Business Context and Reporting Period
This Form 8-K Current Report for Workhorse Group Inc. (WKHS) covers events occurring on May 10, 2024. The filing details the issuance of additional senior secured convertible notes and warrants under a previously disclosed Securities Purchase Agreement. It also provides preliminary unaudited financial results for the quarter ended March 31, 2024, and updates on operational matters including new orders, cost-saving measures, and ongoing litigation.
Key Financial Metrics
First Quarter 2024 Preliminary Results (Unaudited)
- Net Sales: $1.3 million (down from $1.7 million in Q1 2023 and $4.4 million in Q4 2023).
- Cost of Sales: $7.4 million (up from $5.3 million in Q1 2023; down from $18.1 million in Q4 2023).
- Selling, General and Administrative (SG&A) Expenses: $14.4 million (down from $14.7 million in Q1 2023 and $15.1 million in Q4 2023).
- Net Operating Loss: $18.1 million (improved from $21.9 million in Q1 2023 and $21.5 million in Q4 2023).
Liquidity and Balance Sheet (as of March 31, 2024)
- Cash and Cash Equivalents: $6.7 million (down from $25.8 million as of December 31, 2023).
- Accounts Receivable: $1.7 million.
- Net Inventory: $49.9 million.
- Accounts Payable: $14.3 million.
- Debt: As of March 31, 2024, the only outstanding indebtedness was $6.2 million in principal and accrued interest on the Initial Note, which has since been fully converted into common stock.
Financing Activity (May 10, 2024)
- First Additional Note: Issued with an original principal amount of $6,285,714. Due to a 12.5% original issue discount, the Company received $5.5 million in proceeds before fees and expenses.
- First Additional Warrant: Issued to purchase up to 36,785,453 shares of Common Stock at an exercise price of $0.2943 per share.
- Interest Rate: 9.0% per annum (increases to 18.0% upon an event of default).
Material Changes and Operational Updates
Orders and Commercial Activity
- W4CC Trucks: Received an order for 141 units; 30 have shipped as of the filing date.
- W56 Trucks: Received orders for a total of 68 units, with shipments expected to begin in 2024.
- Dealer Network: Added three new dealers in the past 30 days, bringing the total to 12 dealer partners.
Cost-Saving Measures
- Employee Furloughs: On April 22, 2024, 73 employees at the Union City manufacturing facility were furloughed without pay, expected to save approximately $300,000 per month.
- Aero Business Divestiture: Transitioning from design/manufacturing to "Drones as a Service" and working to divest the business. Expected savings are approximately $375,000 per month. The Company does not expect immediate cash proceeds but anticipates limited earn-out provisions.
- Vendor Terms: Actively working to extend or restructure payment terms for accounts payable.
Sale Leaseback Transaction
The Company does not believe the previously announced sale and leaseback of its Union City, Indiana facility for approximately $34.5 million will be consummated at the current price. Discussions are ongoing for alternative transactions or term changes, with the expectation that any final purchase price will be materially lower than the original agreement.
Risks, Contingencies, and Outlook
Legal Proceedings
On April 19, 2024, supplier Coulomb Solutions Inc. (CSI) filed a complaint in the U.S. District Court for the Eastern District of Michigan regarding late payments totaling approximately $4 million. The Company is currently in negotiations to resolve the matter.
Liquidity and Going Concern
The filing highlights significant risks regarding the Company's ability to obtain additional financing to meet immediate liquidity needs and continue as a going concern. The Notes contain covenants requiring the Company to maintain minimum liquidity of $1.5 million (if the Sale Leaseback is not consummated) or $4.0 million (if consummated) at the end of each fiscal quarter.
Forward-Looking Risks
- Ability to regain compliance with Nasdaq listing requirements.
- Supply chain disruptions and material cost increases.
- Uncertainty regarding government subsidies and incentives (e.g., HVIP vouchers for California deliveries).
- Potential dilution from the conversion of notes and exercise of warrants.
Investor Verification Checklist
- Liquidity Position: Verify if the Company meets the $1.5 million minimum liquidity covenant required by the new Notes given the cash balance of $6.7 million as of March 31, 2024.
- Order Backlog Validity: Confirm the enforceability of the 141 W4CC and 68 W56 truck orders, noting the filing states they are subject to significant terms, conditions, and potential cancellation without penalty.
- CSI Litigation Resolution: Monitor the outcome of the $4 million dispute with Coulomb Solutions Inc. and its impact on cash flow and supply chain.
- Sale Leaseback Status: Track progress on the Union City facility transaction, as the expected proceeds are now uncertain and likely lower than previously reported.
- Dilution Impact: Assess the potential dilution from the conversion of the $6.3 million Note and the exercise of the 36.8 million warrants issued on May 10, 2024.