Workhorse Group Inc.

Notes to Consolidated Financial Statements

1. OVERVIEW AND SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES

Overview

We are an American technology company with a vision to pioneer the transition to zero-emission commercial vehicles. Our primary focus is to provide sustainable and cost-effective solutions to the commercial transportation sector. We design and manufacture all-electric vehicles, 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.

Basis of Presentation

The Consolidated Financial Statements include the accounts of Workhorse Group Inc. and its subsidiaries, with all intercompany transactions and balances having been eliminated. The Company prepared the Consolidated Financial Statements in accordance with United States generally accepted accounting principles (“GAAP”) and the rules and regulations of the United States Securities and Exchange Commission (the “SEC”) and, in the Company's opinion, reflect all necessary adjustments, including normal recurring items that are necessary.

The Company operates as a single reporting segment under ASC 280, Segment Reporting, ("ASC 280"), consistent with how management evaluates and prioritizes investment and resource allocation decisions, and assesses operating performance.

These Consolidated Financial Statements and the notes thereto for the years ended 2024 and 2023 have been adjusted to reflect the Company’s June 17, 2024 1-for-20 reverse stock split (the “2024 Reverse Stock Split”) and the March 17, 2025 1-for-12.5 reverse stock split (the “2025 Reverse Stock Split”) of its issued and outstanding shares of Common Stock.

Going Concern and Liquidity

The accompanying Consolidated Financial Statements have been prepared in accordance with GAAP applicable to a going concern. The going concern basis of presentation assumes that the Company will continue in operation one year after the date these Consolidated Financial Statements are issued and will be able to realize assets and discharge its liabilities and commitments in the normal course of business. The Consolidated Financial Statements do not include any adjustments to the carrying amounts and classification of assets, liabilities, and reported expenses that may be necessary if the Company were unable to continue as a going concern.

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

We had sales, net of returns and allowances of $6.6 million, incurred a net loss of $101.8 million and used $47.6 million of cash and cash equivalents in operating activities during the year ended December 31, 2024. As of December 31, 2024, the Company had net working capital of $8.2 million, including $4.1 million of cash and cash equivalents, and an accumulated deficit of $853.4 million.

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

It is essential that we have access to capital as we bring our existing line of vehicles to market, scale up production and sales of such vehicles and continue to develop additional variations of our existing vehicles and our next generation of vehicles. There is no assurance that we will be successful in implementing management’s plans to generate liquidity to fund these activities or other aspects of our short and long-term strategy, that our projections of our future capital needs will prove accurate or that any additional funding would be available or sufficient to continue operations in future periods.

Our revenues from operations are unlikely to be sufficient to meet our liquidity requirements for the twelve months following the date of the issuance of our Consolidated Financial Statements, and, accordingly, our ability to continue as a going concern depends on our ability to obtain and receive proceeds from third-party financing. We currently expect that our primary source of third-party financing will be the proceeds of the Tenth Additional 2024 Note, which we issued under our 2024 Securities Purchase Agreement. As of March 21, 2025, approximately $27.4 million of such proceeds remain in a lockbox account and will be available to us only upon satisfaction or waiver of the conditions described above. Accordingly, there can be no assurance that any or all of such proceeds will be available to us on a timely basis or ever.

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, at amounts and times determined by management. During the year ended December 31, 2024, we issued 0.2 million shares* under the ATM Agreement for net proceeds of $4.2 million. During the year ended December 31, 2023, we issued 0.4 million shares*. under the ATM Agreement for net proceeds of $62.2 million. As of December 31, 2024 we had approximately $95 million available through the issuance of shares of Common Stock under the ATM Agreement. The so-called “baby shelf” rules under Form S-3 may significantly limit our ability to make issuances and sales under our ATM Agreement going forward.

• Periods presented have been adjusted to reflect the 2024 Reverse stock split (1-for-20) which was effective June 17, 2024 and the 2025 Reverse stock split (1-for-12.5) which was effective March 17, 2025. Additional information regarding the reverse stock split may be found in Note 1 – Summary of Business and Significant Accounting Principles.

On March 15, 2024, we entered into a securities purchase agreement (the “2024 Securities Purchase Agreement”) with an institutional investor (the “Investor”) under which we agreed to issue and sell, in one or more registered public offerings by the Company directly to the Investor in multiple tranches over a period beginning on March 15, 2024, (i) senior secured convertible notes for up to an aggregate principal amount of $139.0 million (the “2024 Notes”) that are convertible into shares of the Company’s Common Stock, and (ii) warrants (the “ 2024 Warrants”) to purchase shares of Common Stock.

Pursuant to the 2024 Securities Purchase Agreement, during the year ended December 31, 2024, the Company issued and sold to the Investor (i) 2024 Notes in the original principal amount of $39.0 million and (ii) issued 15.6 million 2024 Warrants, (1.3 million shares adjusted for the 2025 Reverse Stock Split).

As of December 31, 2024, the 2024 Notes had an outstanding fair value aggregate principal amount of $10.5 million, with an outstanding aggregate principal amount of $7.6 million. No shares had been issued pursuant to the 2024 Warrants as of December 31, 2024.

In addition, during the first two months of 2025, we issued and sold to the Investor 2024 Notes in the aggregate principal amount of $38.5 million and 2024 Warrants to purchase up to 55.0 million shares of Common Stock, (4.4 million shares adjusted for the 2025 Reverse Stock Split). As described in our Current Report on Form 8-K filed with the SEC on February 12, 2025, we issued a 2024 Note in the aggregate principal amount of $35.0 million (the “Tenth Additional 2024 Note”) governed by a lockbox letter entered into between the Company and the Investor (the “Lockbox Letter”). Pursuant to the Lockbox Letter, the net proceeds of $30.6 million after 12.5% original issue discount and related fees and expenses, of the Tenth Additional 2024 Note were deposited into a lockbox account under the control of the collateral agent under the 2024 Securities Purchase Agreement. Funds may only be released from the lockbox account from time to time (i) in an amount corresponding to the principal amount converted, if the Investor converts any portion of the Tenth Additional 2024 Note; (ii) in the amount of $2.6 million each calendar month, if the Company satisfies the conditions of a Market Release Event (as defined in the Lockbox Letter), including a minimum Common Stock price and trading volume conditions; or (iii) otherwise, with the consent of the Investor. On March 7, 2024, the Investor notified us that it consented to the release of $3.0 million from the lockbox account, which released funds we received on March 11, 2025. Although we expect that we will receive additional funds held in the lockbox account during the term of the Tenth Additional 2024 Note, it is possible that the foregoing events will not occur with respect to some or all of the principal amount of the Tenth Additional 2024 Note and that, accordingly, we will not be able to draw any or all of the remaining funds in the lockbox account.

As discussed more fully above, as of March 21, 2025, approximately $27.4 million of such proceeds remain in a lockbox account and will be available to us only upon satisfaction or waiver of the conditions described above. Accordingly, there can be no assurance that any or all of such proceeds will be available to us on a timely basis or ever.

Although the 2024 Securities Purchase Agreement contemplates the issuance of up to $61.5 million of additional 2024 Notes, we can issue such 2024 Notes only to the extent we can offer and sell them pursuant to a Registration Statement on Form S-3. Because the public float of our Common Stock is currently less than $75 million, the SEC’s “baby shelf” rules will limit the amount of securities we can offer and sell on Form S-3, including the 2024 Notes, Common Stock and all other securities, to one-third of our public float in any 12-month period. Accordingly, our ability to obtain liquidity though public sales of securities, including pursuant to our ATM program and the 2024 Securities Purchase Agreement, is substantially limited.

On December 12, 2023, the Company also entered into an equity line of credit purchase agreement (the “ELOC Purchase Agreement”) with Lincoln Park Capital Fund, LLC (the “Purchaser”) under which the Company may sell to the Purchaser up to $50.0 million of shares of Common Stock over the 24-month term of the ELOC Purchase Agreement. The Company sold 48,000 shares of Common Stock (adjusted for the 2024 Reverse Stock Split and 2025 Reverse Stock Split) pursuant to the ELOC Purchase Agreement and received proceeds of $3.1 million. The Company does not expect to issue and sell additional shares under the ELOC due to restrictions contained in its other financing arrangements.

For the year ended December 31, 2024, we maintained an investment in a bank money market fund. Cash in excess of immediate requirements is invested with regard to liquidity and capital preservation. Wherever possible, we seek to minimize the potential effects of concentration and degrees of risk. We will continue to monitor the impact of the changes in the conditions of the credit and financial markets to our investment portfolio and assess if future changes in our investment strategy are necessary.

