UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
o

For the quarterly period ended June 30, 2014

or
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________


Commission file number: 000-53704


AMP HOLDING INC.
(Exact name of registrant as specified in its charter)

Nevada
26-1394771
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)

100 Commerce Drive, Loveland, Ohio  45140
(Address of principal executive offices) (Zip Code)

513-360-4704
Registrant’s telephone number, including area code)

N/A
(Former name, former address and former fiscal year, if changed since last report)


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes x No 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  No x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o
Accelerated filer o
Non-accelerated filer o
Smaller reporting company  x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common Stock, $0.001 par value per share
146,897,008
(Class)
(Outstanding at August 14, 2014)
 
 
1

 

 
TABLE OF CONTENTS


PART I
FINANCIAL INFORMATION
     
         
    4  
           
      4  
           
      5  
           
      6  
           
      7  
           
      8  
           
    22  
           
    24  
           
    25  
           
PART II
OTHER INFORMATION
       
           
    26  
           
    26  
           
    31  
           
    33  
           
    33  
           
    33  
           
    33  
           
      38  


 
2

 
Forward-Looking Statements

The discussions in this Quarterly Report contain forward-looking statements reflecting our current expectations that involve risks and uncertainties. When used in this Report, the words “anticipate”, expect”, “plan”, “believe”, “seek”, “estimate” and similar expressions are intended to identify forward-looking statements.  These are statements that relate to future periods and include, but are not limited to, statements about the features, benefits and performance of our products, our ability to introduce new product offerings and increase revenue from existing products, expected expenses including those related to selling and marketing, product development and general and administrative, our beliefs regarding the health and growth of the market for our products, anticipated increase in our customer base, expansion of our products functionalities, expected revenue levels and sources of revenue, expected impact, if any, of legal proceedings, the adequacy of liquidity and capital resource, and expected growth in business.  Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected.  These risks and uncertainties include, but are not limited to, market acceptance for our products, our ability to attract and retain customers for existing and new products, our ability to control our expenses, our ability to recruit and retain employees, legislation and government regulation, shifts in technology, global and local business conditions, our ability to effectively maintain and update our product and service portfolio, the strength of competitive offerings, the prices being charged by those competitors and the risks discussed elsewhere herein.  These forward-looking statements speak only as of the date hereof.  We expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

All references in this Form 10-Q that refer to the “Company”, “AMP Holding", "AMP", “we,” “us” or “our” are to AMP Holding Inc. and unless otherwise differentiated, its wholly-owned subsidiaries, AMP Electric Vehicles Inc. and AMP Trucks Inc.
 
 
 
3

 
PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS
 
 
    AMP Holding Inc.
(A Development Stage Company)
June 30, 2014 and December, 31 2013
 
       
Assets
 
June 30, 2014
2014
   
December 31,
2013
 
    (Unaudited)        
Current assets:
           
      Cash and cash equivalents
  $ 1,806,176     $ 7,019  
      Inventory
    392,750       392,750  
      Prepaid expenses and deposits
    48,236       43,967  
      2,247,162       443,736  
                 
Property, plant and equipment, net
    4,204,273       4,407,261  
    $ 6,451,435     $ 4,850,997  
                 
Liabilities and Stockholders' Equity (Deficit)
               
                 
Current liabilities:
               
      Accounts payable
  $ 1,416,754     $ 1,546,388  
      Accounts payable, related parties
    324,086       468,165  
      Customer deposits
    -       177,500  
      Notes payable
    -       -  
      Shareholder advances
    6,000       1,934,300  
      Convertible debentures
    -       -  
      Current portion of long-term debt
    38,645       338,225  
    $ 1,785,485     $ 4,464,578  
                 
Long-term debt
    2,497,258       2,292,890  
                 
Stockholders' equity (deficit):
               
  Series A preferred stock, par value of $.001 per share 75,000,000 shares                
    shares authorized, 0 shares issued and outstanding at December 31, 2013                
        and December 31, 2012
    -       -  
  Common stock, par value of $.001 per share 250,000,000 shares authorized,                
        146,897,008 shares issued and outstanding at June 30, 2014 and                
         82,711,524 shares issued and outstanding at December 31, 2013
    146,892       82,712  
      Additional paid-in capital
    26,754,440       20,321,536  
      Stock based compensation
    5,922,207       5,171,093  
      Accumulated deficit during the development stage
    (30,654,847 )     (27,481,812 )
      2,168,692       (1,906,471 )
                 
    $ 6,451,435     $ 4,850,997  
 
See accompanying notes to financial statements.
 
