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 $80.2 million for the period from inception (February 20, 2007) through June 30, 2017. 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 several 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. 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 $19.2 million and $9.2 million for the six months ended June 30, 2017 and 2016 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 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
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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 are continually working on initiatives to reduce our cost structure so that we
may effectively compete. If we do not properly manage our costs and expenses our net losses will continue which will negatively
impact our 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 could be adversely affected.
We are currently assembling our orders
at our Union City facility which is acceptable for our existing 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. 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 May 19, 2017, Mr. Burns and the Company entered into an Executive Retention Agreement whereby Mr. Burns was retained as Chief
Executive Officer in consideration of an annual salary of $325,000. Further, the Company entered Executive Retention Agreements
with Duane Hughes as Chief Operating Officer/President and Julio Rodriguez as Chief Financial Officer. 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 competition. A few of our competitors
have greater financial or other resources, longer operating histories and greater name recognition than we do and one or more
of these competitors 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 more significant 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 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 and the loss of any of these high-volume customers could materially harm our business.
A significant portion of our projected
future revenue, if any, is generated from a limited number of vehicle customers. Additionally, much of our business model is focused
on building relationships with 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 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 could have an 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 and interest in electric vehicles
has been slower than forecasted by industry experts. As a result, growth in the electric vehicle industry depends on many factors,
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 may 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.
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.
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, these 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. Changes in business conditions, wars,
governmental changes, and other factors beyond our control or which we do not presently anticipate could 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.
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
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 37,324,038 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.