Workhorse Group Inc. — Form 10-Q Summary
Reporting period: Quarter ended September 30, 2015; filed November 16, 2015. Financial statements are unaudited. Workhorse develops and manufactures medium-duty commercial vehicles, including battery-electric and extended-range electric trucks, and is developing the HorseFly delivery drone.
Financial results and position
| Metric | Q3 2015 / September 30, 2015 | Comparable period / prior year-end |
|---|---|---|
| Sales | $72,000 for Q3; $139,980 for nine months | $0 for Q3 2014; $177,459 for nine months 2014 |
| Net loss | $3.79 million for Q3; $5.67 million for nine months | $1.79 million for Q3 2014; $4.96 million for nine months 2014 |
| Basic and diluted loss per share | $0.02 for Q3; $0.04 for nine months | $0.01 for Q3 2014; $0.03 for nine months 2014 |
| Operating expenses | $3.54 million for Q3; $5.38 million for nine months | $1.69 million for Q3 2014; $4.89 million for nine months 2014 |
| Operating cash flow | Cash used of $4.18 million for nine months | Cash used of $2.86 million for nine months 2014 |
| Cash and cash equivalents | $140,877 | $442,257 at December 31, 2014 |
| Current assets / current liabilities | $1.43 million / $6.76 million | Working capital deficit: approximately $5.33 million |
| Debt and advances | $2.77 million total long-term debt, of which $2.76 million is classified current; shareholder advances of $1.11 million | Debt was $2.53 million at December 31, 2014; no shareholder advances were listed then |
Sales were very limited, so revenue-based margins are not meaningful. Nine-month sales declined about 21% year over year, while net loss increased about 14%. Q3 operating expenses more than doubled year over year, reflecting higher SG&A and R&D, including prototype work and increased activity. Nine-month R&D was $2.62 million, versus $2.36 million in 2014; SG&A was $2.76 million, versus $2.52 million.
Financing provided $3.91 million of cash in the first nine months of 2015, principally from notes, shareholder advances and stock issuance. The company reported a $39.8 million accumulated deficit since inception and stated that limited revenue, negative working capital and stockholders’ deficit raised substantial doubt about its ability to continue as a going concern. Management said continued operations depend on raising additional capital; obtaining it is not assured.
Business developments, outlook and risks
- UPS placed an August 2015 order for 125 E-GEN trucks and ordered two additional vehicles for testing, which the company said had been delivered. The stated schedule called for 20 vehicles per month beginning February 2016, but timing could change. Workhorse cautioned that performance depended on financing, parts and vendor payments, and that there was no guarantee it could meet deadlines or receive further orders.
- Workhorse had an earlier UPS agreement for 18 E-100 electric vans. One had been delivered; further deliveries depended on UPS approval of the initial vehicle.
- The company advanced as a prequalified supplier in the USPS Next Generation Delivery Vehicle program, but USPS had not yet provided updated requirements. A potential USPS award was expected in 2017; this was not a contract or guaranteed revenue.
- The FAA authorized continued HorseFly testing with the University of Cincinnati at Wilmington Air Park. Drone rules were not final.
- The company cited a need for additional financing and ongoing cash use. The risk-factor discussion includes an approximately $15 million funding estimate but refers to financing closed in “November 2016,” which conflicts with this 2015 filing’s timeline; the text does not provide a clear, reliable period-specific funding forecast.
- Key risks include execution and scaling production at the Union City plant, supplier availability and costs, customer adoption, reliance on a small number of prospective customers, competition, regulatory approvals, and product and battery safety. A $2.72 million secured debenture against plant-related assets was due in March 2016 and bore 10% interest.
- After quarter-end, the company disclosed an $8.75 million face amount of 6% convertible notes issued in November 2015, with warrants for 25 million shares, subject to conversion and maturity terms. It also reported that certain earlier 2015 notes were paid in full in November. These subsequent events do not change the September 30 balance sheet but are relevant to liquidity and potential dilution.
The company reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. It reported no material legal proceedings.
Most important facts for investors to verify
- Cash runway, near-term obligations and the company’s ability to obtain additional financing; reconcile the stated funding need and the apparent “November 2016” date error.
- Status, financing requirements and delivery performance for the UPS orders, including whether the initial E-100 received approval and whether E-GEN production began on schedule.
- Terms, outstanding balances, repayment or conversion status of the secured debenture, shareholder advances and November 2015 convertible financing.
- Actual USPS program milestones and whether any award or binding customer commitments were subsequently secured.
- Share-count and dilution effects: 175,998,198 common shares were reported outstanding at September 30, compared with 149,944,982 at December 31, 2014; 181,126,366 were reported outstanding on November 16, 2015.