We may also rely on other 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 vehicle programs and satisfy our obligations as they become due, we will be materially and adversely affected. This could affect future vehicle program production and sales. Failure to receive additional proceeds will have a material, adverse impact on our business operations. There can be no assurance that we will be able to obtain the additional proceeds needed to achieve our goals on acceptable terms or at all. Additionally, any additional 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 operating expenses, capital expenditures and working capital funding that will deplete our cash on hand. These conditions raise substantial doubt regarding our ability to continue as a going concern for a period of at least one year from the date of issuance of these Consolidated Financial Statements included in this Annual Report on Form 10-K.

Our ability to obtain additional proceeds from financings is extremely limited under current conditions and if we are unable to identify other sources of funding, we may need to further adjust our operations and seek protection by 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.

Use of Estimates

The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses and related disclosures in the accompanying notes. These estimates include, but are not limited to, sales return reserves, income taxes, accounts receivable collectability, inventory valuation, warranties, leases, and the fair value of long-lived assets and financial instruments.

Reclassifications

The Company reclassified certain prior-period amounts on the Consolidated Balance Sheets to conform to the current-period presentation. These reclassifications had no impact on net income (loss), total assets, or total liabilities. The affected line items are presented below:

Cash and Cash Equivalents

Cash and cash equivalents are defined as short-term, highly-liquid investments with original maturities of three months or less.

Restricted Cash

Cash and cash equivalents subject to contractual restrictions and not readily available are classified as restricted cash. Our restricted cash is comprised primarily of cash held to service certain payments under secured debt facilities. In addition, restricted cash includes cash held as collateral for real estate leases. We record restricted cash in the Consolidated Balance Sheets and determine current or non-current classification based on the expected duration of the restriction.

Our total cash, cash equivalents, and restricted cash, as presented in the Consolidated Financial Statements, was as follows:

Accounts Receivable and Allowance for Credit Losses

Accounts receivable primarily consists of amounts that are due and payable from our customers for the sale of vehicles, parts, and services. We evaluate the collectability of these receivables by considering the number of days outstanding, prevailing economic conditions, and reasonable, supportable forecasts that may affect recoverability. Additions to the allowance are charged to bad debt expense reported in selling, general and administrative expenses.

Concentration of Risk

Credit Risk

Financial instruments that potentially subject us to a concentration of credit risk consist of cash and cash equivalents, restricted cash, and accounts receivable. Our cash balances are primarily on deposit at high credit quality financial institutions or invested in money market funds. These deposits are typically in excess of insured limits. As of December 31, 2024, three customers each accounted for 10% or more of our total receivables balance, whereas no entities met this threshold for the year ending December 31, 2023.

Supply Risk

We depend on our suppliers, including single source suppliers, and the inability of these suppliers to deliver necessary components of our products in a timely manner at prices, quality levels and volumes acceptable to us, or our inability to efficiently manage these components from these suppliers, could have a material adverse effect on our business, prospects, financial condition and operating results.

Inventories

Inventories are stated at the lower of cost or net realizable value. Inventory cost includes cost of raw material, labor and overhead. Manufactured inventories are valued at standard cost, which approximates actual costs on a first-in, first-out basis. We record inventory write-downs for excess or obsolete inventories based on assumptions about current and future demand forecasts. If inventory on-hand is in excess of our future demand forecast, the excess amounts are included in our inventory reserve.

We also review our inventory to determine whether its carrying value exceeds the net amount realizable upon the ultimate sale of the inventory. This requires us to determine the estimated selling price of our vehicles less the estimated cost to convert the inventory on-hand into a finished product. Once inventory is written-down, a new, lower cost basis for that inventory is established and subsequent changes in facts and circumstances do not result in the restoration or increase in that newly established cost basis.

Should our estimates of future inventory usage or selling prices change, additional and potentially material increases to this reserve may be required. A small change in our estimates may result in a material charge to our reported financial results.

Property, Plant and Equipment, Net

Property, plant and equipment, net, including leasehold improvements, are recognized at cost less accumulated depreciation. Depreciation is generally computed using the straight-line method over the estimated useful lives of the respective assets, as follows:

Leasehold improvements are amortized on a straight-line basis over the shorter of their estimated useful lives or the term of the related leases.

Upon the retirement or sale of our property, plant and equipment, the cost and associated accumulated depreciation are removed from the Consolidated Balance Sheets, and the resulting gain or loss is reflected on the Consolidated Statements of Operations. Maintenance and repair expenditures are expensed as incurred while major improvements that increase the functionality, output or expected life of an asset are capitalized and depreciated ratably over the identified useful life.

Impairment of Long-Lived Assets

We review long-lived assets, such as property, plant, and equipment, for potential impairment whenever events or changes in circumstances indicate the carrying amount of an asset or asset group may not be fully recoverable. Events that trigger a test for recoverability include material adverse changes in projected revenues and expenses, present cash flow losses combined with a history of cash flow losses or a forecast that demonstrates significant continuing losses, significant negative industry or economic trends, a current expectation that a long-lived asset group will be disposed of significantly before the end of its useful life, a significant adverse change in the manner in which an asset group is used or in its physical condition, or when there is a change in the asset grouping. When an indicator of impairment is present, the Company assesses the risk of impairment based on an estimate of the undiscounted cash flows at the lowest level for which identifiable cash flows exist against the carrying value of the asset group. Impairment exists when the carrying value of the asset group exceeds the estimated future undiscounted cash flows generated by those assets. The Company records an impairment charge for the difference between the carrying value of the asset group and its estimated fair market value. Depending on the asset, estimated fair market value may be determined either by use of a discounted cash flow model or by reference to estimated selling values of assets in similar condition.

During 2023 and 2024, we identified triggering events under ASC 360-35-21 related to certain asset groups. In each situation in which we experienced a triggering event during the year, we tested our long-lived assets for impairment using our internal economic and business projections, in order to determine if an additional impairment was required to the carrying values of the long-lived assets.

As a result of these assessments, no additional impairment was recognized for the year ended December 31, 2024. For the year ended December 31,2023, we recorded a $0.9 million impairment loss related to the right-of-use asset (“ROU”) for our Aero facility in Mason, OH, which was recognized within Selling, general, and administrative expenses in the Consolidated Statement of Operations.

If, in future periods, our economic or business projections were to change as a result of an update to our plans, a deterioration of the economic or business environment, a significant adverse change in the extent or manner in which a long-lived asset is being used, or an expectation that a long-lived asset group will be disposed of significantly before the end of its useful life, we would undertake additional testing, as appropriate, which could result in an impairment of long-lived assets.

Capitalization of Software Costs

We capitalize costs incurred in the development of internal use software, during the application development stage to property, plant and equipment, net on the Consolidated Balance Sheets. Costs related to preliminary project activities and post-implementation activities are expensed as incurred. Such costs are amortized on a straight-line basis over their estimated useful life ofthree tofive years.

We evaluate the useful lives of these assets on an annual basis, and we test for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets. For the years ended December 31, 2024 and 2023, no impairments of capitalized software costs have been recognized.

Investment

As permitted under ASC 321, Investments -Equity Securities,("ASC 321"), we recorded our investment in Tropos, an equity investment without a readily determinable fair value, at cost minus impairment. We assessed our investment for impairment each reporting period to determine if the fair value of the investment declined below its cost basis and if the impairment was other-than-temporary.

For the year ended December 31, 2024, we recognizedno impairments of investments. For the year ended December 31, 2023, we recognized an impairment loss of $10.0 million related to our investment in Tropos. For additional information regarding the investment and related impairment, see to Note 5, Contract Manufacturing Services and Investment in Tropos.

Warranty Liability

We generally provide a manufacturer's warranty on all new vehicles we sell. We record a warranty liability for the products sold by us, which includes our best estimate of the projected costs to repair or replace items under warranties and recalls if identified. The amount of warranty liability accrued reflects management’s best estimate of the nature, frequency, and costs of future claims. Historically, the cost of fulfilling the warranty obligations has principally involved replacement parts, towing and transportation costs, labor and sometimes travel for any field retrofit campaigns. Our estimates are based on historical experience, the extent of pre-production testing, the number of units involved and the extent of features/components included in product models.

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

1 The negative provision in 2024 is a result of the expiration of the warranty liability related to non-current vehicle models.

