ITEM
1. BUSINESS
Overview
We are a technology company focused on providing sustainable
and cost-effective solutions to the commercial transportation sector. As an American manufacturer we design and build high performance
battery-electric electric vehicles and aircraft that make movement of people and goods more efficient and less harmful to the
environment. As part of our solution, we also develop cloud-based, real-time telematics performance monitoring systems that enable
fleet operators to optimize energy and route efficiency. Although we operate as a single unit through our subsidiaries, we approach
our development through two divisions, Automotive and Aviation.
Automotive
Medium-Duty
Delivery Vehicles
Medium-duty
electric delivery vans are currently in production and are in use by our customers on U.S. roads. Our delivery customers include
companies such as UPS, FedEx Express and Alpha Baking. Data from our in-house developed telematics system demonstrates our vehicles
on the road are averaging approximately a 500% increase in fuel economy as compared to conventional gasoline-based trucks of the
same size and duty cycle.
In
addition to improved fuel economy, we are anticipating that the performance of our vehicles on-route will reduce long-term vehicle
maintenance expense by approximately 50% as compared to fossil-fueled trucks.
We
estimate that our E-GEN Range-Extended Electric delivery vans will save over $150,000 in fuel and maintenance savings over the
20-year life of the vehicle. Due to the positive return-on-investment we are able to command a premium price for our vehicles
from major fleet buyers. Fleet buyers are able to achieve a four-year or better return-on-investment (without government incentives),
which justifies the higher acquisition cost of our vehicles.
We
believe that we are the only medium-duty battery-electric OEM in the U.S. Our goal is to continue to increase sales and production
to a point that will allow us to achieve gross margin profitability of the delivery van platform.
Our
battery-electric delivery vans provide customers with additional benefits, including:
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Low
Total Cost-of-Ownership
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Gaining
a competitive edge to increase market share
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Improving
profitability created by
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Lower
maintenance costs
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Increasing
the number of deliveries per day through more efficient delivery methods
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Strengthening
sustainability programs
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Improving
safety and driver experience
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In
March of 2013, we purchased the former Workhorse Custom Chassis assembly plant in Union City, Indiana from Navistar International
(NAV: NYSE). With this acquisition, we acquired the capability to be an Original Equipment Manufacturer (OEM) of Class 3-6 commercial-grade,
medium-duty truck chassis, to be marketed under the Workhorse® brand.
The
Workhorse Custom Chassis acquisition includes other important assets including the Workhorse brand and logo, intellectual property,
schematics, logistical support from Up-Time Parts (a Navistar subsidiary) and access to a network of 400-plus sales and service
outlets across North America. We believe the combination of our assembly capability, coupled with our battery-electric product
development expertise gives Workhorse a unique opportunity to manufacture at scale in the U.S.
W-15
Pickup Truck
The
success of our value selling equation to fleet buyers of medium-duty vehicles encouraged us to bring this same philosophy to the
much higher volume segment of light-duty trucks. Our first product offering in the light-duty truck environment is our W-15 Range-Extended
Electric Pickup Truck, which is presently under development.
To
date, we have received letters of intent for 2,150 W-15 pickup trucks from fleets. We plan on unveiling a working concept version
of the W-15 at the Advanced Clean Transportation conference in Long Beach, CA on May 1
,
2017.
To
capture further efficiencies and economies-of-scale we are designing our light-duty vehicles to take advantage of our existing
supply chain repurposing the use of the critical components such as Panasonic Li-ion cells, the BMW engines as our range extender,
our in-house developed vehicle control system software and our Metron Telematics performance monitoring system. In addition, we
are also using composite carbon fiber body panels on the W-15 which dramatically reduce our tooling costs, reduce vehicle weight
and are completely rustproof.
To
realize further efficiencies, we intend to assemble the W-15 at our existing 250,000 square foot facility in Union City, Indiana.
This plant has the capability to produce 60,000 vehicles per year. The battery packs will be built in our Loveland, Ohio battery
pack plant which also serves as our corporate headquarters.
Post
Office Replenishment Program
Workhorse,
with our partner VT Hackney, is one of five awardees that the United States Postal Service selected to build prototype vehicles
for USPS Next Generation Delivery Vehicle project. The Post Office has stated that the number of vehicles to be replaced in the
project is approximately 180,000. We are on track to deliver our prototypes to the USPS by the September 2017 deadline. The Post
Office has stated that they intend to test the prototypes for six months and select a winning bid(s) following the testing process.
We have designed our Post Office truck such that it can be built on the same line as the W-15 in Union City, Indiana.
Aviation
Delivery
Drones
Our
HorseFly Delivery Drone is a custom designed, purpose-built drone that is fully integrated in our electric trucks. We have a patent
pending on this architecture and we believe we are the only company in the world with a working drone/truck system. The HorseFly
delivery drone and truck system is designed to work within the FAA Rule 107 that permits the use of commercial drones in U.S.
airspace under certain conditions.
UPS
conducted a successful real world test with us in February 2017 and it received worldwide news coverage. The knowledge we have
gained in building electric delivery trucks for last-mile delivery has led us to believe that a drone/truck delivery system can
have significant cost savings in the parcel delivery ecosphere.
As
stated in UPS’s press release issued on February 21, 2017, a reduction of just one mile per driver per day over one year
can save UPS up to $50 million. Rural delivery routes are the most expensive to serve due to the time and vehicle expenses required
to complete each delivery. In this test, the drone made one delivery while the driver continued down the road to make another.
This is a possible role UPS envisions for drones in the future.
Manned
Multicopter
We
are leveraging our knowledge of high-voltage battery packs, electric motor controls and range extending generators to design a
multi-copter that can carry a pilot and passenger. Several companies are now developing similar aircraft; however, we believe
that our range-extended truck experience combined with our technical aviation development experience will give us competitive
advantages and speed-to-market with such an aircraft.
Technology
Batteries
Are Key
The
battery pack is key to the design, development, and manufacture of advanced electric-vehicle power trains. Where some other EV
manufacturers purchase their batteries in a plug-and-play pack, we build our own battery packs. This keeps the intellectual property
related to the design and production of the pack in-house and avoids the issues that occur when a battery supplier fails. And
it also enables us to pay less for our batteries and pack than do our competitors thus our all-electric truck is less expensive
than competitive vehicles. We use the Panasonic or LG Chem 18650 cells and design the pack around these commodity cells.
In-House
Software Development is Essential
Our
power trains encompass the complete motor assemblies, computers, and software required for vehicle electrification. We use off-the-shelf,
proven components and combine them with our proprietary software.
Innovation
is the Future
Additionally,
we have developed a cloud-based, remote management system to manage and track the performance of all of the vehicles that we deploy
in order to provide a 21st Century solution for fleet managers.
The
telematics system and associated hardware installed the Workhorse vehicles is designed to monitor the CAN network traffic for
specific signals. These signals are uploaded along with GPS data to a Workhorse server facility where the data signals are tracked
at ten (10) second intervals while driving and during the E-GEN electricity generating process and at sixty (60) seconds during
a plug-in charge. The real-time data is stored in a database as it arrives and delivers updates to clients connected through the
web interface.
Clients
are given login credentials (username and password) to the telematics website where they can monitor the performance and location
of the vehicles. Group privileges can be configured to limit access to client-specific vehicles securing the vehicle data so clients
can only view their vehicle data. Administrator privileges allow all data for all clients to be monitored and viewed.
