Workhorse Group Inc

Previous wording

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 trucks, including the technology that optimizes the way these vehicles operate. We are focused on our core competency of bringing our electric delivery vehicle platforms to serve the last mile delivery market.

Current wording

We are an American technology company with a vision to pioneer the transition to zero-emission commercial trucks. Our primary focus is to provide sustainable and cost-effective solutions to the commercial transportation sector. We design and manufacture all-electric trucks, including the technology that optimizes the way these trucks operate. We are focused on our core competency of bringing our electric delivery truck platforms to serve the last mile delivery market.

Previous wording

During the three months ended June 30, 2024, we issued and sold to the Investor (i) 2024 Notes in the original principal amount of $13.3 million and (ii) 2024 Warrants to purchase up to 3.9 million shares of Common Stock. As of June 30, 2024 we had issued and sold to the Investor (i) 2024 Notes in aggregate original principal amount of $22.3 million and (ii) 2024 Warrants to purchase up to 5.5 million shares of Common Stock pursuant to the 2024 Securities Purchase Agreement (following adjustment in connection with the Company's 1-for-20 Reverse Split).

Current wording

During the three months ended September 30, 2024, we issued and sold to the Investor (i) 2024 Notes in the original principal amount of $10.0 million and (ii) 2024 Warrants to purchase up to 10.1 million shares of Common Stock. As of September 30, 2024 we had issued and sold to the Investor (i) 2024 Notes in aggregate original principal amount of $32.3 million and (ii) 2024 Warrants to purchase up to 15.6 million shares of Common Stock pursuant to the 2024 Securities Purchase Agreement (following adjustment in connection with the Company's 1-for-20 Reverse Split). In addition, on October 16, 2024, we issued and sold to the Investor an additional 2024 Notes in the original principal amount of $1.2 million. The Investor waived its right to receive warrants in connection with this issuance and sale.

Previous wording

The 2024 Securities Purchase Agreement provides additional closings as of August 19, 2024 of up to$112.7 million in aggregate principal amount of additional 2024 Notes and, if our share price makes such exercise feasible, the possible receipt of proceeds from the exercise of the corresponding 2024 Warrants pursuant to the 2024 Securities Purchase Agreement. However, we may not realize the full amount available under the 2024 Securities Purchase Agreement. Under the terms of the 2024 Securities Purchase Agreement, our ability to issue and sell additional 2024 Notes to the Investor is restricted if the Investor has not converted previous tranches of 2024 Notes into our Common Stock and sold the shares issued on conversion. Accordingly, the Investor’s ability to make such conversions and sales, and therefore our access to additional liquidity under the 2024 Securities Purchase Agreement, depends on there being a robust public trading market for our Common Stock. Since consummating the Reverse Split of our Common Stock in June 2024, the Nasdaq trading volume of our Common Stock has generally been lower (on a Reverse Split-adjusted basis) than it was before we consummated the Reverse Split. If these conditions continue, the $112.7 million aggregate amount of 2024 Notes we can issue and sell under the 2024 Securities Purchase Agreement may be reduced, and the issuances and sales that we are able to make may be delayed.

Current wording

The 2024 Securities Purchase Agreement contemplates additional closings as of November 18, 2024 of up to $105.5 million in aggregate principal amount of additional 2024 Notes and, if our share price makes such exercise feasible, the possible receipt of proceeds from the exercise of the corresponding 2024 Warrants pursuant to the 2024 Securities Purchase Agreement. However, we may not realize the full amount available under the 2024 Securities Purchase Agreement. Under the terms of the 2024 Securities Purchase Agreement, our ability to issue and sell additional 2024 Notes to the Investor is restricted if the Investor has not converted previous tranches of 2024 Notes into our Common Stock and sold the shares issued on conversion. Accordingly, the Investor’s ability to make such conversions and sales, and therefore our access to additional liquidity under the 2024 Securities Purchase Agreement, depends on there being a robust public trading market for our Common Stock. Since consummating the Reverse Split of our Common Stock in June 2024, the Nasdaq trading volume of our Common Stock has generally been lower (on a Reverse Split-adjusted basis) than it was before we consummated the Reverse Split. In addition, on October 2, 2024, the Company received a written notice (the “Notice”) from the Listing Qualifications Department of Nasdaq Stock Market (“Nasdaq”) indicating that, because the closing bid price of the Company’s Common Stock had fallen below $1.00 per share for 30 consecutive trading days, the Company was no longer in compliance with the $1.00 Minimum Bid Price Requirement set forth in Nasdaq Listing Rule 5550(a)(2) for continued listing on The Nasdaq Capital Market (the “Bid Price Requirement”). If these conditions continue, the $105.5 million aggregate amount of 2024 Notes (as of November 18, 2024) we can issue and sell under the 2024 Securities Purchase Agreement may be reduced, and the issuances and sales that we are able to make may be delayed.