Fair Value Measurements

The Company follows the accounting guidance in ASC 820, Fair Value Measurement, ("ASC 820") for its fair value measurements of financial assets and liabilities measured at fair value on a recurring basis. A three-level valuation hierarchy, based upon observable and unobservable inputs, is used for fair value measurements. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions based on the best evidence available. These two types of inputs create the following fair value hierarchy: Level 1 – Quoted prices for identical instruments in active markets; Level 2 – Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-derived valuations whose significant inputs are observable; and Level 3 – Instruments whose significant inputs are unobservable. See Note 7, Debt, for further details on fair value.

Income Taxes

We account for income taxes in accordance with ASC 740, Income Taxes, ("ASC 740") which requires deferred income tax assets and liabilities to be recognized using enacted tax rates for the effect of temporary differences between the book and tax bases of recorded assets and liabilities. Authoritative guidance also requires deferred income tax assets, which include state tax credit carryforwards, operating loss carryforwards and deductible temporary differences, be reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred income tax assets will not be realized.

We evaluate the likelihood of realizing our deferred income tax assets by assessing our valuation allowance and by adjusting the amount of such allowance, if necessary. The factors used to assess the likelihood of realization include our forecast of future taxable income, the projected reversal of temporary differences and available tax planning strategies that could be implemented to realize the net deferred income tax assets.

We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities. The determination is based on the technical merits of the position and presumes that each uncertain tax position will be examined by the relevant taxing authority that has full knowledge of all relevant information. Although management believes the estimates are reasonable, no assurance can be given that the final outcome of these matters will not be different than what is reflected in the historical income tax provisions and accruals.

Revenue Recognition

The following table disaggregates our revenue by major source:

Vehicles

Revenue is recognized when the Company transfers promised goods or services to customers in an amount that reflects the consideration that the Company expects to receive in exchange for those goods or services. In determining the appropriate amount of revenue to be recognized as the Company fulfills its obligations under the agreement, the Company performs the following steps: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations, including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including any constraints on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation. The Company only applies the five-step model to contracts when it is probable that it will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer.

The Company generates vehicle revenue through the sale of electric commercial vehicles. The Company reviews the performance obligations in the Company’s agreements, which is the Company’s promise to transfer the Company’s product to customers based on the performance of services, transfer of title or shipping terms in the arrangement and any other variable considerations. The revenue is allocated based on the Company's performance obligation, and an estimate of Sales returns and allowances are recognized. The Company offers concessions to certain customers and estimates the variable consideration based on historical sales activity. In addition, the Company considers the extent to which revenue should be constrained such that there is not a significant reversal of revenue in the future.

Revenue is recognized when obligations under the terms of a contract with our customer are satisfied; generally this occurs when we transfer control of our vehicles. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods. For the majority of vehicles, we transfer control and recognize a sale when we ship the product from our manufacturing facility to our customer (dealers and distributors). The amount of consideration we receive and revenue we recognize varies with changes in incentives. We receive cash equal to the invoice price for most vehicle sales and we do not have any material significant payment terms as payment is received at or shortly after the point of sale.

The Company's agreements do not allow customers to return products. However, under certain conditions, such as defects or non-compliance with specifications, or other allowances, the Company may elect to allow limited returns in special situations. To account for these returns, the Company estimates and records a sales returns allowance as a reduction of gross revenue. This allowance is based on historical return rates and expectations of future returns, adjusted for any known factors that may affect return rates, such as changes in product quality or customer mix.

The Company provides for the estimated cost of product warranties at the time revenue is recognized. While the Company engages in product quality programs and processes, including quality control test driving vehicles, the warranty obligation is calculated by an estimation of warranty costs per vehicle. Should actual costs differ from the Company’s estimates, revisions to increase or decrease the estimated warranty liability may be required.

Sales and other taxes we collect concurrent with revenue-producing activities are excluded from revenue. The expected costs associated with our base warranties and field service actions are recognized as expense when the products are sold (see Note 6, Accrued Liabilities and Other Current Liabilities). We have elected to recognize the cost for freight and shipping when control over vehicles, parts, or accessories has transferred to the customer as an expense in Cost of sales.

Services, Parts and Accessories

Services, parts and accessories revenue consists of non-warranty after-sales vehicle services, body shop and parts, and assembly services. It also includes revenue generated from operating our Stables by Workhorse route, Drones As A Service, and other service revenue. We recognize revenue related to sales of service, parts and other accessories when we transfer control of the items. For the majority of vehicles, parts, and accessories, we transfer control and recognize a sale when we ship the product from our manufacturing facility to our customer (dealers and distributors). We recognize service revenue upon the transfer of control to the customer, which is generally at the time the service is completed.

For the year ended December 31, 2024 and 2023, two entities represented 10% or more of our total revenues.

Deferred Revenue

Deferred revenue related to our Assembly Services Agreement with Tropos Technologies, Inc and sales of select vehicles consisted of the following:

Cost of Sales

Cost of sales include direct and indirect materials, labor costs, manufacturing overhead, including depreciation costs of tooling and machinery, shipping and logistics costs, and reserves for estimated warranty expenses. Cost of sales also includes charges to write down the carrying value of our inventory when it exceeds its estimated net realizable value and to provide for obsolete and on-hand inventory in excess of forecasted demand.

Research and Development Costs

Research and development ("R&D") costs consist primarily of personnel costs for our teams in engineering and research, prototyping expense, contract and professional services, and amortized equipment expense. R&D costs are expensed as incurred, and for the years ended December 31, 2024 and 2023 were $9.1 million and $24.5 million, respectively.

Advertising Costs

Advertising costs are recorded in Selling, general, and administrative in the Consolidated Statements of Operations as they are incurred. For the years ended December 31, 2024 and 2023, advertising costs were $0.9 million and $1.2 million, respectively.

Stock-Based Compensation

We use the fair value method of accounting for our stock options, restricted stock awards ("RSA"), restricted stock units ("RSUs") and performance share units (“PSUs”) granted to employees. The fair value of stock option awards with only service conditions is estimated on the grant or offering date using the Black-Scholes option-pricing model. The Black-Scholes option-pricing model requires inputs such as the risk-free interest rate, expected term and expected volatility. These inputs are subjective and generally require significant judgment. The fair value of RSAs is measured on the grant date based on the closing fair market value of our Common Stock. The resulting cost is recognized over the period during which an employee is required to provide services in exchange for the awards, usually the vesting period. Stock-based compensation expense is recognized on a straight-line basis, net of actual forfeitures in the period.

The fair value of market-vested awards is based on a Monte-Carlo simulation that estimates the fair value based on the Company's stock price activity relative to a defined comparative group of companies, expected term of the award, risk-free interest rate, expected dividends, and the expected volatility of the stock of the Company and those in the comparative group. The grant date fair value per share of market-vested awards already reflects the probability of achieving the market condition, and is therefore used to record the expense on a straight-line basis over the performance period regardless of actual achievement.

For performance-based awards, stock-based compensation expense is recognizable over the expected performance achievement period of individual performance milestones when the achievement of each individual performance milestone becomes probable.

As we issue additional employee stock-based awards over time and as we incorporate additional market data related to our Common Stock, we may calculate significantly different volatilities and expected lives, which could materially impact the valuation of our stock-based awards and the stock-based compensation expense that we will recognize in future periods. Stock-based compensation expense is recorded in selling, general and administrative expenses in the Consolidated Statements of Operations.

Defined Contribution Plan

We have a 401(k) savings plan that is intended to qualify as a deferred salary arrangement under Section 401(k) of the Internal Revenue Code. Beginning in January 2021, we began to match 100% of each employee’s contributions up to a maximum of 6% of the employee’s eligible compensation, vested immediately. During the years ended December 31, 2024 and 2023, we recognized $0.4 million and $1.3 million, respectively, of expenses related to employer contributions for the 401(k) savings plan.

Net Loss per Share of Common Stock

Basic loss per share of Common Stock is calculated by dividing net loss by the weighted-average shares of Common Stock outstanding for the period. Potentially dilutive shares, which are based on the weighted-average shares of Common Stock underlying outstanding stock-based awards, warrants and convertible senior notes using the treasury stock method or the if-converted method, as applicable, are included when calculating the diluted net loss per share of Common Stock when their effect is dilutive.

The following table presents the potentially dilutive shares that were excluded from the computation of diluted net loss per share of Common Stock, because their effect was anti-dilutive:

1 See Note 7, Debt, and Note 16, Subsequent Events, for more information regarding the warrants.

• Periods presented have been adjusted to reflect the 2024 Reverse stock split (1-for-20) which was effective June 17, 2024 and the 2025 Reverse stock split (1-for-12.5) which was effective March 17, 2025. Additional information regarding the reverse stock split may be found in Note 1 – Summary of Business and Significant Accounting Principles.