As
a parameter-based system, we can set route-specific parameters to better manage the battery-provided power with the additional
power generated through the E-GEN process (not applicable to E-100). In an upcoming release, we will add the ability to integrate
Metron Telematics with the client’s internal telematics system and automatically update the parameters each day with information
about the route. This enhancement will result in a “SMART-GEN” vehicle that will maximize efficiency by automating
the process to determine the ideal times and locations to use the E-GEN to add electricity to the batteries.
Locations
and Facilities
Our
company headquarters and R & D facility is located at 100 Commerce Drive, Loveland, Ohio, a Cincinnati suburb. We occupy a
45,500 sq. ft. facility that allows for the manufacture of 1,000 electric power train kits per year. Power trains will be delivered
to the Workhorse facility in Indiana or shipped to our dealer network for onsite installation in conversion vehicles. On October
28, 2016 the Company purchased its operating facilities in Loveland, Ohio. The total purchase price was $2.5 million with $1.7
million financed with a financial institution. The note carries an interest rate of 6.5% accruing monthly with a maturity date
of January 1, 2027.
Workhorse
Group Inc. Location
Our
truck assembly facility is located in Union City, Indiana. This facility consists of three buildings with 270,000 square feet
of manufacturing and office space on 46 acres.
Workhorse
Facility
In
March of 2013, we purchased the former Workhorse Custom Chassis assembly plant in Union City, Indiana. With this acquisition,
we became an Original Equipment Manufacturer (OEM) of Class 3-6 commercial-grade, medium-duty truck chassis to be marketed under
the Workhorse® brand.
Ownership
and operation of this plant enables us to build new chassis with gross vehicle weight capacity of between 10,000 and 26,000 pounds
and to offer them in four different fuel variants—electric, gas, propane, and CNG. We plan to offer well- known Workhorse
chassis as well as a new, 88” track W88 truck chassis that will be offered to fleet purchasing managers at price points
that are both attractive and cost competitive.
At
the same time, the Company intends to partner with engine suppliers and body fabricators to offer fleet-specific, custom, purpose-built
chassis that provide total cost of ownership solutions that are superior to the competition.
In
addition to building our own chassis, we design and produce battery-electric power trains that can be installed in new Workhorse
chassis or installed as repower packages to convert used Class 3-6 medium-duty vehicles from diesel or gasoline power to electric
power. Our approach is to provide battery-electric power trains utilizes proven, automotive-grade, mass-produced parts in its
architecture coupled with in-house control software that it has developed over the last five years.
The
Workhorse Custom Chassis acquisition includes other important assets including the Workhorse brand and logo, intellectual property,
schematics, logistical support from UpTime Parts (a Navistar subsidiary) and, perhaps most importantly, a network of 400 plus
sales and service outlets across North America. We believe the combination of Workhorse’s chassis assembly capability, coupled
with its ability to offer an array of fuel choices, gives Workhorse a unique opportunity in the marketplace.
Marketing
Our
sales team is focused on a targeted list of high profile, former purchasers, and current buyers of the Workhorse chassis with
the goal of securing purchase orders from these companies. These purchase orders will give us the first look at next year’s
chassis demand related to electric and extended range electric vehicles.
Our
priority is to establish the commercial step van as our core business. We intend to be the best choice for a vehicle in this segment
regardless of the fuel type that the customer chooses. Our sales plan is to meet with the top potential customers and obtain purchase
orders for new electric and extended range electric vehicles for their production vehicle requirements.
Finally,
since our competitive advantage in the marketplace is our ability to provide purpose-built solutions to customers that have unique
requirements at relatively low-volume, we have submitted proposals to companies for purpose-built vehicle applications.
Strategic
Relationships
Panasonic:
Workhorse Group has signed an agreement with the rechargeable battery division of Panasonic Industrial Devices Sales Co. of
America for the supply of “18650” cylindrical Panasonic lithium-ion batteries for Workhorse’s battery-electric,
medium-duty trucks.
Morgan
Olsen, Utilimaster, ECO, and other up-fitters or body fabricators
: All of these companies build bodies customized for the
needs of their customers and mated to chassis that are available to them from the short list of chassis suppliers. The functionality
and configuration the end-user receives in the finished product is limited by the available chassis/powertrain. Workhorse will
work with these organizations to provide chassis that not only best fit the needs of the end user customer but also provide the
customer with a competitive advantage in their specific industry or application.
Research
and Development
The
majority of our research and development is conducted in-house at our facilities near Cincinnati, Ohio. Additionally, we contract
with engineering firms to assist with validation and certification requirements as well as specific vehicle integration tasks.
Competitive
Companies
The
medium-duty commercial vehicle market is highly competitive and we expect it to become even more so in the future as additional
companies launch competing vehicle offerings. The medium-duty commercial alternatively fueled vehicle market, however, is less
developed and competitive. There are two primary competitors in the medium-duty vehicle segment in the US market: Ford
and Freightliner. Neither has disclosed any plans to offer 100% EV or EREV vehicles in this segment. Ford is vertically
integrated building a complete vehicle or chassis including Ford engine and transmission. They provide a chassis as
a strip-chassis (which is similar to the Workhorse product) or they provide it with a cab. Freightliner provides a chassis as
a strip-chassis, which is similar to the Workhorse Truck chassis.
We
believe the most dramatic difference between Workhorse and the other competitors in the medium duty truck market is our ability
to offer customers purpose-built solutions that meet the needs of their unique requirements at a competitive price. While there
are many electric car companies from abroad, there are only a few foreign companies that have vehicles in the category of medium-duty
trucks.
We
believe that the primary competitive factors within the medium-duty commercial vehicle market are:
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the
difference in the initial purchase prices of electric vehicles and comparable vehicles powered by internal combustion engines,
both including and excluding the impact of government and other subsidies and incentives designed to promote the purchase
of electric vehicles;
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the
total cost of vehicle ownership over the vehicle's expected life, which includes the initial purchase price and ongoing operational
and maintenance costs;
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vehicle
quality, performance and safety;
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government
regulations and economic incentives promoting fuel efficiency and alternate forms of energy;
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the
quality and availability of service for the vehicle, including the availability of replacement parts.
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GOVERNMENT
REGULATION
Our
electric vehicles are designed to comply with a significant number of governmental regulations and industry standards, some of
which are evolving as new technologies are deployed. Government regulations regarding the manufacture, sale and implementation
of products and systems similar to our electric vehicles are subject to future change. We cannot predict what impact, if any,
such changes may have upon our business. We believe that our vehicles are in conformity with all applicable laws in all relevant
jurisdictions.
Emission
and fuel economy standards
Government
regulation related to climate change is under consideration at the U.S. federal and state levels. The EPA and the National Highway
Traffic Safety Administration, or NHTSA, issued a final rule for greenhouse gas emissions and fuel economy requirements for trucks
and heavy-duty engines on August 9, 2011, which will have an initial phase in starting with model year 2014 and a final phase
in occurring in model year 2017. NHTSA standards for model year 2014 and 2015 will be voluntary, while mandatory standards will
first come into effect in 2016.
