Workhorse Group Inc. — Q1 2014 filing summary
Entity note: The supplied filing is for AMP Holding Inc., not a registrant named Workhorse Group Inc. AMP says it acquired Workhorse Custom Chassis assets in 2013 and operated under the Workhorse brand. Confirm that this is the intended filing.
Business context and reporting period
The unaudited Form 10-Q covers the three months ended March 31, 2014. AMP describes itself as a development-stage company developing and manufacturing medium-duty commercial chassis and electric and extended-range electric powertrains. It reported no sales in the quarter and said principal revenue-generating operations had not fully commenced.
Financial results and liquidity
| Metric | Q1 2014 | Q1 2013 |
|---|---|---|
| Sales | $0 | $0 |
| Selling, general and administrative expense | $545,530 | $826,563 |
| Research and development expense | $569,355 | $728,505 |
| Total operating expenses | $1,114,885 | $1,555,068 |
| Net interest expense | $92,218 | $28,639 |
| Net loss | $1,207,103 | $1,583,707 |
| Basic and diluted loss per share | $0.01 | $0.02 |
| Cash used in operations | $556,321 | $945,805 |
Gross margin and operating margin are not meaningful because the company reported no sales. At March 31, cash was $2.707 million, current assets were $3.148 million, and current liabilities were $6.295 million, implying a working-capital deficit of about $3.147 million. Total reported debt was approximately $2.705 million, including a $2.475 million secured debenture; shareholder advances were a further $4.141 million and classified as current liabilities. Stockholders’ equity was negative $1.298 million.
Financing provided $3.256 million in net cash during the quarter, mainly from $1.2 million of common-stock issuance and $2.207 million of net shareholder advances. Cash increased from $7,019 at year-end to $2.707 million at quarter-end. No investing cash flow was reported in Q1 2014.
Changes versus the prior comparable period
- Net loss narrowed by about $377,000, while operating expenses declined by about $440,000. Management attributed lower selling and administrative expense to cost containment and lower employee, stock-compensation, and consulting costs; R&D declined mainly with lower motor and battery costs, partly offset by higher engineering consulting costs.
- Operating cash use improved by about $389,000. Management cited the lower net loss and capitalization of accrued interest on the plant loan.
- Interest expense rose by about $64,000, primarily because the Union City plant acquisition closed in March 2013 and interest was accrued for more of Q1 2014.
- Q1 2013 investing cash use included $2.75 million for the plant acquisition; there was no investing cash use in Q1 2014.
Outlook, commentary, and risks
Management said it was building several fleet orders that it expected to materialize in later quarters of 2014, but provided no quantified revenue or earnings guidance. It highlighted the E-GEN extended-range electric drive and E-100 electric truck, as well as the acquired Workhorse brand, plant, and dealer network. Management’s product claims, including a three-year payback for E-GEN vehicles, are forward-looking and not reported financial results.
The filing states that limited revenue, negative working capital, accumulated losses, and prior difficulty paying employees’ full salaries raise substantial doubt about the company’s ability to continue as a going concern. Continued operations depend on raising additional capital and achieving successful future operations; financing is not assured. AMP reported about $2.4 million cash at mid-May and said it was evaluating financing options.
After quarter-end, the company disclosed a May stock sale for $1.428 million and conversion of $1.169 million of debt into equity, each with warrants. It also cited IRS vehicle tax-credit qualification of up to $7,500 and state incentives for the E-100. The company reported no material legal proceedings and no material off-balance-sheet arrangements.
Disclosure controls and procedures were deemed ineffective as of March 31, 2014. Identified material weaknesses included insufficient segregation of duties, reliance on outside consultants and attorneys for reporting review, and no formal audit committee. The filing also identifies risks from limited operating history and customer base, competition, production and supplier costs, dependence on incentives, technology and product-safety risks, and the need for continuing capital.
Most important facts for investors to verify
- Whether this AMP Holding Inc. filing is the intended filing for the requested company; it is not filed under the name Workhorse Group Inc.
- Timing and enforceability of the anticipated fleet orders, and whether production and sales actually commenced.
- Cash runway, near-term obligations, and the company’s ability to obtain additional financing given the going-concern uncertainty.
- Reconciliation of the Lukens $3 million subscription, quarter-end cash, shares issued, and warrant-related dilution; also reconcile the May financing and debt conversions with reported shares outstanding.
- Status and terms of shareholder advances, including the stated intention to convert advances into equity, and payment status of the City of Loveland loan.
- Progress in remediating the disclosed material weaknesses in internal controls.