three months ended June 30, 2023, that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[131] PART II OTHER INFORMATION This section provides additional disclosures on legal proceedings, risk factors, and other material information Item 1. Legal Proceedings This section refers to Note 13 for a description of certain material legal proceedings - For a description of certain material legal proceedings, refer to Note 13, Commitments and Contingencies, to the Condensed Consolidated Financial Statements[133] Item 1A. Risk Factors This section refers to the Annual Report on Form 10-K for risk factors, highlighting new risks related to authorized common stock and government incentives - The company has a limited number of shares of common stock available for future issuance (approximately 210 million outstanding as of July 10, 2023, out of 250 million authorized), which could adversely affect its ability to raise capital, attract qualified personnel, or consummate strategic transactions[135] - Stockholder approval is being sought at a Special Meeting on August 28, 2023, to increase the number of authorized shares of common stock from 250 million to 450 million[136] - The unavailability, reduction, elimination, or adverse application of government subsidies and incentives, such as the California HVIP, could have an adverse effect on the company's business, prospects, financial condition, and operating results[139] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section states there were no unregistered sales of equity securities or use of proceeds to report - No unregistered sales of equity securities or use of proceeds to report[141] Item 3. Defaults Upon Senior Securities This section states there were no defaults upon senior securities to report - No defaults upon senior securities to report[142] Item 4. Mine Safety Disclosures This section states that mine safety disclosures are not applicable to the company - Mine safety disclosures are not applicable to the company[143] Item 5. Other Information This section discloses no insider trading arrangements and details a new $5.0 million revolving floorplan line of credit Insider Trading Arrangements This section reports on the adoption or termination of insider trading arrangements by officers and directors - During the three and six months ended June 30, 2023, none of the company's officers or directors adopted or terminated any Rule 10b5-1(c) plans or non-Rule 10b5-1 trading arrangements[144] Floorplan and Security Agreement This section provides details on a new revolving floorplan line of credit entered into by a subsidiary post-period end - On August 10, 2023, a subsidiary entered into a Floorplan and Security Agreement with Mitsubishi HC Capital America, Inc., providing a revolving floorplan line of credit with a maximum borrowing limit of $5.0 million[145] - Additional information concerning this agreement is provided in Note 14, Subsequent Event, to the Condensed Consolidated Financial Statements[145] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including corporate documents, the Floorplan and Security Agreement, CEO/CFO certifications, and XBRL interactive data files - Exhibits include Second Amended and Restated Bylaws, the Floorplan and Security Agreement, CEO and CFO certifications, and Inline XBRL documents[147] SIGNATURES This section contains the required signatures of the company's principal executive, financial, and accounting officers - The report is signed by Richard Dauch (Chief Executive Officer), Robert M. Ginnan (Chief Financial Officer), and Gregory T. Ackerson (Chief Accounting Officer) on August 14, 2023[151]