The
rule provides emission standards for CO2 and fuel consumption standards for three main categories of vehicles: (i) combination
tractors, (ii) heavy-duty pickup trucks and vans and (iii) vocational vehicles. We believe that the Workhorse chassis
would be considered “vocational vehicles" under the rule. According to the EPA and NHTSA, vocational vehicles consist
of a wide variety of truck and bus types, including delivery, refuse, utility, dump, cement, transit bus, shuttle bus, school
bus, emergency vehicles, motor homes and tow trucks, and are characterized by a complex build process, with an incomplete chassis
often built with an engine and transmission purchased from other manufacturers, then sold to a body manufacturer.
The
EPA and NHTSA rule also establishes multiple flexibility and incentive programs for manufacturers of alternatively fueled vehicles,
such as the Workhorse E-100 full electric and the E-Gen Electric, including an engine averaging, banking and trading, or ABT,
program, a vehicle ABT program and additional credit programs for early adoption of standards or deployment of advanced or innovative
technologies. The ABT programs will allow for emission and/or fuel consumption credits to be averaged, banked or traded within
defined groupings of the regulatory subcategories. The additional credit programs will allow manufacturers of engines and vehicles
to be eligible to generate credits if they demonstrate improvements in excess of the standards established in the rule prior to
the model year the standards become effective or if they introduce advanced or innovative technology engines or vehicles.
The
Clean Air Act requires that we obtain a Certificate of Conformity issued by the EPA and a California Executive Order issued by
CARB with respect to emissions for our vehicles. The Certificate of Conformity is required for vehicles sold in states covered
by the Clean Air Act's standards and the Executive Order is required for vehicles sold in states that have sought and received
a waiver from the EPA to utilize California standards. The California standards for emissions control for certain regulated pollutants
for new vehicles and engines sold in California are set by CARB. States that have adopted the California standards as approved
by EPA also recognize the Executive Order for sales of vehicles.
Manufacturers
who sell vehicles in states covered by federal requirements under the Clean Air Act without a Certificate of Conformity may be
subject to penalties of up to $37,500 per violation and be required to recall and remedy any vehicles sold with emissions in excess
of Clean Air Act standards. In 2013, we received approval from CARB to sell the E-100 in California based on our own emissions
tests.
Vehicle
safety and testing
The
National Traffic and Motor Vehicle Safety Act of 1966, or the Safety Act, regulates motor vehicles and motor vehicle equipment
in the United States in two primary ways. First, the Safety Act prohibits the sale in the United States of any new vehicle or
equipment that does not conform to applicable motor vehicle safety standards established by NHTSA. Meeting or exceeding many safety
standards is costly, in part because the standards tend to conflict with the need to reduce vehicle weight in order to meet emissions
and fuel economy standards. Second, the Safety Act requires that defects related to motor vehicle safety be remedied through safety
recall campaigns. A manufacturer is obligated to recall vehicles if it determines that the vehicles do not comply with a safety
standard. Should we or NHTSA determine that either a safety defect or noncompliance exists with respect to any of our vehicles,
the cost of such recall campaigns could be substantial.
Battery
safety and testing
Our
battery packs conform to mandatory regulations that govern transport of "dangerous goods," which includes lithium-ion
batteries, which may present a risk in transportation. The governing regulations, which are issued by PHMSA, are based on the
UN Recommendations on the Safe Transport of Dangerous Goods Model Regulations, and related UN Manual of Tests and Criteria. The
requirements for shipments of these goods vary by mode of transportation, such as ocean vessel, rail, truck and air.
Our
battery module suppliers have completed the applicable transportation tests for our prototype and production battery packs demonstrating
our compliance with the UN Manual of Tests and Criteria, including:
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altitude
simulation, which involves simulating air transport;
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thermal
cycling, which involves assessing cell and battery seal integrity;
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vibration,
which involves simulating vibration during transport;
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shock,
which involves simulating possible impacts during transport;
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external
short circuit, which involves simulating an external short circuit; and
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overcharge,
which involves evaluating the ability of a rechargeable battery to withstand overcharging.
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Vehicle
dealer and distribution regulation
Certain
states' laws require motor vehicle manufacturers and dealers to be licensed in such states in order to conduct manufacturing and
sales activities. To date, we are registered as both a motor vehicle manufacturer and dealer in Indiana and Ohio as well as a
dealer in California and Chicago. We have not yet sought formal clarification of our ability to manufacture or sell our vehicles
in any other states.
Intellectual
Property
We
have five pending trademark applications and nine issued trademark registrations (US and foreign). We also intend to pursue additional
foreign trademark registrations. We have two pending non-provisional U.S. patent application, one pending provisional patent application,
and six existing patents, two of which are design patents. We also plan to pursue appropriate foreign patent protection on those
inventions, if available. The following is a summary of our patents:
Country
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Status
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Serial
Number
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Application
Date
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Patent
Number
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Issue /Grant Date
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Title
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Expiration
Date
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Canada
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Granted
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2523653
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10/17/2005
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2523653
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12/22/2009
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Vehicle Chassis Assembly
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10/17/2025
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United States
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Granted
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11/252,220
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10/17/2005
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7,717,464
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5/18/2010
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Vehicle Chassis Assembly
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9/6/2026
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United States
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Granted
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11/252,219
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10/17/2005
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7,559,578
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7/14/2009
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Vehicle Chassis Assembly
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9/6/2026
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United States
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Granted
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29/243,074
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11/18/2005
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D561,078
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2/5/2008
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Vehicle Header
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2/5/2022
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United States
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Granted
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29/243,129
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11/18/2005
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D561,079
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2/5/2008
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Vehicle Header
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2/5/2022
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United States
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Granted
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13/283,663
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10/28/2011
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8,541,915
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9/24/2013
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Drive Module And Manifold For Electric Motor Drive Assembly
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12/16/2031
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United States
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Filed
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14/606,497
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1/27/2015
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NA
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NA
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Onboard Generator Drive System For Electric Vehicles
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United States
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Filed
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62
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1/9/2015
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NA
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NA
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Multi-Copter UAS/UAV Dispatched from a Conventional Delivery Vehicle
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Employees
We
currently have 60 full-time and 15 part-time employees located in Loveland, Ohio and 19 full-time employees located in Union City,
Indiana. We also contract for hire with approximately four outside consultants and contractors.
ITEM
1A. RISK FACTORS
Our
results of operations have not resulted in profitability and we may not be able to achieve profitability going forward.
We
have incurred net losses amounting to $63.1 million for the period from inception (February 20, 2007) through December 31, 2016. We have
had net losses in each quarter since our inception. We expect that we will continue to incur net losses for the foreseeable future.
We may incur significant losses in the future for a number of reasons, including the other risks described in this report, and
we may encounter unforeseen expenses, difficulties, complications, delays and other unknown events. Accordingly, we may not be
able to achieve or maintain profitability. Our management is developing plans to alleviate the negative trends and conditions
described above and there is no guarantee that such plans will be successfully implemented. Our business plan has changed
from concentrating on the electric passenger vehicle market to the electric medium duty trucks, and has been further focused on
providing sustainable and cost-effective solutions to the commercial transportation sector, but is still unproven. There is no
assurance that even if we successfully implement our business plan, that we will be able to curtail our losses. If we incur additional
significant operating losses, our stock price may decline, perhaps significantly.