Previous wording

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. Accordingly, in the first and second quarter of 2024 we took the measures described below and started to realize the full benefit of such measures during the second quarter ended June 30, 2024.

Current wording

Another vital component of management’s plan 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. Accordingly, in the first and second quarter of 2024 we took the measures described below and started to realize the full benefit of such measures during the third quarter ended September 30, 2024.

Previous wording

•We completed a reduction in force (the “RIF”) pursuant to which we terminated approximately 20% of our total workforce, excluding direct labor. We have not incurred and do not expect to incur material costs in connection with the RIF.

Current wording

•We completed a reduction in force (the “RIF”) pursuant to which we terminated approximately 20% of our total workforce, excluding direct labor. We have not incurred and do not expect to incur additional material costs in connection with the RIF.

Previous wording

In addition, on April 22, 2024, we furloughed 73 employees at our Union City manufacturing facility without pay, and we have experienced voluntary attrition of personnel, including senior managers of the Company, during and after the second quarter of 2024. We expect the furloughs and voluntary attrition to continue to provide operational savings. We have not incurred, and do not expect to incur, material costs in connection with the furloughs. We are also currently working with certain of our vendors to extend or restructure the payment terms of past due accounts payable balances. The furloughs, salary deferrals and vendor discussions are part of our previously disclosed strategy to reduce costs. During the second quarter of 2024, we started to reinstate certain furloughed employees to fulfill vehicle production requirements for the W56. However, there is still no assurance that all furloughed employees, including key personnel will be available and willing to return to work or that we will be able to replace the employees who departed voluntarily.

Current wording

In addition, on April 22, 2024, we furloughed 73 employees at our Union City manufacturing facility without pay, and we have experienced voluntary attrition of personnel, including senior managers of the Company, during the third quarter of 2024. We expect the furloughs and voluntary attrition to continue to provide operational savings. We have not incurred, and do not expect to incur, material costs in connection with the furloughs. We are also currently working with certain of our vendors to extend or restructure the payment terms of past due accounts payable balances. The furloughs, salary deferrals and vendor discussions are part of our previously disclosed strategy to reduce costs.

Previous wording

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. 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.

Current wording

Management plans to continue to seek additional opportunities to reduce costs and cash expenditures in a manner intended to minimize their adverse impact on our core operations. 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.

Previous wording

On June 6, 2024, we completed the previously disclosed divestiture of our Aero business (the “Aero Divestiture”) to a third party. We expect the Aero Divestiture to provide monthly cost savings of approximately $0.4 million and enhance our ability to concentrate on our commercial electric vehicle truck business. Under the agreement’s earn-out provisions, the Company will receive a portion of the proceeds if the Aero business realizes positive net cash flow but these contingencies are indeterminable at this time. The loss on the sale for this business was $0.7 million of which $0.4 million was included in the Selling, general and administrative expenses and $0.3 million in Cost of sales on the Condensed Consolidated Statements of Operations for three and six months ended June 30, 2024.

Current wording

As previously disclosed and discussed above as part of our cost-saving measures, on June 6, 2024, we completed the previously disclosed divestiture of our Aero business (the “Aero Divestiture”) to a third party. We expect the Aero Divestiture to provide monthly cost savings of approximately $0.4 million and enhance our ability to concentrate on our commercial electric truck business. Under the agreement’s earn-out provisions, the Company will receive a portion of the proceeds if the Aero business realizes positive net cash flow but these contingencies are indeterminable at this time. The loss on the sale for this business was $0.7 million of which $0.4 million was included in the Selling, general and administrative expenses and $0.3 million in Cost of sales in the Condensed Consolidated Statements of Operations for the nine months ended September 30, 2024.

Previous wording

As previously disclosed, on September 22, 2023, we received notice from Nasdaq indicating that the closing bid price for our Common Stock had fallen below Nasdaq’s $1.00 minimum bid price requirement (the“Minimum Bid Requirement”) for continued listing for 30 consecutive trading days and, therefore, we were no longer in compliance with the Minimum Bid Requirement. In order for us to regain compliance, the closing bid price of our Common Stock had to be equal to or above the $1.00 minimum bid price for a period of 10 consecutive trading days prior to March 20, 2024. As also previously disclosed, on March 21, 2024, we received written notification from Nasdaq granting our request for a 180-day extension to regain compliance with the minimum bid requirement. After the granting of the extension, the closing bid price of our Common Stock had to be equal to or above the $1.00 minimum bid price for a period of 10 consecutive trading days prior to September 16, 2024.