2. INVENTORY

Our inventory consisted of the following:

1 Finished goods inventory includes new vehicles available for sale.

We reserve inventory for any excess or obsolete inventories or when we believe the net realizable value of inventories is less than the carrying value. During the years ended December 31, 2024 and 2023, we recorded net write-downs of $5.4 million and $6.8 million, respectively, in Cost of sales in the Consolidated Statements of Operations. The year over year decrease to inventory reserves was primarily driven by our efforts to consume our on hand inventory into finished goods, as well as, to sell and dispose inventory that has been fully reserved. The sale and disposal activity did not have a material impact on the Company's results of operations during the years ended December 31, 2024 and December 31, 2023, respectively.

3. PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets consisted of the following:

Prepaid purchases consist of deposits made to our suppliers for non-recurring engineering costs and production parts. As of December 31, 2024 and 2023, net prepaid purchases primarily consisted of deposits for direct materials associated with our W4 CC and W750 vehicles.

The year over year increase to prepaid purchases reserves was primarily driven by increased reserves related to our W4 CC and W750 vehicle programs.

4. PROPERTY, PLANT AND EQUIPMENT, NET

Property, plant and equipment, net consists of the following:

Construction in progress is primarily comprised of equipment and tooling related to the manufacturing of our products, and construction and expansion of our facilities. Completed assets are transferred to their respective asset classes, and depreciation begins when an asset is ready for its intended use.

Depreciation and amortization expense during the years ended December 31, 2024 and 2023 was $7.9 million and $4.1 million, respectively.

5. CONTRACT MANUFACTURING SERVICES AND INVESTMENT IN TROPOS

We had a minority ownership investment in Tropos Technologies, Inc. (“Tropos”). The investment was obtained during the third quarter of 2022 in exchange for a cash payment of $5.0 million and a $5.0 million contribution of non-cash consideration representing a deposit from Tropos for future assembly services under an Assembly Services Agreement. The $5.0 million non-cash consideration was recorded as deferred revenue and is recognized as revenue over time as assembly service performance obligations are satisfied.

We recorded our investment at cost less impairment, if applicable. In accordance with ASC 321, Investments - Equity Securities,("ASC 321") we assessed our investment for impairment at each reporting period to determine if the fair value declined below its cost basis and if the impairment is other-than-temporary.

During the third quarter of 2023, we determined that our investment in Tropos was impaired based on the economic conditions and uncertainties that have significantly affected Tropos' performance and financial position. The impairment is considered other-than-temporary as the decline in fair value of the investment is not expected to recover in the foreseeable future.

The impairment charge recognized for our investment was $10.0 million, which represented the difference between the original cost of the investment and its fair value as of the impairment assessment date. The impairment loss was recognized in Other (loss) income in the Consolidated Statements of Operations for the year ended December 31, 2023.

The impairment of our investment did not release the Company from its obligation to perform assembly services under the agreement. Therefore, the Company continues to carry the balance of deferred revenue on its Consolidated Balance Sheets as of December 31, 2023. As of December 31, 2024 and December 31, 2023, deferred revenue of $4.7 million related to the Assembly Services Agreement.

6. ACCRUED LIABILITIES AND OTHER CURRENT LIABILITIES

Accrued liabilities and other current liabilities consisted of the following:

7. DEBT

A reconciliation of the fair value of the convertible notes is as follows:

1 The Company recognizes changes in fair value of convertible notes for Common Stock in Interest expense, net in the Consolidated Statements of Operations.

Senior Secured Convertible Notes

2024 Securities Purchase Agreement

On March 15, 2024, we entered into the 2024 Securities Purchase Agreement with the Investor under which the Company agreed to issue and sell, in one or more registered public offerings by the Company directly to the Investor in multiple tranches over a period beginning on March 15, 2024, (i) 2024 Notes for up to an aggregate principal amount of $139.0 million that will be convertible into shares of the Company’s Common Stock and (ii) 2024 Warrants to purchase shares of Common Stock.

During the year ended December 31, 2024, the Company issued and sold to the Investor (i) 2024 Notes in the original principal amount of $39.0 million and (ii) 2024 Warrants to purchase up to 1.3 million shares of Common Stock pursuant to the 2024 Securities Purchase Agreement (following adjustment in connection with the Company’s 2024 Reverse Stock Split and 2025 Reverse Stock Split). As of December 31, 2024, $10.5 million fair value aggregate principal amount remained outstanding under the 2024 Notes, and no shares had been issued pursuant to the 2024 Warrants.

No 2024 Notes may be converted and no 2024 Warrants may be exercised to the extent that such conversion or exercise would cause the then holder of such 2024 Notes or 2024 Warrants to become the beneficial owner of more than 9.99% of the Company’s then outstanding Common Stock, after giving effect to such conversion or exercise.

2024 Notes

The 2024 Notes were issued with original issue discount of 12.5%, resulting in $34.1 million of net proceeds to the Company before fees and expenses for the year ended December 31, 2024. The 2024 Notes are or will be senior, secured obligations of the Company, ranking senior to all other unsecured indebtedness, subject to certain limitations and are unconditionally guaranteed by each of the Company’s subsidiaries, pursuant to the terms of a certain security agreement and subsidiary guarantee. The 2024 Notes are issued pursuant to the Company’s Indenture (the “Base Indenture”) with U.S. Bank Trust Company, National Association, as trustee (the “Trustee”), and supplemental indentures thereto.

Each 2024 Notes bears interest at a rate of 9.0% per annum, payable in arrears on the first trading day of each calendar quarter, at the Company’s option, either in cash or in-kind by compounding and becoming additional principal. Upon the occurrence and during the continuance of an event of default, the interest rate will increase to 18.0% per annum. Unless earlier converted or redeemed, each 2024 Notes will mature on the one-year anniversary of the date hereof, subject to extension at the option of the holders in certain circumstances as provided therein.

All amounts due under any 2024 Notes are convertible at any time, in whole or in part, at the option of the holders into shares of Common Stock at a conversion price equal to the applicable Reference Price set forth in such 2024 Notes or (b) the greater of (x) the applicable Floor Price set forth in such 2024 Notes and (y)87.5% of the volume weighted average price of the Common Stock during theten trading days ending and including the trading day immediately preceding the delivery or deemed delivery of the applicable conversion notice, as elected by the converting holder. The Reference Price and Floor Price are subject to customary adjustments upon any stock split, stock dividend, stock combination, recapitalization or similar event. The Reference Price is also subject to full-ratchet adjustment in connection with a subsequent offering at a per share price less than the Reference Price then in effect. Subject to the rules and regulations of Nasdaq, we have the right, at any time, with the written consent of the Investor, to lower the reference price to any amount and for any period of time deemed appropriate by our board of directors. Upon the satisfaction of certain conditions, we may prepay any 2024 Notes upon 15 business days’ written notice by paying an amount equal to the greater of (i) the face value of the 2024 Notes at premium of 25% (or 75% premium, during the occurrence and continuance of an event of default, or in the event certain redemption conditions are not satisfied) and (ii) the equity value of the shares of Common Stock underlying the 2024 Notes. The equity value of our Common Stock underlying the 2024 Notes is calculated using the two greatest volume weighted average prices of our Common Stock during the period immediately preceding the date of such redemption and ending on the date we make the required payment.

The 2024 Notes contain customary affirmative and negative covenants, including certain limitations on debt, liens, restricted payments, asset transfers, changes in the business and transactions with affiliates. The 2024 Notes require the Company to maintain minimum liquidity on the last day of each fiscal quarter in the amount of either (i) $1.5 million if the sale leaseback transaction of Company’s manufacturing facility in Union City, IN (the “Sale Leaseback”) has not been consummated and (ii) $4.0 million if the Sale Leaseback has been consummated, subject to certain conditions. The 2024 Notes also contain customary events of default.

Under certain circumstances, including a change of control, the holder may cause us to redeem all or a portion of the then-outstanding amount of principal and interest on any 2024 Notes in cash at the greater of (i) the face value of the amount of 2024 Notes to be redeemed at a 25% premium or 10% premium with respect to amounts held in the lockbox account (or at a 75% premium, if certain redemption conditions are not satisfied or during the occurrence and continuance of an event of default), (ii) the equity value of our Common Stock underlying such amount of 2024 Notes to be redeemed and (iii) the equity value of the change of control consideration payable to the holder of our Common Stock underlying such 2024 Notes.