 
 
4

 
 
     
AMP Holding Inc.
     
(A Development Stage Company)
Statements of Operations
For the Three and Six Months Ended June 30, 2014 and 2013
and for the Period From Inception,
February 20, 2007 to June 30, 2014
(Unaudited)
 
   
Three Months Ended June 30,
   
Six Months Ended June 30,
   
Since Date of Inception, February 20, 2007 to June 30, 
 
   
2014
   
2013
   
2014
   
2013
    2014  
                               
Sales
  $ 177,459     $ -     $ 177,459     $ -     $ 957,799  
                                         
Operating Expenses
                                       
Selling, general and administrative
    1,178,970       1,092,342       1,724,500       1,918,905       16,470,474  
Research and development
    899,662       994,706       1,469,017       1,723,211       14,469,607  
Total operating expenses
    2,078,632       2,087,048       3,193,517       3,642,116       30,940,081  
                                         
Interest expense, net
    64,759       75,356       156,977       103,995       672,565  
                                         
  Net loss during the development stage
  $ (1,965,932 )   $ (2,162,404 )   $ (3,173,035 )   $ (3,746,111 )   $ (30,654,847 )
                                         
Basic and diluted loss per share
  $ (0.01 )   $ (0.03 )   $ (0.02 )   $ (0.05 )        
                                         
Weighted average number of common
                                 
   shares outstanding
    146,897,008       78,504,998       146,897,008       69,418,138          
                                         
See accompanying notes to financial statements.
 
 
 
5

 
    AMP Holding Inc.
    (A Development Stage Company)
Statements of Stockholders' Equity (Deficit)
From Inception, February 20, 2007 to June 30, 2014
     
     
 
   
Common Stock
   
Series A
Preferred Stock
         
 
   
Accumulated
Deficit
During the
   
Total
Stockholders'
 
   
Number
of Shares
   
Amount
   
Number
of Shares
    Amount    
Additional
Paid-in Capital
    Stock Based Compensation     Development
Stage
    Equity
(Deficit)
 
                                                 
Beginning capital - inception
    -     $ -       -     $ -     $ -     $ -     $ -     $ -  
                                                                 
Issuance of common stock, and fulfillment
                                                 
of stock subscriptions receivable
    7,210       900,000       -       -       -       -       -       900,000  
Net loss from operations, period of inception,
                                         
February 20, 2007 to December 31, 2007
    -       -       -       -       -       -       (456,145 )     (456,145 )
      7,210     $ 900,000       -     $ -     $ -     $ -     $ (456,145 )   $ 443,855  
                                                                 
Issuance of common stock, and fulfillment
                                                 
of stock subscriptions receivable
    4,305       875,000       -       -       -       -       -       875,000  
March 10, 2008 stock dividend
    62,720       -       -       -       -       -       -       -  
Share based compensation for the year
                                                 
ended December 31, 2008
    -       9,757       -       -       -       -       -       9,757  
Net loss from operations for the year
                                                         
ended December 31, 2008
    -       -       -       -       -       -       (1,383,884 )     (1,383,884 )
      74,235     $ 1,784,757       -     $ -     $ -     $ -     $ (1,840,029 )   $ (55,272 )
                                                                 
January 1, 2009 stock re-pricing agreement
    18,025       -                                               -  
Issuance of common stock, and fulfillment
                                                 
of stock subscriptions receivable
    168,210       753,511       -       -       49,989       -       -       803,500  
Share based compensation to
                                                         
December 28, 2009
    -       7,983       -       -       -       -       -       7,983  
Shares issued out of stock option plan on
                                                 
December 31, 2009
    3,220       -       -       -       -       -       -       -  
Net effect of purchase accounting adjustments
    17,508,759       (2,528,479 )     -       -       2,528,479       -       -       -  
Conversion of convertible notes
    -       -       8,375       8       264,992       -       -       265,000  
Net loss from operations for the year
                                                         
ended December 31, 2009
    -       -       -       -       -       -       (1,524,923 )     (1,524,923 )
      17,772,449     $ 17,772       8,375     $ 8     $ 2,843,460     $ -     $ (3,364,952 )   $ (503,712 )
                                                                 