We
have yet to achieve positive cash flow and, given our projected funding needs, our ability to generate positive cash flow is uncertain.
We
have had negative cash flow from operating activities of $19.1 million and $8.2 million for the year ended December
31, 2016 and 2015 respectively. We anticipate that we will continue to have negative cash flow from operating and investing activities
for the foreseeable future as we expect to incur increased research and development, sales and marketing, and general and administrative
expenses and make significant capital expenditures in our efforts to increase sales and commence operations at our Union City
facility. Our business also will at times require significant amounts of working capital to support our growth, particularly as
we acquire inventory to support our anticipated increase in production. An inability to generate positive cash flow for the foreseeable
future may adversely affect our ability to raise needed capital for our business on reasonable terms, diminish supplier or customer
willingness to enter into transactions with us, and have other adverse effects that may decrease our long-term viability. There
can be no assurance we will achieve positive cash flow in the foreseeable future.
We
need access to additional financing in 2017 and beyond, which may not be available to us on acceptable terms or at all. If we
cannot access additional financing when we need it and on acceptable terms, our business may fail.
Our
business plan to design, produce, sell and service commercial electric vehicles through our Union City facility will require substantial
continued capital investment. Our research and development activities will also require substantial continued investment. For
the year ended December 31, 2016, our independent registered public accounting firm issued a report on our 2016 financial statements
that contained an explanatory paragraph stating that the lack of sales, negative working capital and stockholders’ deficit,
raise substantial doubt about our ability to continue as a going concern. For example, our existing capital resources, will be
insufficient to fund our operations beyond the end of the fourth quarter of 2017. Accordingly, we will need additional financing.
We will also need additional financing beyond 2017. If we are not able to obtain additional financing and/or substantially increase
revenue from sales, we will be unable to continue as a going concern. As a result, we may have to liquidate our assets and may
receive less than the value at which those assets are carried on our consolidated financial statements, and investors will likely
lose a substantial part or all of their investment. We cannot be certain that additional financing will be available to us on
favorable terms when required, or at all, particularly given that we do not now have a committed credit facility with any government
or financial institution. Further, if there remains doubt about our ability to continue as a going concern, investors or other
financing sources may be unwilling to provide additional funding on acceptable terms or at all. If we cannot obtain additional
financing when we need it and on terms acceptable to us, we will not be able to continue as a going concern.
The
development of our business in the near future is contingent upon the implementation of orders from UPS and other key customers
for the purchase of E-GENs and if we are unable to perform under these orders, our business may fail.
On
June 4, 2014, the Company entered into a Vehicle Purchase Agreement with United Parcel Service Inc. (“UPS”) which
outlined the relationship by which the Company would sell vehicles to UPS. To date, we have received orders to purchase 343 E-GENs
from UPS. We have entered into various purchase orders with UPS relating to the delivery of the vehicles ordered. Currently, the
schedule agreed to with UPS requires that we deliver specified numbers of vehicles per month. However, these deadlines are expected
to evolve as the individual UPS operations personnel from the seven states are involved in the scheduling. There is no guarantee
that the Company will be able to perform under these orders and if it does perform, that UPS will purchase additional vehicles
from the Company. Also, there is no assurance that UPS will not terminate its agreement with the Company pursuant to the termination
provisions therein. Further, if the Company is not able to raise the required capital to purchase required parts and pay certain
vendors, the Company may not be able to comply with UPS’s deadlines. Accordingly, despite the receipt of the orders from
UPS, there is no assurance, due to the Company’s financial constraints and status as a development stage company, that the
Company will be able to deliver such vehicles or that it will receive additional orders whether from UPS or other potential customers.
If
we are unable to perform under our orders with UPS, the Company business will be significantly negatively impacted.
Our
limited operating history makes it difficult for us to evaluate our future business prospects and make decisions based on those
estimates of our future performance
.
We
have basically been a research and development company since beginning operations in February 2007. We have a limited
operating history and have generated limited revenue. As we move more toward a manufacturing environment it is difficult,
if not impossible, to forecast our future results based upon our historical data. Because of the uncertainties related
to our lack of historical operations, we may be hindered in our ability to anticipate and timely adapt to increases or decreases
in revenues or expenses. If we make poor budgetary decisions as a result of unreliable historical data, we could be
less profitable or incur losses, which may result in a decline in our stock price.
We
offer no financing on our vehicles. As such, our business is dependent on cash sales, which may adversely affect our growth prospects.
While
most of our current customers are well-established companies with significant purchasing power, many of our potential smaller
and medium-sized customers may need to rely on credit or leasing arrangements to gain access to our vehicles. Unlike some of our
competitors who provide credit or leasing services for the purchase of their vehicles, we do not provide, and currently do not
have commercial arrangements with a third party that provides, such financial services. We believe the current limited availability
of credit or leasing solutions for our vehicles could adversely affect our revenues and market share in the commercial electric
vehicle market.
Our
business, prospects, financial condition and operating results will be adversely affected if we cannot reduce and adequately control
the costs and expenses associated with operating our business, including our material and production costs.
We
incur significant costs and expenses related to procuring the materials, components and services required to develop and produce
our electric vehicles. We have secured supply agreements for our critical components including our batteries. However, these are
dependent on volume to ensure that they are available at a competitive price. Thus, our current cost projections are considerably
higher than the projected revenue stream that such vehicles will produce. As a result, we currently lose money on each vehicle
we sell and are continually working on initiatives to reduce our cost structure so that we may effectively compete. If we do not
reduce our costs and expenses, our net losses will continue which will negatively impact our business and stock price.
Increases
in costs, disruption of supply or shortage of lithium-ion cells could harm our business.
We
may experience increases in the cost or a sustained interruption in the supply or shortage of lithium-ion cells. Any such increase,
supply interruption or shortage could materially and negatively impact our business, prospects, financial condition and operating
results. The prices for these lithium-ion cells can fluctuate depending on market conditions and global demand for these materials
and could adversely affect our business and operating results. We are exposed to multiple risks relating to lithium-ion cells
including:
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the
inability or unwillingness of current battery manufacturers to build or operate battery cell manufacturing plants to supply
the numbers of lithium-ion cells we may require going forward;
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disruption
in the supply of cells due to quality issues or recalls by battery cell manufacturers;
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an
increase in the cost of raw materials used in the cells; and
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fluctuations
in the value of the Japanese yen against the U.S. dollar in the event our purchasers of lithium-ion cells are denominated
in Japanese yen.
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Our
business is dependent on the continued supply of battery cells for the battery packs used in our vehicles. While we believe several
sources of the battery cells are available for such battery cells, we have fully qualified only Panasonic for the supply of the
cells used in such battery packs and have very limited flexibility in changing cell suppliers. Any disruption in the supply of
battery cells could disrupt production of our vehicles until such time as a different supplier is fully qualified. Furthermore,
fluctuations or shortages in petroleum, tariff or trade issues and other economic or tax conditions may cause us to experience
significant increases in freight charges. Substantial increases in the prices for the battery cells or prices charged to us, would
increase our operating costs, and could reduce our margins if we cannot recoup the increased costs through increased vehicle prices.
Any attempts to increase vehicle prices in response to increased costs in our battery cells could result in cancellations of vehicle
orders and therefore materially and adversely affect our brand, image, business, prospects and operating results.