In addition, during an event of default, the holder may require us to redeem in cash all, or any portion, of any outstanding 2024 Notes at the greater of (i) the face value of our Common Stock underlying such 2024 Notes at a 75% premium and (ii) the equity value of our Common Stock underlying such 2024 Notes. In addition, during a bankruptcy event of default, we shall immediately redeem in cash all amounts due under the 2024 Notes at a 75% premium unless the holder of such 2024 Notes waives such right to receive payment. Further, upon the sale of certain assets, the holder may cause a redemption at a premium, including upon consummation of the Sale Leaseback if the redemption conditions are not satisfied. The 2024 Notes also provide for purchase and participation rights in the event of a dividend or other purchase right being granted to the holders of Common Stock.

As of December 31, 2024, $10.5 million fair value aggregate principal amount remained outstanding under the 2024 Notes, with an outstanding aggregate principal of $7.6 million. During the year ended December 31, 2024, the Investor converted $31.2 million of principal into Common Stock and we recorded a $2.9 million fair value net loss in Interest expense, net in the Consolidated Statements of Operations. Future fair value adjustments attributable to changes in credit risk will be recorded in Other comprehensive loss.

The December 31, 2024 estimated fair value of the 2024 Notes totaled $10.5 million. The fair value was computed using a Monte Carlo Simulation Model which incorporates significant inputs that are not observable in the market, and thus represents a Level 3 fair value measurement. The unobservable inputs utilized for measuring the fair value of the 2024 Notes reflect our assumptions about the assumptions that market participants would use in valuing the 2024 Notes as of the issuance date and subsequent reporting period.

We determined the fair value by using the following key inputs to the Monte Carlo Simulation Model:

As of December 31, 2024, the Company was in compliance with the debt terms and associated covenants under the 2024 Notes. As of March 21, 2025, $40.6 million in aggregate principal amount remained outstanding under the 2024 Notes. Of this amount, $27.4 million is considered restricted cash, resulting in a net outstanding aggregate principal amount of $13.2 million.

Warrants Exercisable

During the year ended December 31, 2024, the Company issued 2024 Warrants to purchase 1.3 million shares of Common Stock respectively at an exercise price ranging from $13.88 to $87.50 per share (following adjustment in connection with the Company’s 2024 Reverse Stock Split and 2025 Reverse Stock Split). As of December 31, 2024, no shares have been issued pursuant to the 2024 Warrants. In connection with the October 16, 2024 limited waiver to the 2024 Securities Purchase Agreement, the Investor waived its right to receive warrants in connection with future 2024 Notes issuances up to $14.8 million, which as of the date hereof has now been reached.

Under the 2024 Warrants, the Investor has a purchase right that allows the Investor to participate in transactions in which the Company issues or sells certain securities or other property to holders of Common Stock, allowing the Investor to acquire, on the terms and conditions applicable to such purchase rights, the aggregate purchase rights which the Investor would have been able to acquire if the Investor held the number of shares of Common Stock acquirable upon exercise of the 2024 Warrants.

In the event of a Fundamental Transaction (as defined in the 2024 Warrants) that is not a change of control or corporate event as described in the 2024 Warrants, the surviving entity would be required to assume the Company’s obligations under the 2024 Warrants. In addition, if the Company engages in certain transactions that result in the holders of the Common Stock receiving consideration, a holder of the 2024 Warrants will have the option to either (i) exercise the 2024 Warrants prior to the consummation of such transaction and receive the consideration to be issued or distributed in connection with such transaction or (ii) cause the Company to repurchase the 2024 Warrants for its then Black Scholes Value (as defined in the 2024 Warrants).

As of December 31, 2024, the estimated fair value of the 2024 Warrants as of each respective issuance date totaled $5.8 million. During the year ended December 31, 2024, we recorded a $5.8 million net fair value loss in Fair value loss on warrants in the Consolidated Statement of Operations related to the 2024 Warrants. The fair value of the 2024 Warrants was measured using the Black Scholes model approach.

Significant inputs to the model at each respective issuance date and December 31, 2024 were as follows:

The Company determines the accounting classification of warrants it issues as either liability or equity classified by first assessing whether the warrants meet liability classification in accordance with ASC 480-10, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity (“ASC 480”), then in accordance with ASC 815-40, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock (“ASC 815”). In order for a warrant to be classified in stockholders’ equity (deficit), the warrant must be (i) indexed to the Company’s equity and (ii) meet the conditions for equity classification.

If a warrant does not meet the conditions for stockholders’ equity (deficit) classification, it is carried in the Consolidated Balance Sheets as a warrant liability measured at fair value, with subsequent changes in the fair value of the warrant recorded in other non-operating losses (gains) in the Consolidated Statements of Operations. If a warrant meets both conditions for equity classification, the warrant is initially recorded, at its relative fair value on the date of issuance, in stockholders’ equity (deficit) in the Consolidated Balance Sheets, and the amount initially recorded is not subsequently remeasured at fair value.

2023 Securities Purchase Agreement (Green Senior Convertible Notes Due 2026)

On December 12, 2023, the Company entered into a securities purchase agreement (the “2023 Securities Purchase Agreement”) under which the Company issued, pursuant to the Base Indenture and a First Supplemental Indenture between the Company and the Trustee party thereto, $20.0 million principal amount of Green Senior Convertible Notes (the “2026 Notes”) due October 1, 2026. The 2026 Notes were a senior secured obligation of the Company and ranked senior to all unsecured debt of the Company. The 2026 Notes were guaranteed by the Company and its current subsidiaries and were secured by substantially all the assets of the Company and its subsidiaries. The 2026 Notes were issued with an original issue discount of 12.5% or $2.5 million.

The Company paid fees in connection with the issuance of the 2026 Notes of $0.6 million, resulting in net proceeds of $16.9 million. We elected to account for the 2026 Notes using the fair value option under GAAP. All direct costs related to the issuance of our convertible notes were recognized in Interest expense, net in the Consolidated Statements of Operations.

Upon issuance on December 12, 2023, the estimated fair value of the 2026 Notes was $13.7 million, determined using a Binomial Lattice Model incorporating significant unobservable inputs, representing a Level 3 fair value measurement. These inputs reflected assumptions that market participants would use in valuing the notes at issuance and during subsequent reporting periods.

The following key inputs were used in the fair value determination at issuance:

During the first quarter of 2024, the Company repaid the 2026 Notes in full, the 2026 Notes are no longer subject to fair value measurement as of the current reporting period.

Warrants Under the 2023 Securities Purchase Agreement

On December 12, 2023, as part of the 2023 Securities Purchase Agreement, the Company issued warrants (the “2023 Warrants”) to purchase 25.6 million shares of Common Stock at an exercise price of $8.98 per share.

The fair value of the components of the 2023 Securities Purchase Agreement was allocated between the 2026 Notes and the 2023 Warrants. As of December 31, 2023, the fair value of the 2023 Warrants was $5.6 million. During the six months ended June 30, 2024, in connection with a First Amendment to Green Senior Secured Convertible Notes Due 2026, the Company entered into an agreement to exchange the 2023 Warrants for a total of 0.4 million shares of Common Stock for a total value of $2.8 million, whereupon the 2023 Warrant were cancelled. The Company recorded a gain in the quarter ended March 31, 2024 of $2.7 million in connection with this exchange in Interest income (expense), net in the Consolidated Statements of Operations related to the 2023 Warrants.

As of December 12, 2023 (initial recognition) and December 31, 2023, the fair value of the 2026 Warrants was $3.8 million and $5.6 million, respectively. The fair value was determined using the Black-Scholes model, incorporating significant assumptions such as stock price, strike price, volatility, and risk-free rate.

During the year ended December 31, 2023, we recorded a $1.8 million fair value adjustment in Interest expense, net in the Statements of Operations related to the 2026 Notes.

The valuation assumptions used in the Black-Scholes model as of December 12, 2023 (initial recognition) and December 31, 2023, are as follows:

During the current year, the 2026 Warrants were fully settled and terminated, and as a result, they are no longer outstanding as of the reporting date. No further fair value measurement is required.

Floorplan Line of Credit

On August 10, 2023, we entered into a Floorplan and Security Agreement (the “Floorplan LOC”) with Mitsubishi HC CapitalAmerica, Inc. under which we obtained a revolving floorplan line of credit with a maximum borrowing limit of $5.0 million.