Conversion of convertible note
    29,750       30       -       -       9,970       -       -       10,000  
Issuance of preferred stock, and fulfillment
                                                 
of stock subscriptions receivable
    -       -       625       1       24,999       -       -       25,000  
Issuance of common stock, and fulfillment
                                                 
of stock subscriptions receivable
    9,808,566       9,809       -       -       3,682,530       -       -       3,692,339  
Conversion of account payable
    101,636       102       -       -       86,898       -       -       87,000  
Share based compensation for the year
                                                 
ended December 31, 2010
    -       -       -       -       -       1,436,979       -       1,436,979  
Net loss from operations for the year
                                                         
ended December 31, 2010
    -       -       -       -       -       -       (5,028,106 )     (5,028,106 )
      27,712,401     $ 27,713       9,000     $ 9     $ 6,647,857     $ 1,436,979     $ (8,393,058 )   $ (280,500 )
                                                                 
Issuance of common stock, and fulfillment
                                                 
of stock subscriptions receivable
    9,912,447       9,911       -       -       5,404,830       -       -       5,414,741  
Stock options and warrants exercised
    38,692       39       -       -       12,236       -       -       12,275  
Conversion of preferred stock to common stock
    1,071,110       1,072       (9,000 )     (9 )     (1,063 )     -       -       -  
Share based compensation for the year
                                                 
ended December 31, 2011
    -       -       -       -       -       2,002,891       -       2,002,891  
Net loss from operations for the year
                                                         
ended December 31, 2011
    -       -       -       -       -       -       (8,705,711 )     (8,705,711 )
      38,734,650     $ 38,735       -     $ -     $ 12,063,860     $ 3,439,870     $ (17,098,769 )   $ (1,556,304 )
                                                                 
Issuance of detached warrants in connection
                                                 
with convertible debentures
    -       -       -       -       91,493       -       -       91,493  
Conversion of debentures and interest
    10,227,070       10,227       -       -       2,035,187       -       -       2,045,414  
Conversion of account payable
    6,993,743       6,993       -       -       766,007       -       -       773,000  
Share based compensation for the year
                                                 
ended December 31, 2012
    -       -       -       -       -       338,853       -       338,853  
Net loss from operations for the year
                                                         
ended December 31, 2012
    -       -       -       -       -       -       (4,272,489 )     (4,272,489 )
      55,955,463     $ 55,955       -     $ -     $ 14,956,547     $ 3,778,723     $ (21,371,258 )   $ (2,580,033 )
Issuance of common stock, and fulfillment
                                                 
of stock subscriptions receivable
    21,330,000       21,330       -       -       4,254,270       -       -       4,275,600  
Stock options and warrants exercised
    18,764       20       -       -       1,143       -       -       1,163  
Conversion of convertible note
    500,000       500       -       -       99,500       -       -       100,000  
Conversion of account payable
    4,907,297       4,907       -       -       1,010,076       -       -       1,014,983  
Share based compensation for the year
                                                 
ended December 31, 2013
    -       -       -       -       -       1,392,370       -       1,392,370  
Net loss from operations for the year
                                                         
      -       -       -       -       -       -       (6,110,554 )     (6,110,554 )
      82,711,524     $ 82,712       -     $ -     $ 20,321,536     $ 5,171,093     $ (27,481,812 )   $ (1,906,471 )
Issuance of common stock, and fulfillment
                                                 
of stock subscriptions receivable
    59,423,000       59,423       -       -       5,882,877       -       -       5,942,300  
Stock options and warrants exercised
                                                 
Conversion of account payable
    4,762,484       4,757       -       -       550,027       -       -       554,784  
Share based compensation for the year
                                                 
ended June 30, 2014
    -       -       -       -       -       751,114       -       751,114  
Net loss from operations for the year
                                                         
ended June 30, 2014
    -       -       -       -       -       -       (3,173,035 )     (3,173,035 )
      146,897,008       146,892       -       -       26,754,440       5,922,207       (30,654,847 )     2,168,692  
 
See accompanying notes to financial statements.
 