Current wording

As previously disclosed, on October 2, 2024, we received notice from Nasdaq indicating that, the closing bid price for our Stock had fallen below Nasdaq’s $1.00 minimum bid price requirement (the “Minimum Bid Requirement”) for 30 consecutive trading days, and therefore we were no longer in compliance with the $1.00 Minimum Bid Requirement. In order for us to regain compliance, the closing bid price of our Common Stock must be equal to or above $1.00 for a period of 10 consecutive trading days prior to March 31, 2025.

Previous wording

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 first half of 2024, we continued executing our strategic product roadmap for our electric vehicle offerings, including the production of the W4CC, W56 and the development of the W56 208-inch wheelbase vehicle program in both strip chassis and step van variants. We continued to electrify the fleet of vehicles being used in our Stables by Workhorse initiative, which operates FedEx Ground delivery routes in the greater Cincinnati area. The electrification of the fleet provides us with firsthand data on the benefits and challenges of independent fleet operators experience while executing last-mile delivery operations. The initiative also provides valuable insights into how our customers can plan for and manage the transition to EV operations, including how to develop adequate charging infrastructure, training and maintenance services. In addition to our ongoing production ramp in 2024-2025, we intend to continue to generate demand and brand awareness by improving our vehicles’ performance and functionality, and by developing new vehicle programs, including new W56 variants. We expect to continue to benefit from ongoing electrification of the commercial vehicle market and in particular "last mile delivery" sector.

Current wording

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 first nine months of 2024, we continued executing our strategic product roadmap for our electric truck offerings, including the production of the W4 CC, W56 and the development of the W56 208-inch wheelbase truck program in both strip chassis and step van variants. We continued to electrify the fleet of trucks being used in our Stables by Workhorse initiative, which operates FedEx Ground delivery routes in the greater Cincinnati area. The electrification of the fleet provides us with firsthand data on the benefits and challenges of independent fleet operators experience while executing last-mile delivery operations. The initiative also provides valuable insights into how our customers can plan for and manage the transition to EV operations, including how to develop adequate charging infrastructure, training and maintenance services. In addition to our ongoing production ramp in 2024-2025, we intend to continue to generate demand and brand awareness by improving our trucks’ performance and functionality, and by developing new truck programs, including new W56 variants. We expect to continue to benefit from ongoing electrification of the commercial truck market and in particular "last mile delivery" sector.

Previous wording

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.

Current wording

We continue to monitor macroeconomic conditions to remain flexible and to optimize and evolve our business as appropriate, in this tumultuous environment and we will endeavor to project demand and infrastructure requirements globally and deploy our production, workforce and other resources accordingly.

Previous wording

Market Demand. Our sales during the first half of 2024 were lower than the prior year period due to slower-than-anticipated industry wide electric vehicle adoption rates and lack of government subsidies and incentives available to our dealers as well as slower than expected roll-out of additional power to electric grids and the resulting effect on roll-outs of electric vehicle charging infrastructure, nationwide. Delayed governmental approvals in certain states and slower than expected proliferation of charging stations across the country have also adversely impacted demand. However, we expect adoption rates to accelerate in 2025, driven by more stringent state and federal emissions requirements and continued government subsidies and incentives that will continue to reduce cost barriers for EV ownership, including the approval for our W56 platform for the California’s Hybrid and Zero-Emission Truck and Bus Voucher Incentive Project (HVIP) program through California Air Resource Board (CARB), providing buyers with an $85,000 base voucher per W56 vehicle purchased. The accelerated adoption rates are related to the enforcement of California’s Advanced Clean Fleets Regulation (“ACF Regulation”), which is contingent upon the Environmental Protection Agency (“EPA”) granting a waiver or determining that a waiver is not necessary. Under the Clean Air Act, California holds the unique authority to request a waiver of preemption, which typically restricts states from setting their own emissions standards for new motor vehicles. The EPA’s role involves a thorough review of comments and an assessment to determine if the criteria for granting a waiver are satisfied. This regulatory landscape is a significant consideration for our operations and strategic planning.

