Workhorse Group Inc. - Form 8-K Summary
Business Context and Reporting Period
This Current Report on Form 8-K was filed on July 10, 2018, covering events occurring on July 5 and July 6, 2018. Workhorse Group Inc. (the "Company") is a Nevada corporation focused on electric vehicle technology. The filing details the entry into material definitive agreements, specifically new debt financing arrangements and equity issuances intended to address liquidity needs and refinance existing obligations.
Key Financial Metrics and Liquidity
- Revenue: Approximately $167,000 for the three months ended June 30, 2018, and $725,000 for the six months ended June 30, 2018.
- Cash Position: Cash balance was $753,563 as of March 31, 2018. As of July 9, 2018, the cash balance was $581,574.
- New Debt (Arosa Loan): Principal amount of $6,100,000 with an 8% annual interest rate, maturing July 6, 2019.
- New Debt (Loan Parties Notes): Aggregate principal of $500,000 received on July 5, 2018, with 12% annual interest, due January 5, 2019.
- Recent Equity Financing: $1,444,500 raised on April 26, 2018, via the sale of 531,066 shares.
- Debt Refinancing: Proceeds from the Arosa Loan were used to pay off $5,750,000 in Senior Secured Loans and a $350,000 facility loan.
Material Changes and Agreements
The Company entered into a Loan Agreement with a fund managed by Arosa Capital Management LP ("Arosa") for $6.1 million. This agreement includes significant covenants requiring the Company to raise $10,000,000 in equity prior to September 30, 2018, and to consummate a sale of its subsidiary, Surefly, Inc., for at least $20,000,000 in cash proceeds. The Company's obligations under this loan are secured by substantially all of its assets. Additionally, the Company issued Arosa a warrant to purchase 5,003,580 shares at $2.00 per share, with provisions for additional warrants on future issuances.
Separately, the Company secured $500,000 in unsecured promissory notes from accredited investors. These notes are due January 5, 2019, but are subject to early repayment if the Company raises over $10,000,000 in new financing.
Outlook, Risks, and Management Commentary
Management indicated that the Company will seek to raise additional equity and/or debt capital in the future, though there is no guarantee of success. The filing highlights a critical liquidity risk: the Company must meet specific equity and asset sale milestones by September 30, 2018, to satisfy the covenants of the Arosa Loan. Failure to do so could trigger a default. The Company also noted that the Arosa Loan requires the appointment of a board member designated by Arosa for at least 12 months.
Key Facts for Investor Verification
- Verify the Company's progress toward the $10,000,000 equity raise covenant deadline of September 30, 2018.
- Confirm the status of negotiations for the sale of the Surefly, Inc. subsidiary, which must yield at least $20,000,000.
- Monitor the Company's cash burn rate given the cash balance of $581,574 as of July 9, 2018, and the upcoming interest payments.
- Review the dilution impact of the 5,003,580 warrants issued to Arosa and potential future warrant issuances tied to new financing.
- Assess the risk of default if the Company fails to meet the specific covenants outlined in the Arosa Loan Agreement.