-Lordstown Complex, 1435 employees
-WKHS, 74 employees
-Lordstown, 6.2 Million sq. ft
-WKHS, 303 810 sq. ft
Completely disregard this. It is impossible for Workhorse to buy the Lordstown complex, and we will show you why.
WKHS is in the middle of a what they call a death spiral financing agreement with Arosa Capital Management and Marathon Asset Management. There was roughly 20 million warrant shares registered in S-3’s recently acquired pursuant to a loan agreement with Arosa and Marathon last year, and before Trump issued that Royal Pump on twitter, WKHS was trading under $1.00, and risked being delisted by the Nasdaq, with under 1 million in annual revenue.
Marathon owns about 10 million warrants, and Arosa 8 million.
Recently, Arosa’s share of warrants increased, so as of now, they currently own about
10 000 000 exercisible at $1.25, and $1.62, representing more than a 100% premium to the current share price.
For anybody having trouble understanding what this means, we will try our best to break it down for you.
The Stated Value of the Preferred Shares is $20.00 per unit, and the annual interest payment, which is to be paid out in quarterly installments, is 8%. That translates into $2,000,000 worth of shares per year. In regards to the warrants, if we multiply 7.41 by
1 250 000, we get 9,262,500 common shares, and it says that the warrants are exercisible ***immediately @ $1.62 per share***
What is very telling is the fact that Arosa sold shares immediately prior to this Trump and Dump. As a shareholder, if you haven’t read this yet, you will probably be shocked at what Arosa thought the company was worth at the time. This wasn’t reported until June.14th, 2019
What?…. Arosa loans the company money, then 5 months later they get paid back with a new loan from a completely different lender, but they get to keep the 5 million warrants? That’s one hell of a deal.
Workhorse also recently sold a large asset to Duke Energy, which at the time was being used as collateral in the Arosa loan agreement. Personally, and this is completely our opinion, this transaction is reminiscent of what they refer to as a “bust out” . Many of you remember how Mitt Romney affiliated Bain Capital would lend to struggling companies under aggressive terms, loot the company of the their assets, then fire everybody. Activity like this is not uncommon in death spiral financing arrangements. Under normal circumstances, it would be impossible for the borrower to secure financing, but due to desperation, they will agree to whatever terms are available with the hope that things might turn around. This isn’t the kind of behavior you’d expect from a company in legitimate talks with General Motors to buy the Lordstown Complex, a 6.2 million square foot facility (getting to that soon).
One of the covenants of the Arosa loan is that Workhorse is to sell Surefly, one of their most important assets. They manufacturer an interesting Multicopter prototype, something that with the right leadership has true potential.
They also accrued a warranty liability of 6.9 million in 2018 for batteries that are “defective”. That’s a lot of money to put aside, and a colossal screw up considering the timing. They are barely scraping by.
Just one look at their operations makes it pretty clear that the dilution is not even close to being over. Yes, that’s a quarterly..
They even tell you they don’t have enough money to make it through to the second half of this year, not next year…this year! Seriously, and Trump pumped this thing? This is insanity!
Also, they admit that the financing from Arosa and Marathon is for further inventory purchases. No mention of capital expenditure.
Net sales went down 93%?…..Okay, lets take a step back here. 2017 sales were 10 million, but 2018 sales were only $700k? Since the expenses are almost the same for both years, if you do the math, this means 2018 expenses are 3000% of net sales!
Considering all this, does it seem logical that Workhorse is even capable of buying the Lordstown complex, a 6.2 million square foot, 905 acre manufacturing facility? It’s a monstrosity, equal in size to 685 football fields.
Versus Workhorse’s 300 000 sq.ft. in production space
That is only 5% the size of Lordstown, and remember, WKHS is barely getting by…
Just a quick browse through LoopNet.com’s advertised industrial properties in Cincinnati and Cleveland should give you an idea of the price tag they are looking at if they did decide to, somehow, buy this gigantic manufacturing plant
This alone should be the only figure you should need. Let us reiterate: it is the size of 685 football fields. We will show you more though just for affect
According to Workhorse’s most recent annual report, they only had 74 employees. If this was a football stadium, 74 players would need about 4 stadiums, so what is Workhorse going to do with the other 681 football fields of production space they supposedly intend to buy? For those that still have doubts, we will cite one more figure just so it hits home.
Economic impact of almost 1/2 billion dollars, and Workhorse isn’t even producing 1 million in revenue…..They must really think we are stupid!
Last, but not least, their competitors are massive corporations with 100’s of years of combined experience. We could keep going on, but you probably get the point by now. The company is facing bankruptcy, had virtually no sales last year, and the covenants in the loan agreement require them to sell one of their most important assets. They put aside 7 million for a warranty liability for batteries that are “defective”, while selling another few million in batteries to Duke Energy. Also, the founder recently stepped down as CEO, someone who had been with the company for almost a decade!
This also happened when we tried visiting their website…
How often does that happen to you when you are browsing the internet? Not usually right? As of now, WKHS is $3.50 per share, which gives it a valuation of around $200 000 000. This is more than 250 times current sales….
For that?……………………It’s so outrageous that your mind naturally dismisses this as some kind of misunderstood anomaly, a psychological phenomenon known as cognitive dissonance. Magicians are famous for this. They pull the trick right in front of your face, but because you are focused on their distraction, you miss what is staring you dead in the eye
****DISCLAIMER****This is all our opinion, and we are not financial advisers. You should consult a financial adviser before making any financial decision with regard to publicly traded securities, or any security for that matter. You should not use this information as the basis for an investment decision. This company carries an extremely high degree of risk. You should consider this information as similar to personal insight from a peer/friend/acquaintance, and thus it should, obviously, not be the primary source material for basing an investment decision, because, similar to any opinion from a peer/friend/acquaintance, it could be completely and utterly incorrect! Good luck and happy trading everyone****