The
demand for commercial electric vehicles depends, in part, on the continuation of current trends resulting from dependence on fossil
fuels. Extended periods of low diesel or other petroleum-based fuel prices could adversely affect demand for our vehicles, which
would adversely affect our business, prospects, financial condition and operating results.
We
believe that much of the present and projected demand for commercial electric vehicles results from concerns about volatility
in the cost of petroleum-based fuel, the dependency of the United States on oil from unstable or hostile countries, government
regulations and economic incentives promoting fuel efficiency and alternative forms of energy, as well as the belief that climate
change results in part from the burning of fossil fuels. If the cost of petroleum-based fuel decreased significantly, the outlook
for the long-term supply of oil to the United States improved, the government eliminated or modified its regulations or economic
incentives related to fuel efficiency and alternative forms of energy, or if there is a change in the perception that the burning
of fossil fuels negatively impacts the environment, the demand for commercial electric vehicles could be reduced, and our business
and revenue may be harmed.
Diesel
and other petroleum-based fuel prices have been extremely volatile, and we believe this continuing volatility will persist. Lower
diesel or other petroleum-based fuel prices over extended periods of time may lower the perception in government and the private
sector that cheaper, more readily available energy alternatives should be developed and produced. If diesel or other petroleum-based
fuel prices remain at deflated levels for extended periods of time, the demand for commercial electric vehicles may decrease,
which would have an adverse effect on our business, prospects, financial condition and operating results.
Our
future growth is dependent upon the willingness of operators of commercial vehicle fleets to adopt electric vehicles and on our
ability to produce, sell and service vehicles that meet their needs. This often depends upon the cost for an operator adopting
electric vehicle technology as compared to the cost of traditional internal combustion technology. When the price of oil is low,
as it recently has been, it is difficult to convince commercial fleet operations to change to more expensive electric vehicles.
Our
growth is dependent upon the adoption of electric vehicles by operators of commercial vehicle fleets and on our ability to produce,
sell and service vehicles that meet their needs. The entry of commercial electric vehicles into the medium-duty commercial vehicle
market is a relatively new development, particularly in the United States, and is characterized by rapidly changing technologies
and evolving government regulation, industry standards and customer views of the merits of using electric vehicles in their businesses.
This process has been slow as without including the impact of government or other subsidies and incentives, the purchase prices
for our commercial electric vehicles currently is higher than the purchase prices for diesel-fueled vehicles. Our growth has also
been negatively impacted by the relatively low price of oil over the last few years.
If
the market for commercial electric vehicles does not develop as we expect or develops more slowly than we expect, our business,
prospects, financial condition and operating results will be adversely affected.
As
part of our sales efforts, we must educate fleet managers as to the economical savings we believe they will benefit from during
the life of the vehicle. As such, we believe that operators of commercial vehicle fleets should consider a number of factors when
deciding whether to purchase our commercial electric vehicles (or commercial electric vehicles generally) or vehicles powered
by internal combustion engines, particularly diesel-fueled or natural gas-fueled vehicles. We believe these factors include:
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the difference in the
initial purchase prices of commercial electric vehicles and vehicles with comparable GVWs powered by internal combustion engines,
both including and excluding the impact of government and other subsidies and incentives designed to promote the purchase
of electric vehicles;
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the total cost of ownership
of the vehicle over its expected life, which includes the initial purchase price and ongoing operating and maintenance costs;
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the availability and
terms of financing options for purchases of vehicles and, for commercial electric vehicles, financing options for battery
systems;
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the availability of
tax and other governmental incentives to purchase and operate electric vehicles and future regulations requiring increased
use of nonpolluting vehicles;
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government regulations
and economic incentives promoting fuel efficiency and alternate forms of energy;
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fuel prices, including
volatility in the cost of diesel;
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the cost and availability
of other alternatives to diesel fueled vehicles, such as vehicles powered by natural gas;
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corporate sustainability
initiatives;
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commercial electric
vehicle quality, performance and safety (particularly with respect to lithium-ion battery packs);
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the quality and availability
of service for the vehicle, including the availability of replacement parts;
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the limited range over
which commercial electric vehicles may be driven on a single battery charge;
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access to charging
stations and related infrastructure costs, and standardization of electric vehicle charging systems;
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electric grid capacity
and reliability; and
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macroeconomic factors.
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If,
in weighing these factors, operators of commercial vehicle fleets determine that there is not a compelling business justification
for purchasing commercial electric vehicles, particularly those that we produce and sell, then the market for commercial electric
vehicles may not develop as we expect or may develop more slowly than we expect, which would adversely affect our business, prospects,
financial condition and operating results.
If
our customers are unable to efficiently and effectively integrate our electric vehicles into their existing commercial fleets
our sales may suffer and our business, prospects, financial condition and operating results may be adversely affected.
Our
sales strategy involves a comprehensive plan for the pilot and roll-out of our electric vehicles, as well as the ongoing replacement
of existing commercial vehicles with our electric vehicles, that is tailored to the individual needs of our customers. If we are
unable to develop and execute fleet integration strategies or fleet management support services that meet our customers’
unique circumstances with minimal disruption to their businesses, our customers may not realize the economic benefits they expect
from our electric vehicles. If this were to occur, our customers may not order additional vehicles from us, which could adversely
affect our business, prospects, financial condition and operating results.
We
currently do not have long-term supply contracts with guaranteed pricing which exposes us to fluctuations in component, materials
and equipment prices. Substantial increases in these prices would increase our operating costs and could adversely affect our
business, prospects, financial condition and operating results.
Because
we currently do not have long-term supply contracts with guaranteed pricing, we are subject to fluctuations in the prices of the
raw materials, parts and components and equipment we use in the production of our vehicles. Substantial increases in the prices
for such raw materials, components and equipment would increase our operating costs and could reduce our margins if we cannot
recoup the increased costs through increased vehicle prices. Any attempts to increase the announced or expected prices of our
vehicles in response to increased costs could be viewed negatively by our customers and could adversely affect our business, prospects,
financial condition and operating results.
If
we are unable to scale our operations at our Union City facility in an expedited manner from our limited low volume production
to high volume production, our business, prospects, financial condition and operating results will be adversely affected.
We
are currently assembling our orders at our Union City facility which has been acceptable for our historical orders. To satisfy
increased demand, we will need to quickly scale operations in our Union City facility as well as scale our supply chain including
access to batteries. Such a substantial and rapid increase in operations will be extremely difficult and will strain our management
capabilities. Our business, prospects, financial condition and operating results could be adversely affected if we experience
disruptions in our supply chain, if we cannot obtain materials of sufficient quality at reasonable prices or if we are unable
to scale our Union City facility.
Failure
to successfully integrate the Workhorse® brand, logo, intellectual property, patents and assembly plant in Union City, Indiana
into our operations could adversely affect our business and results of operations.
As
part of our strategy to become an OEM, in March 2013, we acquired Workhorse and the Workhorse Assets including the Workhorse ®
brand, logo, intellectual property, patents and assembly plant in Union City, Indiana. The Workhorse acquisition may
expose us to operational challenges and risks, including the diversion of management’s attention from our existing business,
the failure to retain key Workhorse dealers and our ability to commence operations at the plant in Union City, Indiana. Our
ability to sustain our growth and maintain our competitive position may be affected by our ability to successfully integrate the
Workhorse Assets.