 
6

 
 
AMP Holding Inc.
(A Development Stage Company)
Statements of Cash Flows
For the Three and Six Months Ended June 30, 2014 and 2013
and for the Period From Inception,
February 20, 2007 to June 30, 2014
(Unaudited)
   
 
   
Three Months Ended June 30,
   
Six Months Ended June 30,
   
Since Date of Inception, February 20, 2007 to June 30,
 
   
2014
   
2013
   
2014
   
2013
    2014  
                               
Cash flows from operating activities:
                             
Net loss during the development stage
  $ (1,965,932 )   $ (2,162,404 )   $ (3,173,035 )   $ (3,746,111 )   $ (30,654,847 )
Adjustments to reconcile net loss from operations
                         
to cash used by operations:
                                       
  Depreciation
    101,492       101,493       202,986       116,664       815,642  
  Loss on sale of assets
    -       -       -       -       27,544  
  Stock based compensation
    556,147       810,411       751,114       1,140,527       5,939,947  
  Interest expense on convertible debentures
    -       -       13,269       -       172,228  
  Amortized discount on convertible debentures
    -       -       -       -       91,493  
  Legal, consulting and investment services
    134,250       260,075       554,784       602,575       2,571,112  
Capitalization of accrued interests
    -       -       225,000       -       225,000  
  Effects of changes in operating assets and liabilities:
                                       
    Inventory
    -       -       -       48,252       7,250  
    Prepaid expenses and deposits
    -       (16,812 )     (4,269 )     (44,776 )     (48,236 )
    Accounts payable
    156,596       206,574       (142,901 )     43,891       1,917,122  
    Accounts payable, related parties
    (143,363 )     32,221       (144,079 )     14,794       271,291  
    Customer deposits
    (177,500 )     210,000       (177,500 )     320,000       -  
                                         
      Net cash used by operations
    (1,338,310 )     (558,442 )     (1,894,631 )     (1,504,184 )     (18,664,454 )
                                         
Cash flows from investing activities:
                                       
                                         
Cash paid in acquisition of Workhorse Custom Chasis, LLC
    -       -       -       (2,750,000 )     (2,750,000 )
  Capital expenditures
    -       -       -       (63 )     (376,713 )
  Proceeds on sale of assets
    -       -       -       -       38,900  
                                         
    Net cash used by investing activities
    -       -       -       (2,750,063 )     (3,087,813 )
                                         
Cash flows from financing activities:
                                       
                                         
  Proceeds from debentures
    -       -       -       -       1,939,250  
  Proceeds from notes payable
    -       -       -       100,000       160,000  
  Payments on notes payable
    -       -       -       -       (150,000 )
  Proceeds from long-term debt
    -       -       -       -       50,000  
  Payments on long-term debt
    (169,464 )     (23,850 )     (320,212 )     (40,989 )     (551,096 )
  Conversion of note payable
    -       -       -       -       -  
  Shareholder advances, net of repayments
    (4,135,120 )     -       (1,928,300 )     -       6,000  
  Issuance of common and preferred stock
    4,742,300       616,761       5,942,300       4,301,761       22,104,289  
                                         
      Net cash provided by financing activities
    437,716       592,911       3,693,788       4,360,772       23,558,443  
                                         
Change in cash and cash equivalents
    (900,594 )     34,469       1,799,157       106,525       1,806,176  
                                         
Cash at the beginning of the period
    2,706,770       111,875       7,019       39,819       -  
Cash at the end of the period
    1,806,176       146,344       1,806,176       146,344       1,806,176  
                                         
 
Supplemental disclosure of non-cash activities:
     
Vehicles valued at $61,284 were contributed as consideration for issuance of common stock in February 2007.
Consulting services valued at $50,000 were accepted as consideration for issuance of common stock in October 2008.
During March 2010 a note payable of $10,000 was converted to 29,750 shares of common stock.
A vehicle valued at $33,427 was acquired through bank financing in September 2010.
Consulting services valued at $87,000 were accepted as consideration for issuance of common stock in December 2010.
Equipment valued at $14,937 was acquired through debt financing in December 2011.
Consulting services valued at $60,000, $55,000, and $203,000 were accepted as consideration for issuance of common stock in March, October, and December 2012, respectively.
Detachable warrants associated with convertible debentures valued at $91,493 were recorded as increases to additional paid-in capital from January to August 2012.
Investment Agreement fees valued at $375,000 were accepted as consideration for issuance of common stock in August 2012.
Legal services valued at $40,000, $15,000, and $25,000 were accepted as consideration for issuance of common stock in September, November, and December 2012, respectively.
During November 2012 debentures for $1,939,250 and interest of $106,164 were converted to 10,227,070 shares of common stock.
During December 2012 accounts payable of $513,636 were converted to notes payable.
During February 2013 a note payable of $100,000 was converted to 500,000 shares of common stock.
During March 2013, the Company entered into a note payable in the amount of $2,250,000 related to the acquisition of Workhorse Custom Chasis, LLC.  See note 2 to the financial statements.
Consulting services valued at $302,500, $126,000, $119,075, $11,750, and $155,000 were accepted as consideration for issuance of common stock in March, May, June, July, and September 2013, respectively.
Legal services valued at $40,000, $15,000, $5,000, and $5,000 were accepted as consideration for issuance of common stock in March, June, July, and August 2013, respectively.
Rent expense valued at $80,190 was accepted as consideration for issuance of common stock in September 2013, respectively.
 
