Workhorse Group Inc. — Q2 2015 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2015. The company designs and develops medium-duty trucks and electric powertrains, and was seeking to move toward manufacturing at its Union City facility. Financial statements are unaudited.
Financial performance and position
| Metric | Q2 2015 / June 30, 2015 | Comparable period / prior year-end |
|---|---|---|
| Revenue | $67,980 in the statements | $177,459 in Q2 2014 |
| Operating expenses | $1.84 million in Q2; $3.76 million for six months | $2.08 million in Q2 2014; $3.19 million for six months |
| Net loss | $1.88 million in Q2; $3.94 million for six months | $1.97 million in Q2 2014; $3.17 million for six months |
| Loss per share | $0.01 in Q2; $0.02 for six months | Same reported amounts in 2014 |
| Operating cash flow | $(2.82) million for six months | $(1.89) million for six months 2014 |
| Cash | $160,931 | $442,257 at December 31, 2014 |
| Current assets / current liabilities | $542,985 / $6.14 million | — |
| Debt and advances | $2.76 million current portion of long-term debt; $10,000 long-term debt; $460,000 notes payable; $700,500 shareholder advances | Current portion of long-term debt was $35,904 and long-term debt was $2.49 million at year-end |
| Stockholders’ deficit | $1.72 million | $809,387 at year-end |
No meaningful gross or operating margin is presented; the statements do not separately show gross profit. The filing describes a $4.2 million working-capital deficiency, while the balance-sheet current asset and liability totals imply a different amount; see investor verification points.
Changes versus prior period
- Q2 net loss narrowed year over year, while six-month net loss widened. Six-month operating expenses rose, led by higher SG&A and research and development costs.
- Cash used in operations increased by about $927,000 year over year. Financing provided $2.58 million in the first half, compared with $3.69 million in 2014.
- Cash fell by $281,327 during the first half. Common shares outstanding increased from 149.9 million at December 31, 2014 to 168.4 million at June 30, 2015.
Outlook, financing, and risks
- Management said orders were being filled and expected deliveries in the following 12 months, subject to obtaining required financing. The company reported an 18-vehicle UPS E-100 purchase agreement, two UPS E-Gen test vehicles, and an order for 125 E-Gen chassis from a major transportation company.
- Workhorse was shortlisted in the USPS Next Generation Delivery Vehicle process and expected to submit detailed specifications in October 2015. The USPS anticipated selecting a supplier in 2017; Workhorse emphasized there was no assurance it would win.
- Management said it needed approximately $10 million to implement operations through June 30, 2015 and approximately $20 million to fully implement its plan through December 31, 2016. The filing states substantial doubt exists about the company’s ability to continue as a going concern, citing limited revenue, negative working capital, and stockholders’ deficit. Additional financing was not assured.
- The $2.72 million secured debenture related to the Union City plant bears 10% interest and is due March 2016; the plant and related assets secure it. The company also disclosed short-term and convertible financing, including June notes and a Peak One debenture arrangement. July financing from Vista and Cardinal occurred after quarter-end. Some conversion terms use discounts to recent trading prices and may dilute shareholders.
- Key risks include inability to raise capital or achieve profitability, manufacturing scale-up and supply constraints, limited customer commitments, dependence on incentives and market adoption, competition, and product, battery-safety, and regulatory risks. Management reported effective disclosure controls and no material legal proceedings.
Important facts for investors to verify
- Revenue is inconsistent in the filing: the financial statements report $67,980, while the MD&A states $68,890 for the three and six months ended June 30, 2015.
- The stated $4.2 million working-capital deficiency does not reconcile to the reported balance-sheet current assets of $542,985 and current liabilities of $6.14 million.
- The risk-factor section reports operating cash outflow of $1.5 million for the six months ended June 30, 2015, but the cash-flow statement and MD&A report $2.82 million.
- Confirm the timing, terms, and actual proceeds of the financing arrangements, near-term debt obligations, and the company’s ability to fund operations and planned deliveries.
- Track USPS procurement milestones, customer orders and deliveries, and progress toward production at Union City; orders and selection processes described in the filing do not guarantee future revenue.