AMP Holding Inc. (Workhorse business) — Q3 2014 Form 10-Q
Entity note: The filing is by AMP Holding Inc., which describes its medium-duty truck business under the Workhorse brand; it is not filed under the name Workhorse Group Inc. The quarter ended September 30, 2014, and the financial statements describe the company as a development-stage enterprise.
Business context and reporting period
The company designs and develops medium-duty vehicles and powertrains, and acquired the Workhorse Custom Chassis assets and Union City, Indiana plant in 2013. It aims to become an OEM offering electric, gasoline, propane, CNG, and hybrid configurations. Management said significant additional capital would be needed to begin manufacturing at the plant.
Financial results and liquidity
| Metric | Q3 2014 | Q3 2013 | Nine months 2014 | Nine months 2013 |
|---|---|---|---|---|
| Sales | $0 | $177,500 | $177,459 | $177,500 |
| Operating expenses | $1.693 million | $1.148 million | $4.886 million | $4.790 million |
| Interest expense, net | $95,001 | $75,034 | $251,978 | $179,029 |
| Net loss | $1.788 million | $1.045 million | $4.961 million | $4.791 million |
| Loss per share | $0.01 | $0.01 | $0.03 | $0.07 |
| Cash used in operations | $963,231 | $730,923 | $2.858 million | $2.235 million |
The filing says direct costs charged to operations were approximately $177,000 for the nine months ended September 30, 2014, approximately equal to reported sales; it does not clearly present a gross margin. Q3 SG&A rose $212,000 year over year, attributed mainly to employee costs and stock compensation; nine-month SG&A was up $17,000. Q3 R&D rose about $333,000, primarily for engineering consulting and E-Gen prototypes; nine-month R&D rose about $79,000.
- Cash and liquidity: Cash was $833,834 at September 30, 2014, versus $7,019 at December 31, 2013. Current assets were $1.298 million and current liabilities $1.760 million, a working-capital deficit of approximately $463,000.
- Debt: Long-term debt was $2.495 million, with $37,548 classified as current. The largest obligation is a $2.475 million secured debenture bearing 10% interest and due March 2016, secured by the Union City plant and related assets. The filing reports $225,000 of accrued interest capitalized to principal during the nine-month period.
- Cash flows and financing: Nine-month investing cash flow was zero. Financing provided $3.685 million, including $5.942 million from common-stock issuance, partly offset by shareholder-advance repayments and debt payments. Cash increased $826,815 over the nine months.
- Equity and dilution: Common shares outstanding increased from 82.7 million at December 31, 2013 to 149.1 million at September 30, 2014. The filing reports substantial option and warrant balances, including 43.3 million shares available for grant under the accredited-investor warrant table.
Changes, outlook, and material risks
- Nine-month sales were approximately flat year over year, but Q3 sales fell to zero from $177,500. Nine-month net loss widened by about $170,000; Q3 loss widened by about $743,000.
- The company reported a purchase agreement with a major transportation company for 18 all-electric vehicles for delivery during 2015, and orders for two E-Gen vehicles for customer testing in Q1 2015. These are future deliveries, not evidence of recognized revenue in this quarter.
- Management reported EPA approval of the E-GEN powertrain for on-road use and described product development, fleet incentives, and the Workhorse dealer network as potential business advantages. No financial guidance or quantified revenue forecast is provided.
- The company disclosed substantial doubt about its ability to continue as a going concern, citing limited revenue, negative working capital, accumulated losses, and dependence on raising additional capital. Management said further financing was not assured. In Part II, it reported October-end cash of about $800,000 and said financing options were being evaluated.
- The filing identifies risks including execution of the manufacturing plan, need for significant capital, limited customer commitments, competition, supplier dependence, vehicle and battery safety, changing technology, and dependence on government incentives. It states that the company had no long-term customer commitments or minimum-volume guarantees.
- A City of Loveland loan payment is described as past due, and the company had been notified that it did not meet requirements for qualifying expenditures and forgiveness of the 2012 principal and interest payment.
- Disclosure controls and internal control over financial reporting were deemed ineffective. Identified material weaknesses included inadequate segregation of duties, reliance on outside counsel for SEC filing review, and no formal audit committee. Management described planned review and documentation improvements but noted limited staffing resources.
- The filing reports no material legal proceedings. It also describes available federal and state vehicle incentives; availability, eligibility, and effect on customer demand are not assured.
Most important facts for investors to verify
- Whether the 18-vehicle purchase agreement and two E-Gen test vehicles resulted in completed deliveries, customer acceptance, and collected revenue.
- Current cash, operating cash burn, financing availability, and management’s ability to address the disclosed going-concern uncertainty.
- Debt terms and repayment schedule, including the secured debenture, capitalized interest, and the past-due City of Loveland obligation.
- Actual readiness, cost, and funding requirements for restarting or commencing production at the Union City plant.
- Fully diluted share count and the potential effect of outstanding warrants, options, and future equity financing.
- Progress in remediating the disclosed material weaknesses in financial reporting controls.