See accompanying notes to financial statements.
 
 
 
 
AMP Holding Inc.

Notes to Consolidated Financial Statements
 (Unaudited)

 
1.  
SUMMARY OF SIGNIFICANT ACCOUNTING PRINICPLES

The following accounting principles and practices are set forth to facilitate the understanding of data presented in the financial statements:

Nature of operations and principles of consolidation

AMP Holding Inc. (AMP, we, us or our) designs, develops, manufacture, and sells high-performance, medium-duty trucks with advanced powertrain components under the Workhorse chassis brand.

AMP Holding Inc., formerly known as Title Starts Online, Inc. (the Company), incorporated in the State of Nevada in 2007 with $3,100 of capital from the issuance of common shares to the founding shareholder. On August 11, 2008 the Company received a Notice of Effectiveness from the U.S. Securities and Exchange Commission, and on September 18, 2008, the Company closed a public offering in which it accepted subscriptions for an aggregate of 200,000 shares of its common stock, raising $50,000 less offering costs of $46,234. With this limited capital the Company did not commence operations and remained a “shell company” (as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended).

On December 28, 2009, the Company entered into and closed a Share Exchange Agreement with the Shareholders of Advanced Mechanical Products, Inc. (n/k/a AMP Electric Vehicles, Inc.) (AMP) pursuant to which the Company acquired 100% of the outstanding securities of AMP in exchange for 14,890,904 shares of the Company’s common stock. Considering that, following the merger, the AMP Shareholders control the majority of the outstanding voting common stock of the Company, and effectively succeeded the Company’s otherwise minimal operations to those that are AMP.  AMP is considered the accounting acquirer in this reverse-merger transaction.  A reverse-merger transaction is considered and accounted for as a capital transaction in substance; it is equivalent to the issuance of AMP securities for net monetary assets of the Company, which are deminimus, accompanied by a recapitalization. Accordingly, goodwill or other intangible assets have not been recognized in connection with this reverse merger transaction.  AMP is the surviving entity and the historical financials following the reverse merger transaction will be those of AMP.  The Company was a shell company immediately prior to the acquisition of AMP pursuant to the terms of the Share Exchange Agreement.  As a result of such acquisition, the Company operations are now focused on the design, marketing and sale of modified vehicles with an all-electric power train and battery systems.  Consequently, we believe that acquisition has caused the Company to cease to be a shell company as it now has operations.  The Company formally changed its name to AMP Holding Inc. on May 24, 2010.

Since the acquisition, the Company has devoted the majority of its resources to the development of an all-electric drive system capable of moving heavy large vehicles ranging from full size SUV’s up to and including Medium Duty Commercial trucks.  Additionally, in February 2013, AMP Holding Inc. formed a new wholly owned subsidiary, AMP Trucks Inc., an Indiana corporation. On March 13, 2013 AMP Trucks Inc. closed on the acquisition of an asset purchase of Workhorse Custom Chassis, LLC.  The assets included in this transaction include:  The Workhorse brand, access to the dealer network of 440 dealers nationwide, intellectual property, and all physical assets which include the approximately 250,000 sq. ft. of facilities on 48 acres of land in Union City, Indiana.  This acquisition allows AMP Holding Inc. the position as a medium duty OEM capable of producing new chassis with electric, propane, compressed natural gas, and hybrid configurations, as well as gasoline drive systems.  Revenues since the inception of the Company, February 20, 2007, through the date of these financial statements have not been significant and consist of customer vehicle conversions and sales of converted experimental vehicles.
 