The intended use of the Floorplan LOC was to finance the acquisition of inventory used in production of our W4 CC and W750 vehicles. The terms of the Floorplan LOC included interest charged on the outstanding borrowings and other fees and covenants. Interest was to be charged at a variable rate based on a reference interest rate, such as the Secured Overnight

Financing Rate (“SOFR”), plus 4.86%.

In connection with the 2024 Securities Purchase Agreement described above, we terminated the Floorplan and Security Agreement. During the year ended December 31, 2023, we did not draw on or incur any charges related to the Floorplan LOC.

8. LEASES

We have entered into various operating and finance lease agreements for offices, manufacturing and warehouse facilities. We determine if an arrangement is a lease, or contains a lease, at inception and record the leases in our financial statements upon lease commencement, which is the date when the underlying asset is made available for our use by the lessor.

We have elected not to disclose in the Consolidated Balance Sheets leases with a lease term of 12 months or less at lease inception that do not contain a purchase option or renewal term provision we are reasonably certain to exercise. All other lease right-of-use assets (“ROU”) and lease liabilities are recognized based on the present value of lease payments over the lease term at commencement date. Because most of our leases do not provide an implicit rate of return, we used our incremental borrowing rate based on the information available at lease commencement date in determining the present value of lease payments.

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

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

The Company assesses the carrying value of its ROU assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. Such indicators may include, but are not limited to, significant underperformance relative to historical or projected future operating results, changes in the business climate or legal factors, and changes in the expected use of the leased asset. The assessment of whether a ROU asset is impaired involves management's judgment, including considerations of future cash flows, market conditions, and other relevant factors.

If impairment indicators are identified, the Company estimates the future cash flows expected to result from the use and eventual disposition of the leased asset. These estimates consider factors such as anticipated future operating results, market conditions, and other relevant factors. If the sum of the expected future cash flows is less than the carrying amount of the ROU asset, an impairment loss is recognized for the difference between the carrying amount and the fair value of the ROU asset. The fair value is determined based on various valuation techniques, including discounted cash flow analysis, market comparable transactions, and other appropriate methods.

Impairment losses are recognized in the Consolidated Statements of Operations. The Company determines the level at which the impairment loss is recognized based on whether it expects to retain or dispose of the ROU asset. If the Company expects to retain the ROU asset, the impairment loss is recognized as an adjustment to the carrying amount of the ROU asset, with a corresponding adjustment to accumulated depreciation and amortization. If the Company expects to dispose of the ROU asset, the impairment loss is recognized in Selling, general and administrative expense in the Consolidated Statements of Operations.

During the year ended December 31, 2024, the Company identified indicators of impairment due to slower-than-expected market adoption and performed an impairment test on its ROU assets in accordance with applicable accounting standards. The fair value, net of sublease costs, was determined using market prices for comparable assets, while the value in use was calculated based on discounted cash flow projections. As a result of these assessments, no additional impairment was recognized for the year ended December 31, 2024. During the year ended December 31, 2023,we recognized a $0.9 million impairment loss related to the ROU asset for our Aero facility in Mason, Ohio, which was recognized within Selling, general, and administrative expenses in the Consolidated Statements of Operations.

Lease expense for operating leases is recognized on a straight-line basis over the lease term as cost of sales or operating expenses depending on the nature of the lease right-of-use asset. In connection with the Aero Divestiture, we entered into an agreement for an operating lease associated with the Aero business whereby the buyer agreed to reimburse the Company for the monthly operating lease payment of approximately $52,000 per month. In connection with the Waiver, we agreed to waive the buyer’s obligation to reimburse these amounts going forward and, accordingly, we will not realize these savings in future periods through the remaining term of the lease.

Amortization of finance lease assets is recognized over the lease term as cost of sales or operating expenses depending on the nature of the leased asset. Interest expense on finance lease liabilities is recognized over the lease term within Interest expense, net in the Consolidated Statements of Operations.

The components of lease expense are as follows in our Consolidated Statements of Operations:

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

Lease liabilities consisted of the following:

Other information related to leases is as follows:

Supplemental cash flow information related to leases where we are the lessee is as follows:

As of December 31, 2024, the maturities of our operating and finance lease liabilities (excluding short-term leases) are as follows:

9. INCOME TAXES

During the years ended December 31, 2024 and 2023, the Company had taxable losses primarily due to operations and thus hasno current federal tax expense recorded. We continue to record a valuation allowance against our deferred tax assets as of December 31, 2024.

The U.S. components of loss before income taxes and reconciles the statutory federal income tax rate to the provision for income taxes:

The reconciliation of taxes at the federal statutory rate to our provision for income taxes was as follows:

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. When realization of the deferred tax asset is more likely than not to occur, the benefit related to the deductible temporary differences attributable to operations is recognized as a reduction of income tax expense. As of each reporting date, management considers new evidence, both positive and negative, that could affect its view of the future realization of deferred tax assets. As of December 31, 2024 and 2023, our ability to realize our net deferred tax asset is not more likely than not to occur and the valuation allowance reduces the deferred tax asset tozero.

Significant components of the Company’s deferred tax assets and liabilities are as follows:

As of December 31, 2024 and 2023, the Company had $17.2 million of federal net operating loss (“NOL”) carry-forward deferred tax assets which expire through 2038. Additionally, as of December 31, 2024 and 2023, the Company had approximately $97.6 million and $84.3 million, respectively, of federal NOL deferred tax assets which carry-forward indefinitely, and approximately $3.7 million and $2.0 million, respectively, of state and local NOL carry-forward deferred tax assets which expire through 2044. The NOL carry-forwards may be limited in certain circumstances, including ownership changes.

Under the provisions of the Internal Revenue Code, the net operating loss and tax credit carry-forwards are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities. Certain tax attributes are subject to an annual limitation as a result of certain cumulative changes in ownership interest of significant shareholders which could constitute a change of ownership as defined under Internal Revenue Code Section 382. The Company completed a full analysis of historical ownership changes and determined that a portion of the NOLs to-date have a limitation on future deductibility $8.4 million of net operating losses incurred prior to 2014 will be unable to offset future taxable income and have been reserved via a valuation allowance to reduce the deferred tax asset to the expected realizable amount.

The following table presents a reconciliation of unrecognized tax benefits:

The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. As of December 31, 2024, and 2023, due to the Company’s continued losses, no amounts of interest and penalties have been recognized in the Consolidated Statements of Operations. If the unrecognized tax benefits were reversed, a deferred tax asset and corresponding valuation allowance would be recorded, and thus the reversal would have no impact on the effective rate.

The Company files income tax returns in the U.S. federal jurisdiction, various state jurisdictions and local jurisdictions. Generally, the Company’s 2020 through 2023 tax years remain open and subject to examination by federal, state and local taxing authorities. However, federal, state, and local net operating losses from 2009 through 2024 are subject to review by taxing authorities in the year utilized.

10. FAIR VALUE MEASUREMENTS

We estimate the fair value of the 2024 Notes and 2024 Warrants using commonly accepted valuation methodologies upon issuance and at each reporting date. Considerable judgment was required in interpreting market data to develop the estimates of fair value. Accordingly, the Company’s estimates are not necessarily indicative of the amounts that the Company, or holders of the instruments, could realize in a current market exchange. Significant assumptions used in the fair value model included estimates of the redemption dates, credit spreads and the market price and volatility of the Company’s Common Stock. The use of different assumptions and/or estimation methodologies could have a material effect on the estimated fair values. The following table presents the estimated fair values:

The following table presents a roll-forward of the fair value of the convertible notes payable, derivative liability, derivative asset and warrant liability that will continue to be measured at fair value on a recurring basis for which fair value is determined based on significant inputs not observable in the market, which represents a Level 3 measurement within the fair value hierarchy as of December 31, 2024.

As of December 31, 2024, there have been no changes in the valuation methodologies or classification of our Level 1 and Level 3 fair value measurements. The Company continues to utilize consistent approaches in determining the fair value of assets and liabilities categorized within these levels, in accordance with ASC 820.

11. STOCK-BASED COMPENSATION

Incentive Stock Plans

We maintain, as approved by the board of directors and the stockholders, the 2017 Incentive Stock Plan, the 2019 Incentive Stock Plan and the 2023 Long-Term Incentive Plan (collectively, the “Plans”) providing for the issuance of stock-based awards to employees, officers, directors or consultants of the Company. Non-qualified stock options may only be granted with an exercise price equal to the market value of our Common Stock on the grant date. Shares reserved for stock awards under the plans total 1.4 million*. Total shares remaining available for stock incentive grants under the Plans totaled approximately 0.2 million* as of December 31, 2024. We have granted new stock options, restricted stock awards (“RSAs”), restricted stock units, and performance share units (“PSUs”) under the Plans.