Current wording

Market Demand. Our sales during the first nine months of 2024 were lower than the prior year period due to slower-than-anticipated industry wide electric truck adoption rates and lack of government subsidies and incentives available to our dealers as well as slower than expected roll-out of additional power to electric grids and the resulting effect on roll-outs of electric truck charging infrastructure, nationwide. Delayed governmental approvals in certain states and slower than expected proliferation of charging stations across the country have also adversely impacted demand. However, we expect adoption rates to accelerate in 2025, driven by more stringent state and federal emissions requirements and continued government subsidies and incentives that will continue to reduce cost barriers for EV ownership, including the approval for our W56 platform for the California’s Hybrid and Zero-Emission Truck and Bus Voucher Incentive Project ("HVIP") program through California Air Resource Board ("CARB"), providing buyers with an $85,000 base voucher per W56 truck purchased. The accelerated adoption rates are related to the enforcement of California’s Advanced Clean Fleets Regulation (“ACF Regulation”), which is contingent upon the Environmental Protection Agency (“EPA”) granting a waiver or determining that a waiver is not necessary. Under the Clean Air Act, California holds the unique authority to request a waiver of preemption, which typically restricts states from setting their own emissions standards for new motor trucks. The EPA’s role involves a thorough review of comments and an assessment to determine if the criteria for granting a waiver are satisfied. This regulatory landscape is a significant consideration for our operations and strategic planning.

Previous wording

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

Current wording

Commodities. Prices for commodities remain volatile, and we expect to experience price increases for base metals and raw materials that are used in batteries for electric trucks (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 expect the net impact on us overall will be higher material costs.

Previous wording

Supply Chain. We continue to develop relationships with suppliers of key parts, components and raw materials to be used in the manufacture of our products such as batteries, electronics, and vehicle chassis that are sourced from suppliers across the world. As we continue to execute on our new vehicle programs, we will continue to identify supplier relationship and vehicle program synergies which may allow us to take advantage of pricing efficiencies from economies of scale. Where available, we will utilize multiple supply sources for key parts, and we will work to qualify multiple supply sources to achieve pricing efficiencies and minimize potential production risks related to supply chain. As previously disclosed, we are currently working with certain of our vendors to extend or restructure the payment terms of past due accounts payable balances. We are also currently in litigation with one of our battery suppliers, Coulomb Solutions Inc. For more information concerning this matter, see Note15, Commitments and Contingenciesto the Condensed Consolidated Financial Statements attached hereto.

Current wording

Supply Chain. We continue to develop relationships with suppliers of key parts, components and raw materials to be used in the manufacture of our products such as batteries, electronics, and truck chassis that are sourced from suppliers across the world. As we continue to execute on our new truck programs, we will continue to identify supplier relationship and truck 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 will work to qualify multiple supply sources to achieve pricing efficiencies and minimize potential production risks related to supply chain. As previously disclosed, we are currently working with certain of our vendors to extend or restructure the payment terms of past due accounts payable balances. We are also currently in litigation with one of our battery suppliers, Coulomb Solutions Inc. For more information concerning this matter, see Note 15, Commitments and Contingenciesto the Condensed Consolidated Financial Statements included in this Form 10-Q.

Previous wording

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 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 hold constant high interest rates, which will likely raise the cost of any financing the Company may undertake in the future.

Current wording

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 are seeing a near-term impact on our business due to inflationary pressure. In an effort to dampen inflationary pressures, central bank interest rates continue to be higher, which would likely raise the cost of any financing the Company may undertake in the future.

Previous wording

Geopolitical: 2024 is a Presidential election year in the U.S., and our operations and results may be impacted due to uncertainty of the political environment. Election results could affect the support for the adoption of electric vehicles, as well as the availability of government subsidies to fund the adoption of electric vehicles. In addition, recent U.S. Supreme Court decisions that purport to limit the authority of federal executive agencies, including the EPA, may affect our industry in ways we cannot yet predict.

Current wording

Geopolitical: Our operations and results may be impacted due to uncertainty of the political environment and the new Presidential Administration. The new Presidential Administration could affect the support for the adoption of electric trucks, as well as the availability of government subsidies to fund the adoption of electric trucks and may implement additional tariffs on imports that affect us and our industry. In addition, recent U.S. Supreme Court decisions that purport to limit the authority of federal executive agencies, including the EPA, may affect our industry in ways we cannot yet predict.

Previous wording

The following section provides a narrative discussion about our financial condition and results of operations. The comments should be read in conjunction with our Condensed Consolidated Financial Statements and related Notes thereto included in Item 1 of this Form 10-Q and in conjunction with our Form 10-K.