 
8


Development-stage Company

Based on the Company's business plan, it is a development stage company since planned principal operations resulting in revenue have not fully commenced.  Accordingly, the Company presents its financial statements in conformity with the accounting principles generally accepted in the United States of America that apply to developing enterprises.  As a development stage enterprise, the Company discloses its retained earnings (or deficit accumulated) during the development stage and the cumulative statements of operations and cash flows from commencement of development stage to the current balance sheet date.  The development stage began in 2007 when the Company was organized.

Basis of presentation

The financial statements have been prepared on a going concern basis, which contemplates the realization of assets and liquidation of liabilities in the normal course of business.  However, the Company has limited revenues and has negative working capital and stockholders’ deficits.  During 2012 and 2013 the lack of liquidity delayed the Company from paying its employees their full salaries.  These conditions raise substantial doubt about the ability of the Company to continue as a going concern.

In view of these matters, continuation as a going concern is dependent upon the continued operations of the Company, which in turn is dependent upon the Company's ability to meet its financial requirements, raise additional capital, and the success of its future operations.  The financial statements do not include any adjustments to the amount and classification of assets and liabilities that may be necessary should the Company not continue as a going concern.

The Company has continued to raise capital.  Management believes the proceeds from these offerings, future offerings, and the Company’s anticipated revenue provides an opportunity to continue as a going concern.  If additional funding is required, the Company plans to obtain working capital from either debt or equity financing from the sale of common, preferred stock, and/or convertible debentures. Obtaining such working capital is not assured.

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.  Actual results could differ from these estimates.

Certain reclassifications were made to the prior year financial statements to conform to the current year presentation.  These reclassifications had no effect on previously reported results of operation or stockholders’ equity (deficit).

Financial instruments

The carrying amounts of financial instruments including cash, inventory, accounts payable and short-term debt approximate fair value because of the relatively short maturity of these instruments.

Inventory

Inventory is stated at the lower of cost or market.

Property and depreciation

Property and equipment is recorded at cost.  Major renewals and improvements are capitalized while replacements, maintenance and repairs, which do not improve or extend the lives of the respective assets, are expensed.  When property and equipment is retired or otherwise disposed of, a gain or loss is realized for the difference between the net book value of the asset and the proceeds realized thereon.  Depreciation is calculated using the straight-line method, based upon the following estimated useful lives:

Buildings:  15 - 30 years
Leasehold improvements:  7 years
Software:  3 - 6 years
Equipment:  5 years
Vehicles and prototypes:  3 - 5 years

Capital stock

On April 22, 2010, the directors of the Company approved a forward stock split of the common stock of the Company on a 14:1 basis.  On May 12, 2010, the stockholders of the Company voted to approve the amendment of the certificate of incorporation resulting in a decrease of the number of shares of Common stock.  The Company filed a 14c definitive information statement with the Securities and Exchange Commission and mailed the same to its shareholders.  Management filed the certificate of amendment decreasing the authorized shares of common stock with the State of Nevada on September 8, 2010.
 
 
9


 
The capital stock of the Company is as follows:

Preferred Stock - The Company has authorized 75,000,000 shares of preferred stock with a par value of $.001 per share.  These shares may be issued in series with such rights and preferences as may be determined by the Board of Directors.  The Series A Stock is convertible, at any time at the option of the holder, into common shares of the Company based on a conversion price of $0.336 per share.  The holders of the Series A Stock are not entitled to convert the Series A Stock and receive shares of common stock such that the number of shares of common stock held by them in the aggregate and their affiliates after such conversion or exercise does not exceed 4.99% of the then issued and outstanding shares of common stock.  The Series A Stock has voting rights on an as converted basis, does not pay dividends, and does not provide any liquidation rights.

Common Stock - The Company has authorized 250,000,000 shares of common stock with a par value of $.001 per share.

Revenue recognition / customer deposits

It is the Company's policy that revenues will be recognized in accordance with SEC Staff Bulletin (SAB) No. 104, "Revenue Recognition".  Under SAB 104, product revenues (or service revenues) are recognized when persuasive evidence of an arrangement exists, delivery has occurred (or service has been performed), the sales price is fixed and determinable, and collectability is reasonably assured.  Customer deposits include monies from customers to reserve a production slot for conversion of an OEM power train to the AMP all electric power train.  The final retail price and delivery date are yet to be determined.  Customer deposits are subject to a full refund at the request of the customer.