We
depend upon key personnel and need additional personnel. The loss of key personnel or the inability to attract additional
personnel may adversely affect our business and results of operations.
Our
success depends on the continuing services of Stephen Burns, CEO, and top management. On December 8, 2010, we entered into an
employment agreement with Mr. Burns for a term of two years which automatically renews for one year periods unless either of the
parties elects to not renew for such period. The loss of any of these individuals could have a material and adverse effect on
our business operations. Additionally, the success of our operations will largely depend upon our ability to successfully attract
and maintain competent and qualified key management personnel. As with any company with limited resources, there can be no guarantee
that we will be able to attract such individuals or that the presence of such individuals will necessarily translate into profitability
for our company. Our inability to attract and retain key personnel may materially and adversely affect our business operations.
Any failure by our management to effectively anticipate, implement, and manage the changes required to sustain our growth would
have a material adverse effect on our business, financial condition, and results of operations.
We
face intense competition. Some of our competitors have substantially greater financial or other resources, longer operating histories
and greater name recognition than we do and could use their greater resources and/or name recognition to gain market share at
our expense or could make it very difficult for us to establish market share.
Companies
currently competing in the fleet logistics market offering alternative fuel medium-duty trucks include Ford Motor Company and
Freightliner. Ford and Freightliner are currently selling alternative fuel fleet vehicles including hybrids. In the electric medium
duty truck market in the United States, we compete with a few other manufacturers, including Electric Vehicles International and
Smith Electric Vehicles. Ford and Freightliner have substantially more financial resources, established market positions, long-standing
relationships with customers and dealers, and who have more significant name recognition, technical, marketing, sales, financial
and other resources than we do. Although we believe that HorseFly™, our unmanned aerial system (UAS), is unique in the marketplace
in that it currently does not have any competitors when it comes to a UAS that works in combination with a truck, there are better
financed competitors in this emerging industry, including Google and Amazon. While we are seeking to partner with existing delivery
companies to improve their efficiencies in the last mile of delivery, our competitors are seeking to redefine the delivery model
using drones from a central location requiring extended flight patterns. Our competitors’ new aerial delivery model would
essentially eliminate traditional package delivery companies. Our model is focused on coupling our delivery drone with delivery
trucks supplementing the existing model and providing shorter term flight patterns. Google and Amazon have more significant financial
resources, established market positions, long-standing relationships with customers, more significant name recognition and a larger
scope of resources including technical, marketing and sales than we do. The resources available to our competitors to develop
new products and introduce them into the marketplace exceed the resources currently available to us. As a result, our competitors
may be able to compete more aggressively and sustain that competition over a longer period that we can. This intense competitive
environment may require us to make changes in our products, pricing, licensing, services, distribution, or marketing to develop
a market position. Each of these competitors has the potential to capture significant market share in our target markets which
could have an adverse effect on our position in our industry and on our business and operating results.
If
we are unable to keep up with advances in electric vehicle technology, we may suffer a decline in our competitive position.
There
are companies in the electric vehicle industry that have developed or are developing vehicles and technologies that compete or
will compete with our vehicles. We cannot assure that our competitors will not be able to duplicate our technology or provide
products and services similar to ours more efficiently. If for any reason we are unable to keep pace with changes in electric
vehicle technology, particularly battery technology, our competitive position may be adversely affected. We plan to upgrade or
adapt our vehicles and introduce new models to continue to provide electric vehicles that incorporate the latest technology. However,
there is no assurance that our research and development efforts will keep pace with those of our competitors.
Our
electric vehicles compete for market share with vehicles powered by other vehicle technologies that may prove to be more attractive
than ours.
Our
target market currently is serviced by manufacturers with existing customers and suppliers using proven and widely accepted fuel
technologies. Additionally, our competitors are working on developing technologies that may be introduced in our target market.
If any of these alternative technology vehicles can provide lower fuel costs, greater efficiencies, greater reliability or otherwise
benefit from other factors resulting in an overall lower total cost of ownership, this may negatively affect the commercial success
of our vehicles or make our vehicles uncompetitive or obsolete.
We
currently have a limited number of customers, with whom we do not have long-term agreements, and expect that a significant portion
of our future sales will be from a limited number of customers. The loss of any of these customers could materially harm our business.
A
significant portion of our projected future revenue, if any, is expected to be generated from a limited number of vehicle customers.
Additionally, much of our business model is focused on building relationships with a few large customers. Currently we have no
contracts with customers that include long-term commitments or minimum volumes that ensure future sales of vehicles. As such,
a customer may take actions that negatively affect us for reasons that we cannot anticipate or control, such as reasons related
to the customer’s financial condition, changes in the customer’s business strategy or operations or as the result
of the perceived performance or cost-effectiveness of our vehicles. The loss of or a reduction in sales or anticipated sales to
our most significant customers would have a material adverse effect on our business, prospects, financial condition and operating
results.
Changes
in the market for electric vehicles could cause our products to become obsolete or lose popularity.
The
modern electric vehicle industry is in its infancy and has experienced substantial change in the last few years. To date, demand
for electric vehicles has been slower than forecasted by industry experts. As a result, growth in the electric vehicle industry
depends on many factors outside our control, including, but not limited to:
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continued development
of product technology, especially batteries;
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the environmental consciousness
of customers;
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the ability of electric
vehicles to successfully compete with vehicles powered by internal combustion; engines
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limitation of widespread
electricity shortages; and
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whether future regulation
and legislation requiring increased use of non-polluting vehicles is enacted.
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We
cannot assume that growth in the electric vehicle industry will continue. Our business will suffer if the electric vehicle industry
does not grow or grows more slowly than it has in recent years or if we are unable to maintain the pace of industry demands.
The
results of the 2016 United States presidential and congressional elections may create regulatory uncertainty for the alternative
energy sector and may materially harm our business, financial condition and operating results.
Donald
Trump’s victory in the U.S. presidential election, as well as the Republican Party maintaining control of both the House
of Representatives and Senate of the United States in the congressional election, may create regulatory uncertainty in the alternative
energy sector. During the election campaign, President Trump made comments suggesting that he was not supportive of various clean
energy programs and initiatives designed to curtail global warming. It remains unclear what specifically President Trump would
or would not do with respect to these programs and initiatives, and what support he would have for any potential changes to such
legislative programs and initiatives in the Unites States Congress, even if both the House of Representatives and Senate are controlled
by the Republican Party. If President Trump and/or the United States Congress take action or publicly speak out about the need
to eliminate or further reduce legislation, regulations and incentives supporting alternative energy, such actions may result
in a decrease in demand for alternative energy in the United States and may materially harm our business, financial condition
and operating results.
The
unavailability, reduction, elimination or adverse application of government subsidies, incentives and regulations could have an
adverse effect on our business, prospects, financial condition and operating results.
We
believe that, currently, the availability of government subsidies and incentives including those available in New York, California
and Chicago is an important factor considered by our customers when purchasing our vehicles, and that our growth depends in part
on the availability and amounts of these subsidies and incentives. Any reduction, elimination or discriminatory application of
government subsidies and incentives because of budgetary challenges, policy changes, the reduced need for such subsidies and incentives
due to the perceived success of electric vehicles or other reasons may result in the diminished price competitiveness of the alternative
fuel vehicle industry.