Periods presented have been adjusted to reflect the 2024 Reverse stock split (1-for-20) which was effective June 17, 2024 and the 2025 Reverse stock split (1-for-12.5) which was effective March 17, 2025. Additional information regarding the reverse stock split may be found in Note 1 – Summary of Business and Significant Accounting Principles.

Stock-Based Compensation Expense

The following table summarizes stock-based compensation expense:

Stock Options

During 2024, activity for stock options was as follows:

As of December 31, 2024, there wasno unrecognized compensation expense for unvested options. During 2024, no new stock options were granted.

Restricted Stock Awards and Units

Granted restricted stock awards (RSAs) and restricted stock units (RSUs) generally vest ratably over athree-year service period. The fair value of vested RSAs for the years ended December 31, 2024 and 2023 were $0.7 million and $2.4 million, respectively.

During 2024, activity for RSAs was as follows:

During 2024, activity for RSUs was as follows:

As of December 31, 2024, unrecognized compensation expense was $1.7 million for unvested restricted stock, which is expected to be recognized over the next year.

Performance Share Units

The vesting of PSUs is conditioned upon achievement of certain performance objectives over performance periods ending December 31, 2024 and 2025 as defined in each award agreement. Fifty percent of the PSUs vest based upon the Company’s total shareholder return (“TSR”) as compared to a group of peer companies, andfifty percent of the PSUs vest based upon our performance on certain measures including a cumulative adjusted EBITDA target (“EBITDA PSUs”). Depending on the actual achievement of the performance objectives, the grantee may earn between 0% and 200% of the target PSUs.

During 2024, activity for PSUs with a TSR metric was as follows:

During 2024, activity for EBITDA PSUs was as follows:

The fair value of performance share units is calculated based on the stock price on the date of grant. The stock-based compensation expense recognized each period is dependent upon our estimate of the number of shares that will ultimately vest based on the achievement of EBITDA-based performance conditions. Future stock-based compensation expense for unvested EBITDA PSUs will be based on the fair value of the awards as of the grant date, which has not yet occurred, as the cumulative adjusted EBITDA target condition is not yet defined.

12. NEW ACCOUNTING STANDARDS

Adoption of New Accounting Standards

ASU 2016-13, Financial Instruments - Credit Losses. In June 2016, the FASB issued ASU 2016-13, which requires entities to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts. We adopted this standard effective January 1, 2023. The adoption of this standard did not have a material impact on our Consolidated Balance Sheets or statements of operations.

ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity's Own Equity. In August 2020, the FASB issued ASU 2020-06, which simplifies the accounting for convertible instruments by removing certain separation models in ASC 470-20, Debt—Debt with Conversion and Other Options, for convertible instruments. The ASU updates the guidance on certain embedded conversion features that are not required to be accounted for as derivatives under Topic 815, Derivatives and Hedging, or that do not result in substantial premiums accounted for as paid-in capital, such that those features are no longer required to be separated from the host contract. The convertible debt instruments will be accounted for as a single liability measured at amortized cost. This will also result in the interest expense recognized for convertible debt instruments to be typically closer to the coupon interest rate when applying the guidance in Topic 835, Interest. Further, the ASU made amendments to the EPS guidance in Topic 260 for convertible debt instruments, the most significant impact of which is requiring the use of the if-converted method for diluted EPS calculation, and no longer allowing the net share settlement method. The ASU also made revisions to 815-40, which provides guidance on how an entity must determine whether a contract qualifies for a scope exception from derivative accounting. The amendments to Topic 815-40 change the scope of contracts that are recognized as assets or liabilities. We adopted this standard effective January 1, 2022. The adoption of this standard did not have a material impact on our Consolidated Balance Sheets or Statements of Operations.

ASC 280, Segment Reporting. The Company operates as a single reporting segment under ASC 280, which encompasses the design, manufacture, and distribution of all-electric vehicles as an Original Equipment Manufacturers (OEMs).The Chief Executive Officer (CEO), as the Company’s Chief Operating Decision Maker (CODM), evaluates financial performance and allocates resources based on consolidated financial information, including total revenues, operating income, and profitability for the business as a whole. As such, segment information has been presented at the consolidated level, as there are no additional reportable segments in the context of ASC 280.

Accounting Standards Issued But Not Yet Adopted

ASU 2023-09, Improvements to Income Tax Disclosures. In December 2023, the FASB issued ASU 2023-09 to enhance the transparency and decision usefulness of income tax disclosures. The new standard is effective for fiscal years beginning after December 15, 2024, with retrospective application permitted. We are assessing the effect on our annual consolidated financial statement disclosures; however, adoption is not expected to have an impact on our Consolidated Balance Sheets or Statements of Operations.

All other ASUs issued but not yet adopted were assessed and determined to be not applicable or are not expected to have a material impact on our Consolidated Financial Statements or financial statement disclosures.

13. STOCKHOLDERS' EQUITY

Securities Litigation Settlement

On September 1, 2023, we issued 25.4 million shares of Common Stock, which adjusted for our 2024 Reverse Stock Split and our 2025 Reverse Stock Split would be 0.1 million shares of Common Stock, with an aggregate value of $20.0 million in connection with the settlement of the Securities Litigation as described below in Note 15, Commitments and Contingencies. The number of shares was based on the market price per share of our Common Stock on August 31, 2023. This transaction was recorded as a noncash operating activity.

As a result of the settlement, we no longer have any obligation related to the securities litigation and, as such, the $15.0 million insurance receivable previously recorded in Other receivable and $35.0 million legal reserve previously recorded in Accrued and other current liabilities in the Consolidated Balance Sheets were zero as of December 31, 2023.

ATM Sales Agreement

On March 10, 2022, we entered into an ATM Sales Agreement, under which we may offer and sell shares of our Common Stock having an aggregate sales price of up to $175.0 million.

During the year ended December 31, 2024, we issued 0.2 million shares* under the ATM Agreement for net proceeds of $4.2 million. During the year ended December 31, 2023, we issued 0.4 million shares*. under the ATM Agreement for net proceeds of $62.2 million During the years ended December 31, 2024, and December 31, 2023, we incurred commissions of $0.1 million and $1.3 million, respectively. As of December 31, 2024 we had approximately $95 million available through the issuance of shares of Common Stock under the ATM Agreement. The so-called “baby shelf” rules under Form S-3 may significantly limit our ability to make issuances and sales under our ATM Agreement going forward.

Lincoln Park Capital Purchase Agreement

On December 12, 2023, the Company entered into an equity line of credit purchase agreement (the “ELOC Purchase Agreement”) with Lincoln Park Capital Fund, LLC (the “Purchaser”) which provides that, upon the terms and subject to the conditions and limitations set forth therein, the Company may sell to the Purchaser up to $50.0 million of shares of Common Stock over the 24-month term of the ELOC Purchase Agreement. Concurrently with entering into the ELOC Purchase Agreement, the Company also entered into a registration rights agreement (the “ELOC Registration Rights Agreement”) with the Purchaser, whereby the issuance of the shares pursuant to the ELOC Purchase Agreement were registered pursuant to the Company’s effective shelf registration statement on Form S-3, and the related base prospectus included in the registration statement, as supplemented by a prospectus supplement filed on December 27, 2023.

The Company may direct the Purchaser, at its sole discretion, and subject to certain conditions, to purchase up to 1.0 million shares of Common Stock on any business day (a “Regular Purchase”). The amount of a Regular Purchase may be increased under certain circumstances to 1.25 million shares if the closing price is not below $0.40 and up to 1.5 million if the closing price is not below $0.50 provided the Purchaser’s committed obligation under any single Regular Purchase shall not exceed $2.0 million. The purchase price for Regular Purchases (the “Purchase Price”) shall be equal to 97.5% of the lower of the lowest sale price of Common Stock on the Purchase Date for such Regular Purchase and the arithmetic average of thethree lowest closing sale prices for the Common Stock during theten consecutive business days ending on the business day immediately prior to the Purchase Date, with a floor of $0.10. In the event the Company issues the full amount allowed under a Regular Purchase on any given business day, we may also direct the Purchaser to purchase additional amounts as accelerated purchases. The purchase price for the accelerated and additional accelerated purchases shall be equal to the lesser of 97.0% of such day’s the VWAP of the Common Stock on the principal market and the closing sale price of the Common Stock on such day.