Income taxes

With the consent of its shareholders, at the date of inception, AMP elected under the Internal Revenue Code to be taxed as an S corporation.  Since shareholders of an S corporation are taxed on their proportionate share of the Company’s taxable income, an S corporation is generally not subject to either federal or state income taxes at the corporate level.  On December 28, 2009 pursuant to the merger transaction the Company revoked its election to be taxed as an S-corporation.

As no taxable income has occurred from the date of this merger to June 30, 2014 cumulative deferred tax assets of approximately $7.2 million are fully reserved, and no provision or liability for federal or state income taxes has been included in the financial statements.  Net operating losses of approximately $ 3.6 million are available for carryover to be used against taxable income generated through 2030, net operating losses of approximately $6.7 million are available for carryover to be used against taxable income generated through 2031, and net operating losses of approximately $3.9 million are available for carryover to be used against taxable income generated through 2032, net operating losses of approximately $4.7 million are available for carryover to be used against taxable income generated through 2033, and net operating losses of approximately $2.4 million are available for carryover to be used against taxable income generated through 2034.  The Company had not filed income tax returns during its period as a shell company.

Uncertain tax positions

The Company adopted the provisions of Accounting for Uncertainty in Income Taxes.  Those provisions clarify the accounting and recognition for income tax positions taken or expected to be taken in the Company’s income tax returns.  The Company’s income tax filings are subject to audit by various taxing authorities.  The years of filings open to these authorities and available for audit are 2010 - 2012.  The Company's policy with regard to interest and penalties is to recognize interest through interest expense and penalties through other expense.  No interest or penalties with regard to income tax filings were incurred in any period, including 2013 or 2012, or since the period of inception, February 20, 2007.  In evaluating the Company’s tax provisions and accruals, future taxable income, and the reversal of temporary differences, interpretations and tax planning strategies are considered.  The Company believes their estimates are appropriate based on current facts and circumstances.

Research and development costs

The Company expenses research and development costs as they are incurred. Research and Development costs were approximately $1.5 million and  $1.7 million for the six month period ended June 30, 2014 and 2013, and $14.7 million for the period of inception to June 30, 2014, consisting primarily of personnel costs for our teams in engineering and research, prototyping expense, and contract and professional services.  Union City plant expenses prior to the start of production are also included in research and development expenses.
 
 
10

 
Basic and diluted loss per share

Basic loss per share is computed by dividing net loss available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period.  For all periods, all of the Company’s common stock equivalents were excluded from the calculation of diluted loss per common share because they were anti-dilutive, due to the Company’s net losses.

Stock based compensation

The Company accounts for its stock based compensation in accordance with “Share-Based Payments” (codified in FASB ASC Topic 718 and 505).  The Company recognizes in its statement of operations the grant-date fair value of stock options and warrants issued to employees and non-employees.  The fair value is estimated on the date of grant using a lattice-based valuation model that uses assumptions concerning expected volatility, expected term, and the expected risk-free rate of return.  For the awards granted, the expected volatility was estimated by management as 50% based on a range of forecasted results.  The expected term of the awards granted was assumed to be the contract life of the option or warrant (one, two, three, five or ten years as determined in the specific arrangement).  The risk-free rate of return was based on market yields in effect on the date of each grant for United States Treasury debt securities with a maturity equal to the expected term of the award.

Related party transactions

Certain stockholders and stockholder family members have advanced funds or performed services for the Company.  These services are believed to be at market rates for similar services from non-related parties.  Related party accounts payable are segregated in the balance sheet.

Subsequent events

On July 1, 2014, the Company granted 10 million stock options to employees and consultants.


2.  
PROPERTY, PLANT AND EQUIPMENT

As of June 30, 2014 and December 31, 2013, our property, plant and equipment, net, consisted of the following:

   
June 30, 2014
   
December 31, 2013
 
Land
   
300,000
     
300,000
 
Buildings
   
3,800,000
     
3,800,000
 
Leasehold Improvements
   
19,225
     
19,225
 
Software
   
27,721
     
27,721
 
Equipment
   
670,183
     
670,183
 
Vehicles and prototypes
   
164,959
     
164,959
 
     
4,982,088
     
4,982,088
 
Less accumulated depreciation
   
(777,815
)
   
(574,827
)
     
4,204,273
     
4,407,261
 
 
On March 13, 2013 the Company acquired the operating assets of Workhorse Custom Chassis, LLC, an unrelated company located in Union City, Indiana.  The following summarizes the consideration paid, and the components of the purchase price and the related allocation of assets acquired and liabilities assumed.
 
