Workhorse(WKHS) - 2022 Q4 - Annual Report

PART I Item 1. Business Workhorse Group Inc. is an American technology company focused on pioneering the transition to zero-emission commercial vehicles, specializing in all-electric delivery trucks and drone systems for the last-mile delivery market - Workhorse Group Inc. is an American technology company focused on designing and manufacturing all-electric delivery trucks and drone systems for the commercial transportation sector, specifically the last-mile delivery market[16][141][249] - The company is executing a revised strategic product roadmap, focusing on developing two new truck chassis platforms: the W56 (Class 5 and 6, expected production 2023) and the WNext (second-generation, low-floor, expected production 2025)[17][144] - In 2022, Workhorse introduced Class 4 step vans (W4 CC and W750) through a strategic supply agreement with GreenPower Motor Company Inc., with the W4 CC available in 2022 and the W750 expected in 2023[18][145][159] - The C1000 electric delivery truck program was discontinued in December 2022, with resources reallocated to the new Class 4-6 vehicle platforms[19][149] - Workhorse develops small Unmanned Aerial Systems (UAS), including HorseFly™ for package delivery and HALO for humanitarian/logistical operations, with FAA Type Certification process initiated for HorseFly[23][25][146] Overview This section provides a general overview of the company's business and strategic direction Commercial Vehicles This section details the company's offerings in the commercial electric vehicle market Stables & Stalls This section describes the company's vehicle management and charging solutions Aero This section covers the company's drone systems and aerial delivery solutions Locations and Facilities This section outlines the company's operational sites and infrastructure Marketing This section discusses the company's strategies for promoting its products and services Strategic Relationships This section highlights key partnerships and collaborations Technology, Research and Development This section details the company's innovation efforts and R&D investments Competition This section analyzes the competitive landscape for the company's products Supply Chain This section addresses the company's supply chain management and dependencies Regulatory This section covers the regulatory environment affecting the company's operations Available Information This section specifies where public information about the company can be accessed Intellectual Property This section describes the company's intellectual property assets and protection strategies Environmental, Social, and Governance ("ESG") This section outlines the company's commitments and initiatives related to ESG factors Human Capital This section discusses the company's workforce, talent management, and human resources Item 1A. Risk Factors Significant risks include financing needs, global economic uncertainty, and new truck platform development challenges - The company expects to require additional financing in 2023 and beyond to fund operations and business plans, with no assurance of availability on acceptable terms, potentially leading to dilution for stockholders[67][188] - Uncertain global macro-economic and political conditions, including inflation, interest rate hikes, and geopolitical conflicts (e.g., Ukraine invasion), could adversely affect operations, customer spending, and financing availability[68][69][70][167] - Significant risks exist in executing the business plan, including potential delays or failures in developing and ramping up production of new truck chassis platforms (W56 and WNext) and meeting regulatory requirements[71][72] - The company has an accumulated deficit of $627.6 million as of December 31, 2022, and has not achieved profitability or positive cash flow from operations, with continued losses expected in 2023[73][74][186] - Supply chain disruptions, particularly for battery packs and microchips, and volatility in commodity prices (e.g., lithium, cobalt, steel) pose risks of increased costs and production delays[105][106][166] - The company is subject to product liability claims, recalls (such as the C1000 recall in 2021), and regulatory investigations (e.g., SEC and DOJ inquiries), which could result in substantial costs, penalties, and reputational damage[107][354][358] Item 1B. Unresolved Staff Comments There are no unresolved staff comments from the SEC - The company has no unresolved staff comments[122] Item 2. Properties Workhorse Group Inc. operates its corporate headquarters and R&D facilities in the Greater Cincinnati area, Ohio, with manufacturing in Union City, Indiana - The company's corporate headquarters and R&D facilities are in Greater Cincinnati, Ohio[123] - The primary manufacturing facility for electric delivery trucks is located in Union City, Indiana[123] - Additional facilities include an engineering and technical design center in Wixom, Michigan, and a drone systems production facility in Mason, Ohio[123] Item 3. Legal Proceedings The company is involved in various legal proceedings, including a class action litigation and regulatory inquiries, with a settlement reached for the securities class action - The company is a defendant in a securities class action and related shareholder derivative litigation, alleging violations of federal securities laws[360][363] - A binding term sheet was signed on October 24, 2022, to resolve the securities class action and derivative litigation, with a settlement involving $15 million in cash (insurance-funded) and $20 million in Workhorse common stock, pending court