Workhorse Group Inc. annual report, FY2012

AMP Holding Inc. — FY2012 Form 10-K

Entity and period: The filing is AMP Holding Inc.’s annual report for the fiscal year ended December 31, 2012, filed April 12, 2013. Although the request identifies Workhorse Group Inc. and “2012 Q4,” the document is an AMP Holding annual filing, not a Workhorse Group filing or a standalone quarterly report. AMP’s business was focused on developing electric powertrains and repowering or producing Class 3–6 commercial trucks.

Financial performance and position

Revenue came from a limited number of converted experimental vehicles and customer conversions. The filing does not provide a clear gross-margin figure. Year-end long-term debt was $592,942, including $230,756 classified as current; current liabilities also included accounts payable of $1,253,228, related-party payables of $336,556, and shareholder advances of $558,000.

Changes versus FY2011

• Revenue increased by $82,063, but remained small relative to expenses.
• Net loss narrowed by $4,433,222. Management attributed the lower expense base primarily to reduced payroll, stock-based compensation, and battery, motor, and supply costs as the company shifted its development focus from passenger vehicles toward trucks.
• Operating cash use fell by $3,677,612. Financing cash inflow also declined, and year-end cash fell by $49,669.
• Working-capital deficit widened by $675,763. Common shares outstanding increased from 38,734,650 at year-end 2011 to 55,955,463 at year-end 2012; substantial additional shares were reported after year-end.

Outlook, risks, and unusual items

• Going concern and funding: The auditor’s report and management disclosures state that substantial doubt exists about the company’s ability to continue as a going concern. Management estimated a need for $8 million–$12 million over the next twelve months. The filing says cash was near zero by mid-April 2013 and warns that failure to raise capital could force further layoffs or cessation of operations.
• Funding and dilution: The company had no revolving credit facility. Its 2012 convertible debentures and interest were converted into 10,227,070 common shares in November 2012; associated warrant exercise prices were reduced to $0.25. A $7.5 million equity-line commitment was subject to conditions, including an effective registration statement, and pricing was set at 90% of the lowest closing bid during a specified five-day period.
• Payables, payroll, and covenants: The filing describes delinquent supplier obligations and repeated payroll delays. It also reports a breach in 2013 of a covenant requiring certain financing proceeds to repay $500,000 of related-party notes. A City of Loveland loan’s 2012 payment was past due after the company failed to meet stated conditions for forgiveness.
• Workhorse transaction after year-end: On March 13, 2013, subsidiary AMP Trucks acquired Workhorse assets, including the brand, dealer-network access, intellectual property, and Indiana plant, for $5 million: $2.75 million cash and a $2.25 million secured debenture bearing 10% interest and maturing in three years. AMP Holding and AMP Electric Vehicles guaranteed the debenture. The filing also reports a March 2013 equity raise of $3.585 million, accompanied by warrants. These are subsequent events, not FY2012 operating results.
• Commercial progress: AMP reported California Air Resources Board approval for its commercial truck in February 2013. A Navistar electric-repower project was in testing, but potential purchase orders remained under discussion. Management’s production and growth plans were speculative and dependent on financing, market acceptance, execution, and successful integration of the Workhorse assets.
• Controls and governance: Management concluded disclosure controls and internal control over financial reporting were not effective at year-end, citing limited segregation of duties, reliance on outside advisers, and no formal audit committee. The board reported no independent directors under the cited Nasdaq standard.
• Other risks: The filing highlights limited operating history and customers, competition, uncertain EV demand and incentives, supplier concentration and component-cost exposure, regulatory and certification costs, product liability and lithium-ion battery safety, and risks to integrating the acquired Workhorse operations.

Most important facts for investors to verify

• Confirm the issuer and filing identity: this is AMP Holding Inc.’s FY2012 10-K, despite the Workhorse Group metadata.
• Review the full audited statements and notes for debt maturities, overdue obligations, related-party balances, and the company’s liquidity after the reported 2013 financing.
• Verify the terms, availability, and actual proceeds of the Kodiak equity line and subsequent equity raises, including dilution from shares and warrants.
• Confirm the Workhorse asset purchase price, secured-debenture obligations and guarantees, and progress in integrating the plant, brand, and dealer network.
• Assess whether product testing, regulatory approvals, customer discussions, and future orders converted into delivered vehicles and recurring revenue.
• Track remediation of material weaknesses, payroll and supplier payment status, and compliance with debt and other financing covenants.