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No. of Recommendations: 2
WKHS - Workhorse Group Inc. Notes from conference call transcripts and elsewhere:

June 2019: Secured $25 million in financing from a private group of institutional investors, the proceeds of which will be used for general working capital and research and development, allowing the company to focus on finalizing the R&D associated with the N-GEN followed by production of its existing contracted backlog.

May 2019: Announced discussions with General Motors (GM) and Lordstown Motors Corp. (LMC), an affiliated, newly formed entity, to purchase GM's Lordstown Complex in Lordstown, Ohio.

April 2019: Entered an alliance with Duke Energy. The alliance will help reduce the overall costs of fleet electrification and accelerate the adoption of electric vehicles into commercial and government fleets. Through the alliance, Duke plans to offer eFleet solutions to existing and future Workhorse customers. Potential offerings include single-point management and financing of behind-the-meter infrastructure, which is necessary to support depot-wide electrification; vehicle financing/battery management programs; and solar and energy storage and other distributed energy resources.

April 2019: Entered into subscription agreement with existing Workhorse investors to sell 3,957,432 shares of common stock resulting in net proceeds of $2.9 million that will be used for working capital and general corporate purposes.

April 2019: Partnered with Prefix Corporation to finalize the design, development and production of the N-GEN series all-electric delivery van, incorporating features such as light-weighting the vehicle to improve mileage, performance, driver safety and reducing the burden of infrastructure requirements.

March 2019: Continued work with partner Dana Inc. on a key integration project, including providing upgraded battery packs and installing various other technologies.

February 2019: Duane Hughes announced as Chief Executive Officer to further support company's successful evolution into full scale production. Previously, Mr. Hughes had served as Workhorse President and Chief Operating Officer.
February 2019: Robert Willison, PhD, engineering veteran and EV industry expert, appointed as Chief Operating Officer to lead company's transition into manufacturing.

December 2018: Secured $35 million financing from Marathon Asset Management.
Sales for the second quarter of 2019 were $6,000, which was down from $171,000 recorded in the second quarter of 2018. The decrease in sales was primarily due to a decrease in volume of trucks delivered. At this point in time, I want to stress that we believe year-over-year comparison should not be considered as meaningful representations of the current capacity of our business or potential interest in our vehicles.

Selling, general and administrative expenses in the second quarter of 2019 decreased 33% to $2 million from $3 million in the second quarter of 2018. The decrease related primarily to lower spending in areas such as marketing and employee-related costs.

Research and development expenses in the second quarter of 2019 decreased 36% to $1.2 million from $1.9 million in the second quarter of 2018. The decrease in research and development expenses was due primarily to lower product design and employee-related costs.

Total operating expenses in Q2 2019 decreased 34% to $3.2 million from $4.9 million in the same period last year. The decrease in total operating expenses was due to the lower SG&A and R&D previously mentioned.

As a result of the company's stock price increase during the quarter from $0.62 to $2.94, Workhorse recognized $31.1 million in noncash interest expense associated with the debt-related warrant liability. The net loss in the second quarter was $36.9 million compared with a net loss of $6.9 million in the second quarter of 2018. To be clear, excluding the noncash warrant liability interest expense, the Q2 loss would have been $5.8 million, which is $1.1 million less than in Q2 2018.

As of June 30, 2019, the company had cash, cash equivalents and short-term investments of $23.5 million compared to $1.5 million as of December 31, 2018.

We've been well focused on our engineering and development efforts to bring the N-GEN to market as expected, and we have been busy working on our strategic opportunities, including our Duke Energy alliance, monetizing the SureFly asset and, of course, as everyone on the call is likely anticipating, we will update you on our discussions as they relate to GM's Lordstown facility.

Before I begin with the updates on the business, I'd like to address the elephant in the room and provide some context around what has been pretty widely reported in the press. Yes, I'm talking about Lordstown. We know that many of you have questions, but please understand we are currently not in a position to provide any material updates to this process beyond what has already been publicly provided through the General Motors press release as well as what is in the public domain from the extensive media coverage. But I'll start at the beginning.

Earlier this year, Workhorse, as well as its founder and former CEO, Steve Burns, began initial discussions with General Motors on a proposed purchase transaction of GM's unallocated Lordstown manufacturing plant in Lordstown, Ohio. Following a thorough review process and evaluation of other credible offers, GM announced publicly on May 8, they have entered discussions with Workhorse and a newly formed entity to acquire the Lordstown Complex. Under the proposed terms of the agreement, the discussions call for a separate private company formed for the purpose of purchasing the Lordstown plant. The new company, as released by the Detroit news this weekend, is called Lordstown Motors Corporation or LMC. Workhorse intends to enter into a license agreement with LMC for specific Workhorse IP and technology. In addition, we will own a minority interest in Lordstown Motors.