approval[162][361][369] - The company completed a recall of C1000 vehicles in 2022 due to non-compliance with FMVSS and repurchased all affected vehicles, incurring no further recall obligations[354][356] - The SEC concluded its investigation into the company's statements regarding the USPS contract and certain customer sales, not intending to recommend enforcement action as of December 20, 2022; a related DOJ investigation is ongoing[358] Item 4. Mine Safety Disclosures This item is not applicable to the company - Mine Safety Disclosures are not applicable to Workhorse Group Inc[126] PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Workhorse Group Inc.'s common stock is traded on the NASDAQ Capital Market under "WKHS," with 171,167,673 shares outstanding as of January 31, 2023, and no cash dividends paid - Workhorse Group Inc. common stock trades on the NASDAQ Capital Market under the symbol "WKHS"[129] - As of January 31, 2023, there were 171,167,673 shares of common stock outstanding[7] - The company has never paid cash dividends and plans to reinvest all future earnings into business expansion, not anticipating cash dividends in the foreseeable future[118][131] - During the quarter ended December 31, 2022, the company issued 244,035 shares of common stock to Mitsubishi for services rendered in the Stables & Stalls program[136] - No shares of common stock were repurchased by the company during the quarter ended December 31, 2022[137] Item 6. Reserved This item is reserved and contains no information - Item 6 is reserved[138] Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's Discussion and Analysis highlights Workhorse's strategic shift to new truck platforms and drone systems, with a significant reduction in net loss and improved gross loss in 2022 - The company's primary focus is on providing sustainable and cost-effective all-electric delivery trucks and drone systems for the commercial transportation sector[141][249] - Workhorse is executing a revised strategic product roadmap, developing W56 and WNext truck chassis platforms, and began producing and selling the W4 CC in 2022, with W750 deliveries expected in 2023[144][145] - The C1000 vehicle platform was discontinued in Q4 2022, leading to a $19.5 million impairment reserve for excess or obsolete inventories[149][150] - The company entered into a binding settlement term sheet for securities litigation, involving a $15 million cash payment (insurance-funded) and $20 million in common stock, resulting in a $35 million legal reserve and $20 million legal expense in 2022[162] Consolidated Statements of Operations Summary (2022 vs. 2021) | Metric | 2022 (USD) | 2021 (USD) | Change (USD) | Change (%) | | :----------------------------------- | :----------- | :----------- | :----------- | :--------- | | Sales, net | 5,023,072 | (851,922) | 5,874,994 | N/A | | Cost of sales | 37,672,308 | 132,492,110 | (94,819,802) | -71.6% | | Gross loss | (32,649,236) | (133,344,032) | 100,694,796 | -75.5% | | Total operating expenses | 96,433,628 | 51,770,822 | 44,662,806 | 86.3% | | Loss from operations | (129,082,864) | (185,114,854) | 56,031,990 | -30.3% | | Net (loss) income | (117,274,218) | (401,344,813) | 284,070,595 | -70.8% | - The company had $99.3 million in cash and cash equivalents and positive working capital of $74.9 million as of December 31, 2022, but incurred a net loss of $117.3 million and used $93.8 million in operating activities for the year[186][250] Overview This section provides a high-level summary of the company's financial performance and strategic direction Management Opportunities, Challenges and Risks and 2023 Outlook This section discusses the key opportunities, challenges, and risks facing management, along with the company's outlook for 2023 Recent Trends and Market Conditions This section analyzes current market trends and conditions impacting the company's business Results of Operations This section provides a detailed analysis of the company's financial results for the reporting period Liquidity and Capital Resources This section examines the company's cash position, funding sources, and capital management strategies Critical Accounting Estimates This section outlines the significant accounting judgments and estimates used in financial reporting Recent Accounting Pronouncements This section details the impact of newly issued accounting standards on the company's financial statements Item 7A. Quantitative and Qualitative Disclosures About Market Risk The company's investment strategy focuses on principal preservation and income maximization, with no material exposure to interest rate or foreign currency risk - The company's investment strategy focuses on preserving principal and maximizing income from investments, primarily in money market funds and short-term debt securities with maturities less than one year[216] - Workhorse believes it has no material exposure to interest rate risk or market risk due to the short-term nature and low interest rate yields of its investments[216] - The company has no significant exposure to foreign currency rate fluctuations as it transacts business primarily in the United States[217] Item 8. Financial Statements and Supplementary Data This section presents the audited consolidated financial statements for Workhorse Group Inc. for the years ended December 31, 2022, 2021, and 2020, with an unqualified opinion from Grant Thornton LLP - Grant Thornton LLP issued an unqualified opinion on the consolidated financial statements for Workhorse Group Inc. for the three years ended December 31, 2022[221] Consolidated Balance Sheet Highlights (as of December 31) | Metric | 2022 (USD) | 