Current wording

The following section provides a narrative discussion about our financial condition and results of operations. The narrative should be read in conjunction with our Condensed Consolidated Financial Statements and related Notes thereto included in Item 1 of this Form 10-Q and in conjunction with our 2023 Form 10-K

Previous wording

Sales, net of returns and allowances for the three months ended June 30, 2024 and 2023 were $0.8 million and $4.0 million, respectively. Sales, net of returns and allowances, for the six months ended June 30, 2024 and 2023 were $2.2 million and $5.7 million, respectively. The decrease in sales was primarily due to lower W4 CC vehicle sales compared with the same period a year ago, which was partially offset by an increase in other service revenue generated from operating our Stables by Workhorse route, Drones as a Service before the Aero Divestiture and other service revenue.

Current wording

Sales, net of returns and allowances for the nine months ended September 30, 2024 and 2023 were $4.7 million and $8.7 million, respectively. The decrease in sales was primarily due to lower W4 CC truck sales compared with the same period a year ago, which was offset by an increase in W56 truck sales, other service revenue generated from operating our Stables by Workhorse route, Drones as a Service before the Aero Divestiture and other service revenue.

Previous wording

Cost of sales for the three months ended June 30, 2024 and 2023 were $7.3 million and $8.4 million, respectively. The decrease in cost of sales was primarily due to a $4.4 million decrease in costs related to direct materials due to lower sales volume and higher volume of vehicles capitalized into finished goods, a decrease in consulting expenses of $0.5 million and a $0.5 million decrease in employee compensation and related expenses due to lower headcount as result of employee furloughs during the period. The decrease in cost of sales was partially offset by a $2.7 million increase in inventory reserve expenses, and a $1.0 million increase in depreciation expense.

Current wording

Cost of sales for the three months ended September 30, 2024 and 2023 were $6.6 million and $6.6 million, respectively. Cost of sales was primarily flat due to increase in costs related to direct materials due to higher sales volume, which was partially offset by lower inventory reserves of $1.1 million and lower direct and indirect labor costs of $1.0 million primarily due to lower headcount as a result of employee furloughs during the period.

Previous wording

Cost of sales for the six months ended June 30, 2024 and 2023 were $14.7 million and $13.8 million, respectively. The increase in cost of sales was primarily due to a $4.6 million increase in inventory reserve expenses and a $2.0 million increase in depreciation expense which was offset by a $4.4 million decrease in costs related to direct materials and a $1.4 million reversal of warranty expenses previously accrued.

Current wording

Cost of sales for the nine months ended September 30, 2024 and 2023 were $21.4 million and $20.3 million, respectively. The increase in cost of sales was primarily due to a $3.5 million increase in inventory reserves and a $2.8 million increase in depreciation expense which was partially offset by a $2.3 million decrease in costs related to direct materials, $1.4 million reversal of warranty expenses previously accrued, and a decrease in consulting expenses of $1.4 million.

Previous wording

Selling, general and administrative (“SG&A”) expenses during the three months ended June 30, 2024 and 2023 were $12.1 million and $14.0 million, respectively. The decrease in SG&A expenses was driven by a $2.4 million decrease in employee compensation and related expenses primarily due to lower headcount and a decrease of $0.6 million in marketing expenses during the period, which was partially offset by a $0.2 million increase in depreciation expense and a $0.3 million increase in information technology costs.

Current wording

Selling, general and administrative (“SG&A”) expenses during the three months ended September 30, 2024 and 2023 were $7.7 million and $11.8 million, respectively. The decrease in SG&A expenses was driven by a $1.8 million decrease in employee compensation and related expenses primarily due to lower headcount, a decrease of $1.1 million in consulting expenses, a decrease in legal and professional expenses of $0.3 million and lower corporate insurances of $0.3 million.

Previous wording

Research and development (“R&D”) expenses during the three months ended June 30, 2024 and 2023 were $2.0 million and $5.1 million, respectively. The decrease in R&D expenses was primarily driven by a $2.0 million decrease in employee compensation and related expenses due to lower headcount and a $0.8 million decrease in consulting expenses, which was partially offset by a $0.4 million increase in prototype expenses driven by the W56 208 wheel-base program.

Current wording

Research and development (“R&D”) expenses during the three months ended September 30, 2024 and 2023 were $2.3 million and $5.8 million, respectively. The decrease in R&D expenses was primarily driven by a $2.1 million decrease in employee compensation and related expenses due to lower headcount and a $0.8 million decrease in consulting expenses.

Previous wording

R&D expenses during the six months ended June 30, 2024 and 2023 were $5.5 million and $12.3 million, respectively. The decrease in R&D expenses was primarily driven by a $2.6 million decrease in employee compensation and related expenses due to lower headcount, a $1.7 million decrease in prototype expenses related to development expenses for new products which launched in 2023, a $1.5 million decrease in consulting expenses related to the W56 program, and a reduction in other expenses of $0.6 million.