In connection with the ELOC Purchase Agreement and ELOC Registration Rights Agreement, the Company paid a non-cash commitment fee to the Purchaser in the amount of 3.8 million shares of Common Stock of the Company (valued at $1.5 million). The Company reflected the commitment fee as an expense in Interest expense in the Consolidated Statements of Operations based on the fair value on the issuance date.Under applicable rules of the Nasdaq Capital Market, the Company cannot issue or sell more than 19.99% of the shares of Common Stock outstanding immediately prior to the execution of the ELOC Purchase Agreement to the Purchaser under the ELOC Purchase Agreement without stockholder approval.

During the year ended December 31, 2024, excluding the additional commitment shares issued to the Purchaser disclosed above, the Company did not sell any shares of Common Stock pursuant to the ELOC Purchase Agreement. The Company sold 48,000 shares of Common Stock (adjusted for the 2024 Reverse Stock Split and 2025 Reverse Stock Split) pursuant to the ELOC Purchase Agreement and received proceeds of $3.1 million. The Company does not expect to issue and sell additional shares under the ELOC due to restrictions contained in its other financing arrangements.

The Company evaluated the contract that includes the right to require the Purchaser to purchase shares of Common Stock in the future (“purchased put right”) considering the guidance in ASC 815-40, and concluded that it is an equity-linked contract that does not qualify for equity classification, and therefore requires fair value accounting as a derivative asset (liability). The Company has analyzed the terms of the freestanding purchased put right and has concluded that it had insignificant value as of December 31, 2024.

Preferred Stock

Workhorse has authorized 75.0 million shares of Series A Preferred Stock, par value 0.001 per share. Our certificate of incorporation provides that shares of preferred stock may be issued from time to time in one or more series. Our Board of Directors is authorized to fix the voting rights, if any, designations, powers, preferences, qualification, limitations and restrictions thereof, applicable to the shares of preferred stock. As of December 31, 2024 and December 31, 2023, there wereno shares of Series A Preferred Stock issued and outstanding.

Common Stock

The Company hasone class of Common Stock, par value 0.001 per share. Each share of our Common Stock is entitled toone vote on all matters submitted to stockholders.

On September 1, 2023, we obtained approval from our stockholders to amend our articles of incorporation to increase the number of shares of Common Stock, par value 0.001 per share, authorized for issuance thereunder to 450.0 million.

On June 17, 2024, the Company effected the 2024 Reverse Stock Split, a 1-for-20 reverse stock split of the Company’s then issued and outstanding shares of Common Stock. The 2024 Reverse Stock Split did not affect the number of authorized shares of Common Stock for issuance.

On March 17, 2025, the Company effected the 2025 Reverse Stock Split, a 1-for-12.5 reverse stock split of the Company’s

authorized shares and then issued and outstanding shares of Common Stock. As a result of the 2025 Reverse Stock Split, the

authorized number of shares of Common Stock, par value 0.001 per share, was reduced to 36.0 million.

Warrants

In connection with the issuance of debt, Common Stock and preferred stock, we issued equity-classified warrants to purchase shares of our Common Stock. As of December 31, 2024 and 2023, there were approximately 1.3 million and 0.1 million warrants outstanding, respectively.

Success Fees

During the year ended December 31, 2023, we issued 0.3 million shares of Common Stock, respectively, for payment of professional service fees, valued at $0.4 million. No such issuance of shares of Common Stock for the settlement of fees occurred in 2024.

14. RELATED PARTIES

The Company has evaluated its transactions for related party involvement in accordance with applicable accounting standards and SEC regulations. For the year ended December 31, 2024, management has determined that there are no material related party transactions to report.

15. COMMITMENTS AND CONTINGENCIES

General Matters

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

Legal Proceedings

CSI Litigation

On April 19, 2024, Coulomb Solutions Inc. (“CSI”), a supplier to the Company of certain of the batteries used in its vehicles, filed a complaint against the Company in United States District Court for the Eastern District of Michigan (Case No. 2:24-cv-11048). In its complaint, CSI assertstwo claims – a breach of contract claim and an alternative unjust enrichment claim – that are both based upon Workhorse’s alleged failure to pay amounts due under several invoices. CSI seeks to recover damages in excess of $4 million, including alleged past due amounts, interest, and collection costs. Workhorse filed its answer to the complaint on June 4, 2024. Discovery has closed. On November 27, 2024, CSI filed a motion for summary judgment. The parties fully briefed CSI’s motion by the end of December 2024. The parties are now awaiting a decision from the court on CSI’s motion, and with the motion pending, the Court recently vacated the previous pretrial and trial dates, leaving no set trial date at this time. As of December 31, 2024, the Company has accrued $1.0 million in connection with this dispute along with the outstanding trade amounts.

Securities Litigation and Shareholder Derivative Litigation

On July 24, 2023, the U.S. District Court for the Central District of California entered an order granting final approval of the Stipulation of Settlement entered into by the parties to the Securities Litigation on January 13, 2023. Pursuant to the Stipulation of Settlement, in exchange for a release of all claims and dismissal with prejudice of the Securities Class Action, the Company agreed to create a settlement fund with an escrow agent (the “Settlement Fund”), consisting of $15.0 million in cash and $20.0 million in shares of Common Stock of the Company (the “Settlement Shares”) from which class members would receive payment. During the third quarter of 2023, we issued 25.4 million shares of Common Stock, which adjusted for our 2024 Reverse Stock Split and our 2025 Reverse Stock Split would be 0.1 million shares of Common Stock, in settlement of the securities class action litigation, pursuant to the stipulation of settlement

On June 21, 2023, the State District Court of Nevada granted final approval of the settlement of the Shareholder Derivative Litigation. Under the terms of the settlement, the Company will receive $12.5 million of the $15.0 million described above from the Company’s directors and officers insurers and will, in turn, deliver the $12.5 million in connection with the settlement of the Securities Litigation. The Company has also agreed to adopt various corporate governance changes. The parties agreed to a $4.0 million fee to the derivative plaintiffs’ attorneys, $3.5 million of which is payable by the D&O insurers and $0.5 million of which was payable by the Company.

For further information regarding the Securities Litigation and the Shareholder Derivative Litigation and the settlements thereof, please see Note 15, “Commitments and Contingencies – Legal Proceedings” included in the 2023 Form 10-K.

16. SUBSEQUENT EVENTS

During the first two months of 2025, we issued and sold to the Investor 2024 Notes in the aggregate principal amount of $38.5 million and 2024 Warrants to purchase up to 55.0 million shares of Common Stock, (4.4 million shares adjusted for the 2025 Reverse Stock Split). As described in our Current Report on Form 8-K filed with the SEC on February 12, 2025, a 2024 Note in the aggregate principal amount of $35.0 million (the “Tenth Additional 2024 Note”) is governed by a lockbox letter entered into between the Company and the Investor (the “Lockbox Letter”). Pursuant to the Lockbox Letter, the net proceeds of $30.6 million after 12.5% original issue discount and related fees and expenses, of the Tenth Additional 2024 Note were deposited into a lockbox account under the control of the collateral agent under the 2024 Securities Purchase Agreement. Funds may only be released from the lockbox account from time to time (i) in an amount corresponding to the principal amount converted, if the Investor converts any portion of the Tenth Additional 2024 Note; (ii) in the amount of $2.6 million each calendar month, if we satisfy the conditions of a Market Release Event (as defined in the Lockbox Letter), including minimum Common Stock price and trading volume conditions; or (iii) otherwise, with the consent of the Investor. On March 7, 2025, the Investor notified us that it consented to the release of $3.0 million from the lockbox account, and we received these released funds on March 11, 2025. Although we expect that we will receive remaining funds held in the lockbox account during the term of the Tenth Additional 2024 Note, it is possible that the foregoing events will not occur with respect to some or all of the remaining principal amount of the Tenth Additional 2024 Note and that, accordingly, we will not be able to draw some or all of the remaining funds in the lockbox account.

As previously disclosed, on March 15, 2025, the Company effected a 2025 Reverse Stock Split, a 1-for-12.5 reverse stock split of the Company’s authorized shares and then issued and outstanding shares of Common Stock, on March 17, 2024,. As a result of the 2025 Reverse Stock Split, the authorized number of shares of Common Stock, par value $0.001 per share, was reduced to 36.0 million.