Certain
regulations and programs that encourage sales of electric vehicles could be eliminated or applied in a way that adversely impacts
sales of our commercial electric vehicles, either currently or at any time in the future. For example, the U.S. federal government
and many state governments are experiencing political change and facing fiscal crises, which could result in the elimination of
programs, subsidies and incentives that encourage the purchase of electric vehicles. If government subsidies and incentives to
produce and purchase electric vehicles were no longer available to us or to our customers, or the amounts of such subsidies and
incentives were reduced, our business and results of operations would be adversely affected.
We
may be unable to keep up with changes in electric vehicle technology and, as a result, may suffer a decline in our competitive
position.
Our
current products are designed for use with, and are dependent upon, existing electric vehicle technology. As technologies change,
we plan to upgrade or adapt our products to continue to provide products with the latest technology. However, our products may
become obsolete or our research and development efforts may not be sufficient to adapt to changes in or to create the necessary
technology. Thus, our potential inability to adapt and develop the necessary technology may harm our competitive position.
The
failure of certain key suppliers to provide us with components could have a severe and negative impact upon our business.
We
have secured supply agreements for our critical components including our batteries. However, the agreements are dependent on volume
to ensure that they are available at a competitive price. Further, we rely on a small group of suppliers to provide us with components
for our products. If these suppliers become unwilling or unable to provide components or if we are unable to meet certain volume
requirements in our existing supply agreements, there are a limited number of alternative suppliers who could provide them and
the price for them could be substantially higher. Changes in business conditions, wars, governmental changes, and other factors
beyond our control or which we do not presently anticipate could negatively affect our ability to receive components from our
suppliers. Further, it could be difficult to find replacement components if our current suppliers fail to provide the parts needed
for these products. A failure by our major suppliers to provide these components could severely restrict our ability to manufacture
our products and prevent us from fulfilling customer orders in a timely fashion.
Product
liability or other claims could have a material adverse effect on our business.
The
risk of product liability claims, product recalls, and associated adverse publicity is inherent in the manufacturing, marketing,
and sale of electrical vehicles. Although we have product liability insurance for our consumer and commercial products, that insurance
may be inadequate to cover all potential product claims. We also carry liability insurance on our products. Any product recall
or lawsuit seeking significant monetary damages either in excess of our coverage, or outside of our coverage, may have a material
adverse effect on our business and financial condition. We may not be able to secure additional product liability insurance coverage
on acceptable terms or at reasonable costs when needed. A successful product liability claim against us could require us to pay
a substantial monetary award. Moreover, a product recall could generate substantial negative publicity about our products and
business and inhibit or prevent commercialization of other future product candidates. We cannot provide assurance that such claims
and/or recalls will not be made in the future.
We
may have to devote substantial resources to implementing a retail product distribution network.
Dealers
are often hesitant to provide their own financing to contribute to our product distribution network. Thus, we anticipate that
we may have to provide financing or other consignment sale arrangements for dealers. A capital investment such as this presents
many risks, foremost among them being that we may not realize a significant return on our investment if the network is not profitable.
Our inability to collect receivables from dealers could cause us to suffer losses. Additionally, the amount of time that our management
will need to devote to this project may divert them from performing other functions necessary to assure the success of our business.
Regulatory
requirements may have a negative impact upon our business.
While
our vehicles are subject to substantial regulation under federal, state, and local laws, we believe that our vehicles are or will
be materially in compliance with all applicable laws. However, to the extent the laws change, or if we introduce new vehicles
in the future, some or all of our vehicles may not comply with applicable federal, state, or local laws. Further, certain federal,
state, and local laws and industrial standards currently regulate electrical and electronics equipment. Although standards for
electric vehicles are not yet generally available or accepted as industry standards, our products may become subject to federal,
state, and local regulation in the future. Compliance with these regulations could be burdensome, time consuming, and expensive.
Our
products are subject to environmental and safety compliance with various federal and state regulations, including regulations
promulgated by the EPA, NHTSA, and various state boards, and compliance certification is required for each new model year. The
cost of these compliance activities and the delays and risks associated with obtaining approval can be substantial. The risks,
delays, and expenses incurred in connection with such compliance could be substantial.
Our
success may be dependent on protecting our intellectual property rights.
We
rely on trade secret protections to protect our proprietary technology as well as several registered patents and one patent application.
Our patents relate to the vehicle chassis assembly, vehicle header and drive module and manifold for electric motor drive assembly.
Our existing patent application relates to the onboard generator drive system for electric vehicles. Our success will, in part,
depend on our ability to obtain additional trademarks and patents. We are working on obtaining patents and trademarks registered
with the United States Patent and Trademark Office but have not finalized any as of this date. Although we have entered into confidentiality
agreements with our employees and consultants, we cannot be certain that others will not gain access to these trade secrets. Others
may independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade
secrets.
Our
business may be adversely affected by union activities.
Although
none of our employees are currently represented by a labor union, it is common throughout the automotive industry for many employees
at automotive companies to belong to a union, which can result in higher employee costs and increased risk of work stoppages.
Our employees may join or seek recognition to form a labor union, or we may be required to become a union signatory. Our production
facility in Union City, Indiana was purchased from Navistar. Prior employees of Navistar were union members and our future work
force at this facility may be inclined to vote in favor of forming a labor union. Furthermore, we are directly or indirectly dependent
upon companies with unionized work forces, such as parts suppliers and trucking and freight companies, and work stoppages or strikes
organized by such unions could have a material adverse impact on our business, financial condition or operating results. If a
work stoppage occurs, it could delay the manufacture and sale of our trucks and have a material adverse effect on our business,
prospects, operating results or financial condition. The mere fact that our labor force could be unionized may harm our reputation
in the eyes of some investors and thereby negatively affect our stock price. Consequently, the unionization of our labor force
could negatively impact our company’s health.
We
may be exposed to liability for infringing upon the intellectual property rights of other companies.
Our
success will, in part, depend on our ability to operate without infringing on the proprietary rights of others. Although we have
conducted searches and are not aware of any patents and trademarks which our products or their use might infringe, we cannot be
certain that infringement has not or will not occur. We could incur substantial costs, in addition to the great amount of time
lost, in defending any patent or trademark infringement suits or in asserting any patent or trademark rights, in a suit with another
party.
Our
electric vehicles make use of lithium-ion battery cells, which, if not appropriately managed and controlled, have occasionally
been observed to catch fire or vent smoke and flames. If such events occur in our electric vehicles, we could face liability for
damage or injury, adverse publicity and a potential safety recall, any of which would adversely affect our business, prospects,
financial condition and operating results.
The
battery packs in our electric vehicles use lithium-ion cells, which have been used for years in laptop computers and cell phones.
On occasion, if not appropriately managed and controlled, lithium-ion cells can rapidly release the energy they contain by venting
smoke and flames in a manner that can ignite nearby materials. Highly publicized incidents of laptop computers and cell phones
bursting into flames have focused consumer attention on the safety of these cells. These events also have raised questions about
the suitability of these lithium-ion cells for automotive applications. There can be no assurance that a field failure of our
battery packs will not occur, which would damage the vehicle or lead to personal injury or death and may subject us to lawsuits.