LMC's stated goal is to pursue the creation and production of a new battery electric pickup truck based on the Workhorse W-15. We at Workhorse are very excited about this relationship as it further enables Workhorse to monetize our technology. What's more, we are excited about having an affiliated company with automotive volume capabilities, which could be beneficial in the event Workhorse wins substantially larger contracts in the future.

Under this structure, both Workhorse and LMC benefits by blending Workhorse's technology with Lordstown's unparalleled manufacturing expertise. We especially appreciate GM's acknowledgment that as part of their reasoning, they found Workhorse and our technology to be better positioned than most EV start-ups with hundreds of battery electrics trucks and millions of miles on the road, satisfied customers and a substantial order backlog.

Perhaps most importantly, we believe Workhorse shareholders will benefit in multiple ways. The licensing of the W-15 entails minimal engineering and no production expense for Workhorse and allows us to focus on the last mile delivery segment. We expect that our shareholders will further benefit from the value gain from our equity holding in LMC, which allows us to share in the success of Lordstown Motors. Let me go off script for a moment.

When we created the W-15 a couple of years ago, it was because we have learned that purpose-built electric pickup trucks would be a valuable tool for commercial fleet operators. We were out front then and has clearly set the stage for new entries into the market.

Our early thoughts about the feasibility of an all-electric pickup truck are even more valid today. We believe that combining our IP with the historic GM Lordstown facility will provide Workhorse with the greatest benefit in monetizing its pickup truck technology. In the end, we believe this will be the proverbial win-win.
GM's position is this relationship is by far the best opportunity they have found to keep vehicle production in Lordstown. We also believe this arrangement, combined with our Duke Energy alliance, will advance Workhorse's leadership role in the electric vehicle community.

To the extent that we are able, we will provide updates as possible. However, given the dynamic nature of this process as well as the number of stakeholders involved, I have shared all that I can at this time. We appreciate your interest and your patience as we work towards a mutually agreeable outcome.

Moving next to our partnership with Duke Energy. We believe this partnership was one of the largest utilities in the United States, is a first of its kind, industry-leading transaction, whereby the combined resources of both companies will provide a one-stop solution to electric vehicle fleet managers for all their needs, including depot infrastructure, energy management, charging equipment and of course, Workhorse electric vehicles. This alliance is important for many reasons, but chief among them is it will provide infrastructure that supports our ability to deploy electric vehicles at scale. The Duke infrastructure support will allow for the buildings of EVs by the thousands rather than the hundreds, which strengthens Workhorse's opportunity to achieve profitability.

Duke is equipped to provide the behind-the-meter infrastructure including equipment, expertise, cash outlay options and management solutions at an affordable price point. Our partnership with Duke further enables our delivery fleet customers to adopt EVs at scale, utilizing Duke's turnkey solution while maintaining their focus on their core mission. Ultimately, our alliance with Duke Energy allows Workhorse the ability to deliver the best-performing and most affordable electric trucks to benefit all of our customers and stakeholders. We continue to have frequent conversation with Duke, our customers and our key battery suppliers to further grow this relationship. We have begun a series of meetings with them to work on a plan to introduce the all-inclusive project to new and existing customers.

As part of our last mile delivery technology platform, we are excited about the latest opportunities for our HorseFly delivery drone. We recently received a letter of intent to work with a logistics and supply chain partner, where the truck-launched HorseFly delivery drone will be used in a paid fleet test. The test will be for deliveries of critical medical supplies between health facilities in the San Diego area beginning in early Q4.

Moving next to our SureFly. As Paul mentioned, we are in late-stage due diligence with a buyer for our SureFly product line. We've agreed to terms and expect the transaction to close by year-end. We plan to provide more information on what this means if and when a sale is consummated.

That covers the general update. Before I turn the call over to Rob to review our continued development of the N-GEN platform, I want to provide a very brief statement regarding the U.S. Postal Service's next-generation delivery vehicle program. As many of you on this call well know, Workhorse is currently among a handful of finalists for this project. We have been made aware that there are a number of media outlets and other sources that have reported on updates to the program. And as we've stated many times in the past, we are not permitted to comment publicly on any updates related to the selection process or the progress being made on a final decision. I would like to reiterate that we remain confident in the strength and quality of our prototype vehicles, and we are pleased with how they performed during the testing process. At this time, we are awaiting further updates from the post office on next steps.

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