Current wording

R&D expenses during the nine months ended September 30, 2024 and 2023 were $7.8 million and $18.1 million, respectively. The decrease in R&D expenses was primarily driven by a $5.2 million decrease in employee compensation and related expenses due to lower headcount, a $1.8 million decrease in prototype expenses related to development expenses for new products which launched in 2023, a $2.3 million decrease in consulting expenses related to the W56 program, and a reduction in other expenses of $0.9 million.

Previous wording

Net interest expense for the three months ended June 30, 2024 was $5.2 million compared to net interest income of $0.5 million for the three months ended June 30, 2023. Net interest expense in the current year was driven by a fair value adjustment of $3.6 million and $1.9 million financing fees paid in connection with the 2024 Notes issued during the period.

Current wording

Net interest expense for the three months ended September 30, 2024 was $8.3 million compared to net interest income of $0.4 million for the three months ended September 30, 2023. The increase is primarily due to $2.9 million in financing fees related to funds received, a $5.3 million fair value net loss, partially offset by interest income of $0.4 million due to higher cash balances in the previous period.

Previous wording

Benefit for income taxes during the three and six months ended June 30, 2024 and 2023 was zero as all income tax benefits

Current wording

Benefit for income taxes during the three and nine months ended September 30, 2024 and 2023 was zero as all income tax benefits are reserved.

Previous wording

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

Current wording

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

Previous wording

We had $2.2 million of sales for the six months ended June 30, 2024. As of June 30, 2024, the Company had$5.3 million in cash and cash equivalents, accounts receivable of $0.8 million, net inventory of $46.5 million and accounts payable of $10.5 million. As of June 30, 2024, the Company had aworking capital of$17.8 million, accumulated deficit of$807.0 million, and during thesix months ended June 30, 2024 incurred a loss from operations of$44.2 million and used$30.1 million of cash in operating activities.

Current wording

We had sales of $4.7 million, incurred a net loss of $80.6 million and used $40.1 million of cash in operating activities during the nine months ended September 30, 2024. As of September 30, 2024, the Company had $3.2 million of cash and cash equivalents, net accounts receivable of $0.7 million, other receivables of $3.0 million, inventory, net of $43.2 million and accounts payable of $10.6 million. As of September 30, 2024, the Company had working capital of $7.9 million and an accumulated deficit of $832.2 million.

Previous wording

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 our liquidity and working capital requirements. We have made significant progress executing on our revised strategic product roadmap for our electric vehicle offerings, and we expect to generate additional sales within the next twelve months which will help support our operations. Additionally, as previously disclosed, management has reduced its discretionary spend related to non-contracted capital expenditures and, implemented cost-savings measures, including a 20% reduction in force, our executive officers deferring approximately 20% of their cash compensation into the third quarter of 2024, furloughing 73 employees at our Union City manufacturing facility without pay, of which 16 have already been reinstated as of June 30, 2024, and divesting our Aero business. We also experienced voluntary attrition during and after the three months ended June 30, 2024, which has further reduced employee compensation and related costs. As previously disclosed, we are currently working with certain of our vendors to extend or restructure the payment terms of certain past due accounts payable balances. However, if the expected sales are not generated and management is not able to control capital expenditures and other expenses, we will continue to incur substantial operating losses and negative cash flows from operations. There can be no assurance that we will be successful in implementing our plans or acquiring additional funding, that our projections of our future capital needs will prove accurate, or that any additional funding would be sufficient to continue operations in future years.

Current wording

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 our liquidity and working capital requirements. We have made progress executing on our revised strategic product roadmap for our electric truck offerings, and we expect to generate additional sales within the next twelve months which will help support our operations. Additionally, as previously disclosed, management reduced its discretionary spend related to non-contracted capital expenditures and, implemented cost-savings measures, including a 20% reduction in force, our executive officers deferring approximately 20% of their cash compensation into the third quarter of 2024, furloughing 73 employees at our Union City manufacturing facility without pay, of which 16 have already been reinstated as of September 30, 2024, and divesting our Aero business. We also experienced voluntary attrition during the nine months ended September 30, 2024, which has further reduced employee compensation and related costs. As previously disclosed, we are currently working with certain of our vendors to extend or restructure the payment terms of certain past due accounts payable balances. However, if the expected sales are not generated and management is not able to control capital expenditures and other expenses, we will continue to incur substantial operating losses and negative cash flows from operations. There can be no assurance that we will be successful in implementing our plans or acquiring additional funding, that our projections of our future capital needs will prove accurate, or that any additional funding would be sufficient to continue operations in future years.