Furthermore, there is some risk of electrocution if individuals who attempt to repair battery packs on our vehicles do not follow
applicable maintenance and repair protocols. Any such damage or injury would likely lead to adverse publicity and potentially
a safety recall. Any such adverse publicity could adversely affect our business, prospects, financial condition and operating
results.
Our
facilities could be damaged or adversely affected as a result of disasters or other unpredictable events. Any prolonged disruption
in the operations of our facility would adversely affect our business, prospects, financial condition and operating results.
We
engineer and assemble our electric vehicles in a facility in Loveland, Ohio and we intend to locate the assembly function to our
facility in Union City. Any prolonged disruption in the operations of our facility, whether due to technical, information systems,
communication networks, accidents, weather conditions or other natural disaster, or otherwise, whether short or long-term, would
adversely affect our business, prospects, financial condition and operating results
.
We
may be exposed to potential risks relating to our internal controls over financial reporting and our ability to have those controls
attested to by our independent auditors.
As
directed by Section 404 of the Sarbanes-Oxley Act of 2002 (“SOX 404”), the Securities and Exchange Commission adopted
rules requiring smaller reporting companies, such as our company, to include a report of management on the company’s internal
controls over financial reporting in their annual reports for fiscal years ending on or after December 15, 2007. We were required
to include the management report in annual reports starting with the year ending December 31, 2009. Previous SEC rules required
a non-accelerated filer to include an attestation report in its annual report for years ending on or after June 15, 2010. Section
989G of the Dodd-Frank Act added SOX Section 404(c) to exempt from the attestation requirement smaller issuers that are neither
accelerated filers nor large accelerated filers under Rule 12b-2. Under Rule 12b-2, subject to periodic and annual reporting criteria,
an “accelerated filer” is an issuer with market value of $75 million, but less than $700 million; a “large accelerated
filer” is an issuer with market value of $700 million or greater. As a result, the exemption effectively applies to companies
with less than $75 million in market capitalization. We expect that this exemption will continue to not apply to us during the
year ended December 31, 2017 and we will have to come into compliance with such rules. Attaining compliance with such rules will
take substantial management and financial resources, and there will be no assurance that we will be able to do so.
Risks
Related to Owning Our Common Stock
If
we fail to continue to meet the listing standards of NASDAQ, our common stock may be delisted, which could have a material
adverse effect on the liquidity of our common stock.
Our
common stock is currently listed on the Nasdaq Capital Market. The NASDAQ Stock Market LLC has requirements that a company must
meet in order to remain listed on NASDAQ. In particular, NASDAQ rules require us to maintain a minimum bid price of $1.00 per
share of our common stock. If the closing bid price of our common stock were to fall below $1.00 per share for 30 consecutive
trading days or we do not meet other listing requirements, we would fail to be in compliance with NASDAQ’s listing
standards. There can be no assurance that we will continue to meet the minimum bid price requirement, or any other requirement
in the future. If we fail to meet the minimum bid price requirement, The NASDAQ Stock Market LLC may initiate the delisting process
with a notification letter. If we were to receive such a notification, we would be afforded a grace period of 180 calendar days
to regain compliance with the minimum bid price requirement. In order to regain compliance, shares of our common stock would need
to maintain a minimum closing bid price of at least $1.00 per share for a minimum of 10 consecutive trading days. In addition,
we may be unable to meet other applicable NASDAQ listing requirements, including maintaining minimum levels of stockholders’
equity or market values of our common stock in which case, our common stock could be delisted. If our common stock were to be
delisted, the liquidity of our common stock would be adversely affected and the market price of our common stock could decrease.
The
trading of our shares of common has been relatively thin and there is no assurance that a liquid market for our shares of common
stock will develop.
Our
common stock has traded on the Nasdaq Capital Market, under the symbol “WKHS”, since January 2016. Since that date,
our common stock has been relatively thinly traded. There can be no assurance that we will be able to successfully develop a liquid
market for our common shares. The stock market in general, and early stage public companies in particular, has experienced extreme
price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of such companies.
If we are unable to develop a market for our common shares, you may not be able to sell your common shares at prices you consider
to be fair or at times that are convenient for you, or at all.
Our
stock price and trading volume may be volatile, which could result in substantial losses for our stockholders.
The
equity trading markets may experience periods of volatility, which could result in highly variable and unpredictable pricing of
equity securities. The market price of our common stock could change in ways that may or may not be related to our business, our
industry or our operating performance and financial condition. In addition, the trading volume in our common stock has been low
and may fluctuate and cause significant price variations to occur. We have experienced significant volatility in the price of
our stock. In addition, the stock markets in general can experience considerable price and volume fluctuations.
We
have not paid dividends in the past and have no immediate plans to pay dividends.
We
plan to reinvest all of our earnings, to the extent we have earnings, in order to develop our products, deliver on our orders
and cover operating costs and to otherwise become and remain competitive. We do not plan to pay any cash dividends with respect
to our securities in the foreseeable future. We cannot assure you that we would, at any time, generate sufficient surplus cash
that would be available for distribution to the holders of our common stock as a dividend. Therefore, you should not expect to
receive cash dividends on our common stock.
Shares
eligible for future sale may adversely affect the market for our common stock.
Of
the 35,956,697 shares of our common stock outstanding as of the date hereof, approximately 22.7 million shares are held by “non-affiliates”
and are freely tradable without restriction pursuant to Rule 144. In addition, our Registration Statement on Form S-3 for purposes
of registering the resale of 1,033,717 shares of common stock and 1,833,193 shares of common stock issuable upon exercise of stock
purchase warrants has been declared effective. Any substantial sale of our common stock pursuant to Rule 144 or pursuant to any
resale prospectus may have a material adverse effect on the market price of our common stock.
Shareholders
may experience future dilution as a result of future equity offerings.
In
order to raise additional capital, we may in the future offer additional shares of our common stock or other securities convertible
into or exchangeable for our common stock at prices that may not be the same as the price per share in our prior offerings. We
may sell shares or other securities in any future offering at a price per share that is lower than the price per share paid by
historical investors, which would result in those newly issued shares being dilutive. In addition, investors purchasing shares
or other securities in the future could have rights superior to existing stockholders, which could impair the value of existing
shareholders. The price per share at which we sell additional shares of our common stock, or securities convertible or exchangeable
into common stock, in future transactions may be higher or lower than the price per share paid by our historical investors.
Our
charter documents and Nevada law may inhibit a takeover that stockholders consider favorable.
Provisions
of our certificate of incorporation and bylaws and applicable provisions of Nevada law may delay or discourage transactions involving
an actual or potential change in control or change in our management, including transactions in which stockholders might otherwise
receive a premium for their shares, or transactions that our stockholders might otherwise deem to be in their best interests.
The provisions in our certificate of incorporation and bylaws:
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limit who may call
stockholder meetings;
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do not provide for
cumulative voting rights; and
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provide that all
vacancies may be filled by the affirmative vote of a majority of directors then in office, even if less than a quorum.
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There
are limitations on director/officer liability.
As
permitted by Nevada law, our certificate of incorporation limits the liability of our directors for monetary damages for breach
of a director’s fiduciary duty except for liability in certain instances. As a result of our charter provision and Nevada
law, shareholders may have limited rights to recover against directors for breach of fiduciary duty. In addition, our certificate
of incorporation provides that we shall indemnify our directors and officers to the fullest extent permitted by law.