2021 (USD) | | :-------------------------------- | :----------- | :----------- | | Cash and cash equivalents | 99,276,301 | 201,647,394 | | Total current assets | 139,358,267 | 216,222,366 | | Total Assets | 182,742,475 | 228,138,890 | | Total current liabilities | 63,310,482 | 27,550,064 | | Total Liabilities | 74,155,544 | 53,446,117 | | Total stockholders' equity | 108,586,931 | 174,692,773 | | Accumulated deficit | (627,649,062) | (510,374,844) | Consolidated Statements of Cash Flows Summary (Years Ended December 31) | Activity | 2022 (USD) | 2021 (USD) | 2020 (USD) | | :-------------------------------- | :----------- | :----------- | :----------- | | 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, cash equivalents and restricted cash, end of year | 99,276,301 | 201,647,394 | 241,229,067 | - The company's inventory, net, decreased from $10.1 million in 2021 to $8.9 million in 2022, primarily due to the discontinuation of the C1000 program and associated inventory reserve decreases[287] - Workhorse recognized a $10.0 million investment in Tropos as of December 31, 2022, stemming from a $5.0 million cash payment and a $5.0 million non-cash contribution for future assembly services[155][291][292] - The remaining $27.5 million in convertible notes were exchanged for 7.8 million shares of common stock in April 2022, resulting in no convertible notes outstanding[160][312][313] Report of Independent Registered Public Accounting Firm This section contains the independent auditor's opinion on the consolidated financial statements Consolidated Financial Statements This section presents the company's balance sheets, statements of operations, comprehensive income, stockholders' equity, and cash flows Notes to Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the consolidated financial statements Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure There have been no changes in or disagreements with accountants on accounting and financial disclosure matters for Workhorse Group Inc - There are no changes in or disagreements with accountants on accounting and financial disclosure[374] Item 9A. Controls and Procedures Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2022 - As of December 31, 2022, the company's disclosure controls and procedures were deemed effective at a reasonable assurance level[376] - Management concluded that internal control over financial reporting was effective as of December 31, 2022, based on the COSO 2013 framework[378] - No material changes in internal control over financial reporting occurred during the quarter ended December 31, 2022[380] Item 9B. Other Information This item contains no other information - There is no other information to report under Item 9B[381] Item 9C. Information Regarding Foreign Jurisdictions that Prevent Inspection This item is not applicable to the company - Information regarding foreign jurisdictions that prevent inspection is not applicable[382] PART III Item 10. Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance will be incorporated by reference from the 2023 Proxy Statement - Information on Directors, Executive Officers, and Corporate Governance will be incorporated by reference from the 2023 Proxy Statement[385] Item 11. Executive Compensation Information on executive compensation will be incorporated by reference from the 2023 Proxy Statement - Information on Executive Compensation will be incorporated by reference from the 2023 Proxy Statement[386] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information on security ownership of certain beneficial owners and management will be incorporated by reference from the 2023 Proxy Statement - Information on Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters will be incorporated by reference from the 2023 Proxy Statement[387] Item 13. Certain Relationships and Related Transactions, and Director Independence Information on certain relationships, related transactions, and director independence will be incorporated by reference from the 2023 Proxy Statement - Information on Certain Relationships and Related Transactions, and Director Independence will be incorporated by reference from the 2023 Proxy Statement[388] Item 14. Principal Accounting Fees and Services Information on principal accounting fees and services will be incorporated by reference from the 2023 Proxy Statement - Information on Principal Accounting Fees and Services will be incorporated by reference from the 2023 Proxy Statement[389] PART IV Item 15. Exhibits and Financial Statement Schedules This section lists all exhibits and financial statement schedules filed as part of the Form 10-K report, with schedules omitted as information is included elsewhere - This section provides a comprehensive list of exhibits filed with the Form 10-K, including corporate governance documents, agreements, and certifications[393] - All financial statement schedules have been omitted because the required information is either not applicable, not present in sufficient amounts, or already included in the consolidated financial statements or accompanying notes[393] Item 16. Form 10-K Summary This item indicates that no Form 10-K summary is provided - No Form 10-K Summary is provided[397] Signatures The Form 10-K report was duly signed on March 1, 2023, by Richard Dauch, CEO, President, and Director, along with other principal officers and directors - The report was signed on March 1, 2023, by Richard Dauch, Chief Executive Officer, President and Director, as the Principal Executive Officer[402][403] - Other signatories include the Chief Financial Officer, Chief Accounting Officer, and various directors[403]