Previous wording

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

Current wording

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

Previous wording

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 access to the additional closings of, as of August 19, 2024 up to $112.7 million inaggregate principal amount of additional 2024 Notes. However, we may not realize the full amount available under the 2024 Securities Purchase Agreement. Under the terms of the 2024 Securities Purchase Agreement, our ability to issue and sell additional 2024 Notes to the Investor is restricted if the Investor has not converted previous tranches of 2024 Notes into our Common Stock and sold the shares issued on conversion. Accordingly, the Investor’s ability to make such conversions and sales, and therefore our access to additional liquidity under the 2024 Securities Purchase Agreement, depends on there being a robust public trading market for our Common Stock. Since consummating the Reverse Split of our Common Stock in June 2024, the Nasdaq trading volume of our Common Stock has generally been lower (on a Reverse Split-adjusted basis) than it was before we consummated the Reverse Split. If these conditions continue, the aggregate amount of 2024 Notes we can issue and sell under the 2024 Securities Purchase Agreement may be reduced, and the issuances and sales that we are able to make may be delayed.

Current wording

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 access to the additional closings of, as of November 18, 2024 up to $105.5 million in aggregate principal amount of additional 2024 Notes. However, we may not realize the full amount available under the 2024 Securities Purchase Agreement. Under the terms of the 2024 Securities Purchase Agreement, our ability to issue and sell additional 2024 Notes to the Investor is restricted if the Investor has not converted previous tranches of 2024 Notes into our Common Stock and sold the shares issued on conversion. Accordingly, the Investor’s ability to make such conversions and sales, and therefore our access to additional liquidity under the 2024 Securities Purchase Agreement, depends on there being a robust public trading market for our Common Stock. Since consummating the Reverse Split of our Common Stock in June 2024, the Nasdaq trading volume of our Common Stock has generally been lower (on a Reverse Split-adjusted basis) than it was before we consummated the Reverse Split. If these conditions continue, the aggregate amount of 2024 Notes we can issue and sell under the 2024 Securities Purchase Agreement may be reduced, and the issuances and sales that we are able to make may be delayed.

Previous wording

In addition, if our share price makes such exercise feasible, we may receive proceeds from the exercise of the corresponding 2024 Warrants pursuant to the 2024 Securities Purchase Agreement anduse of the ATM Agreement (as further described below), for which there can be no assurance we will be successful in such efforts. We will also rely on debt financing or other sources of capital funding such as through the sale of assets to obtain sufficient financial resources to fund our operating activities. If we are unable to maintain sufficient financial resources, our business, financial condition and results of operations, as well as our ability to continue to develop, produce and market our new vehicle programs and satisfy our obligations as they become due, will be materially and adversely affected. This could affect future vehicle program production and sales. Failure to obtain additional financing will have a material, adverse impact on our business operations. There can be no assurance that we will be able to obtain the financing needed to achieve our goals on acceptable terms or at all. Additionally, any equity or equity-linked financings would likely have a dilutive effect on the holdings of our existing stockholders. Our current level of cash and cash equivalents are not sufficient to execute our business plan. For the foreseeable future, we will incur significant operating expenses, capital expenditures and working capital funding that will deplete our cash on hand.

Current wording

In addition, if our share price makes such exercise feasible, we may receive proceeds from the exercise of the corresponding 2024 Warrants pursuant to the 2024 Securities Purchase Agreement and use of the ATM Agreement (as further described below), for which there can be no assurance we will be successful in such efforts. We will also rely on debt financing or other sources of capital funding such as through the sale of assets to obtain sufficient financial resources to fund our operating activities. If we are unable to maintain sufficient financial resources, our business, financial condition and results of operations, as well as our ability to continue to develop, produce and market our new truck programs and satisfy our obligations as they become due, will be materially and adversely affected. This could affect future truck program production and sales. Failure to obtain additional financing will have a material, adverse impact on our business operations. There can be no assurance that we will be able to obtain the financing needed to achieve our goals on acceptable terms or at all. Additionally, any equity or equity-linked financings would likely have a dilutive effect on the holdings of our existing stockholders. Our current level of cash and cash equivalents are not sufficient to execute our business plan. For the foreseeable future, we will incur significant operating expenses, capital expenditures and working capital funding that will deplete our cash on hand.

