Workhorse Group Inc. quarterly report, Q2 FY2011

Business context and reporting period

Entity mismatch: The supplied filing is AMP Holding Inc.’s unaudited Form 10-Q for the quarter ended June 30, 2011—not a filing identified as Workhorse Group Inc. The company described itself as a development-stage business designing and selling vehicles converted to all-electric powertrains.

Financial performance and position

Revenue comprised customer vehicle conversions and converted-vehicle sales; the six-month period included three conversions and one vehicle sale. The filing does not separately report gross profit or operating margin.

At June 30, cash was $1,673,247; current assets were $1,799,871 and current liabilities were $757,290. Current assets therefore exceeded current liabilities by $1,042,581, although the narrative elsewhere refers to negative working capital. Total bank debt was approximately $28,380, including $6,332 current. Stockholders’ equity was reported as positive $1,155,130 on the balance sheet, despite references elsewhere to stockholders’ deficits.

Material changes versus the prior comparable period

• Revenue increased from zero in both the 2010 quarter and six-month period.
• Six-month net loss more than doubled from $2,019,985 in 2010 to $4,273,748 in 2011. Expenses rose from $2,019,985 to $4,463,783, which management attributed to increased product development and promotion activity, including additional hiring.
• Six-month operating cash use increased from $1,075,386 to $3,132,663.
• Cash increased from $385,293 at December 31, 2010, supported principally by $4,510,017 in six-month equity issuance proceeds. Common shares outstanding rose from 27,712,401 to 37,082,871.

Outlook, risks, contingencies, and unusual items

• Management said operating losses were likely to continue through 2011 and estimated a need for $12 million to $15 million to fund its business plan over the next 12 months. It warned that cash on hand would not meet all requirements and that failure to obtain financing could force the company to scale back or cease operations. The filing states substantial doubt exists about its ability to continue as a going concern.
• No revolving credit facility was in place. Management anticipated additional equity or credit financing; equity issuance could materially dilute existing shareholders, and financing was not assured.
• The April 2011 Iceland distribution agreement with Northern Lights Energy provides for demonstration and development phases, a proposed initial inventory of 250 vehicles, and purchases of 750 or more vehicles during the sales and marketing phase, with at least 150 binding orders per calendar year in that phase. These arrangements are subject to phased commencement and performance; the agreement generated no material consideration when signed.
• Customer deposits of $25,000 are refundable on request; final price and delivery timing for the reserved production slots had not been determined.
• Equity-linked compensation and financing created potential dilution: the filing reported millions of outstanding options and warrants, including investor warrants exercisable at $0.80 and placement-agent warrants. Six-month stock-based compensation expense was $1,199,361.
• Management concluded disclosure controls were ineffective and reported material weaknesses involving limited segregation of duties, accounting-system audit trails, oversight, and reliance on external consultants and attorneys. No material misstatement was attributed to these weaknesses.
• The filing reports no material legal proceedings and no material off-balance-sheet arrangements.
• Management cited risks including access to capital, competition, economic conditions, regulatory change, electric-vehicle market growth, and its ability to execute and retain management.

Key facts for investors to verify

• Confirm the issuer identity: the supplied document is for AMP Holding Inc., not Workhorse Group Inc.
• Reconcile the filing’s conflicting descriptions of working capital and stockholders’ equity with the reported balance sheet.
• Assess the timing, terms, and availability of the stated $12–15 million funding requirement and the company’s cash burn.
• Verify whether the Iceland agreement’s vehicle purchase phases and annual minimum orders commenced and were fulfilled.
• Review fully diluted share exposure from outstanding options, warrants, and future equity financing.
• Track remediation of the disclosed internal-control weaknesses and the development of meaningful recurring revenue.