Previous wording

Our ability to obtain additional financing is extremely limited under current market conditions including the significant amount of capital required, the market price of our stock and potential dilution from the issuance of any additional securities and our ability to maintain compliance with the listing requirements of the Nasdaq Capital Market. If we are unable to identify other sources of funding, we may need to further adjust our operations, including and up to filing a voluntary petition for relief under the Bankruptcy Code. If this were to occur, the value available to our various stakeholders, including our creditors and stockholders, is uncertain and trading prices for our securities may bear little or no relationship to the actual recovery, if any, by holders of our securities in bankruptcy proceedings, if any.

Current wording

Our ability to obtain additional financing is extremely limited under current market conditions including the significant amount of capital required, the market price of our stock and potential dilution from the issuance of any additional securities and our ability to regain compliance with the listing requirements of the Nasdaq Capital Market. If we are unable to identify other sources of funding, we may need to further adjust our operations, including and up to filing a voluntary petition for relief under the Bankruptcy Code. If this were to occur, the value available to our various stakeholders, including our creditors and stockholders, is uncertain and trading prices for our securities may bear little or no relationship to the actual recovery, if any, by holders of our securities in bankruptcy proceedings, if any.

Previous wording

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 six months ended June 30, 2024, we issued 0.5 million shares under the ATM Agreement for net proceeds of $2.7 million. During the year ended December 31, 2023, we issued 89.3 million shares under the ATM Agreement for net proceeds of $62.2 million. As of June 30, 2024 we had approximately $95.6 million available through the issuance of shares of Common Stock under the ATM Agreement. Certain of our other existing financing arrangements, including our 2024 Securities Purchase Agreement, place certain conditions and restrictions on the use of our ATM Program.

Current wording

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 nine months ended September 30, 2024, we issued 0.5 million shares under the ATM Agreement for net proceeds of $2.7 million. As of September 30, 2024 we had approximately $95.6 million available through the issuance of shares of Common Stock under the ATM Agreement. Certain of our other existing financing arrangements, including our 2024 Securities Purchase Agreement, place certain conditions and restrictions on the use of our ATM Program.

Previous wording

During the six months ended June 30, 2024 and 2023, net cash used in operating activities was $30.1 million and $65.8 million, respectively. The decrease in net cash used in operations was primarily attributable to a $21.7 million decrease in spend related to inventory as we slowed our inventory build due to slower than anticipated sales throughout 2023 and the first half of 2024. The decrease is also attributable to a $5.0 million decline in employee compensation and related expenses, excluding non-cash stock-based compensation, resulting from our reduction in force actions.

Current wording

During the nine months ended September 30, 2024 and 2023, net cash used in operating activities was $40.1 million and $95.5 million, respectively. The decrease in net cash used in operations was primarily attributable to a decrease in spend related to inventory and the above mentioned cost saving measures as we slowed our inventory build due to slower than anticipated sales throughout 2023 and the first half of 2024. The decrease is also attributable to a $5.0 million decline in employee compensation and related expenses, excluding non-cash stock-based compensation, resulting from our reduction in force actions.

Previous wording

Cash used in investing activities related primarily to capital expenditures to upgrade our production and research and development facilities, were $3.8 million for the six months ended June 30, 2024 and $10.5 million for the six months ended June 30, 2023. The decrease is primarily driven by a decline in spending in tooling and equipment related to our vehicle programs at our Union City, Indiana manufacturing facility.

Current wording

Cash used in investing activities related primarily to capital expenditures to upgrade our production and research and development facilities, were $4.0 million for the nine months ended September 30, 2024 and $16.5 million for the nine months ended September 30, 2023. The decrease is primarily driven by a decline in spending in tooling and equipment related to our truck programs at our Union City, Indiana manufacturing facility.

Previous wording

Net cash provided by financing activities during the six months ended June 30, 2023 was $39.4 million, which was primarily attributable to the issuance of Common Stock under our ATM Program.

Current wording

Net cash provided by financing activities during the nine months ended September 30, 2024 was $11.5 million, which was primarily attributable to the issuances of 2024 Notes and 2024 Warrants under our 2024 Securities Purchase Agreement and of Common Stock under our ATM Program offset by the payment of our 2026 Notes.

Previous wording

Net cash provided by financing activities during the six months ended June 30, 2024 was $3.3 million, which was primarily attributable to the issuance of Common Stock under our ATM Program offset by the payment of our 2024 Notes.

Current wording

Net cash provided by financing activities during the nine months ended September 30, 2023 was $51.7 million, which was primarily attributable to issuances of Common Stock under our ATM Program offset by the payment of our 2023 Notes.