 
11

 
Consideration
     
 Cash at closing
 
$
2,750,000
 
 Secured debenture
   
2,250,000
 
   
$
5,000,000
 
Assets acquired
       
 Inventory
 
$
400,000
 
 Equipment
   
500,000
 
 Land
   
300,000
 
 Buildings
   
3,800,000
 
   
$
5,000,000
 
         
 
Valuation methods used for the identifiable assets acquired in the acquisition make use of fair value measurements based on unobservable inputs and reliance on management’s assumptions that similar market participants would use in pricing the assets.  As such, the fair value measurements represent a Level 3 input.
 
 
3.  
LONG-TERM DEBT

Long-term debt consists of the following:
 
   
June 30, 2014
   
December 31, 2013
 
Secured debenture payable to Workhorse Custom Chassis, LLC, due March 2016 plus interest at 10%.  The debenture is secured by the real estate and related assets of the plant located in Union City, Indiana with a net book value of $4,158,336 at June 30, 2014
    2,475,000       2,250,000  
                 
Note payable, Bank due in monthly installments of $635 including interest at 5.04% with the final payment due August 2015.  The note is secured by equipment with a net book value of $7,805 at June 30, 2014
    8,380       11,928  
                 
Note payable, vendor due in monthly installments of $439 including interest at 8.00% with the final payment due December 2014.  The note is secured by equipment with a net book value of $7,281 at June 30, 2014
    2,523       5,051  
                 
Note payable to the City of Loveland, due in annual installments of $10,241 including interest with the final payment due October 2016.  Interest rate amended to 8.00%.  The note is unsecured and contains restrictions on the use of proceeds.
    50,000       50,000  
                 
Note payable, vendor due in monthly installments of $5,000 for the first half of 2013.  Note paid on March 2014.
    -       123,736  
                 
Note payable, vendor due in monthly installments of $2,000 plus interest at 4% for the first half of 2013, escalating to final payment of $18,461 plus interest at 4% in December 2014.  Note paid on May 2014.
    -       190,400  
                 
      2,535,903       2,631,115  
Less current portion
    38,645       356,868  
                 
Long term debt
    2,497,258       2,274,247  
 
 
12

 
Aggregate maturities of long-term debt are as follows:

2014
   
38,645
 
2015
   
2,458,613
 
2016
   
-
 
     
2,497,258
 

The note payable to the City of Loveland contains job creation incentives whereby each annual payment may be forgiven by the City upon the Company meeting minimum job creation benchmarks.  This loan agreement amended the incentives to 30 full time employees within the City of Loveland with payroll totaling $135,000 by October 31, 2013 and 40 employees with payroll totaling $175,000 by July 31, 2014, continuing with an average of 40 employees with payroll totaling $175,000 thereafter.  The proceeds from this loan were to be used for qualified disbursements only, and the Company has been notified it did not meet the requirements for qualified disbursements and for forgiveness of the 2012 principal and interest payment, which is past due.  In 2013 the Company made payments to an escrow account totaling $22,900.

 
4.  
 CONVERTIBLE DEBENTURES

From January 6, 2012 through August 3, 2012, the Company entered into Securities Purchase Agreements and Security Agreements with several accredited investors (the “2012 Investors”) providing for the sale by the Company to the 2012 Investors of Secured Convertible Debentures in the aggregate amount of $1,939,250 (the "2012 Notes").  The Company received the proceeds in connection with these financings between January 6, 2012 and August 3, 2012.  Further a shareholder, director and officer converted secured and unsecured loans provided to the Company from September 30, 2011 to June 5, 2012 in the aggregate amount of $389,250 into the 2012 Notes and 2012 Warrants.  The 2012 Notes were to mature one year from their respective effective dates (the "Maturity Dates") and interest associated with the 2012 Notes was 10% per annum, payable on the Maturity Dates.  In November 2012, the Company entered into a Note and Warrant Amendment and Conversion Agreement whereby the holders and the 2012 Investors converted all principal and interest under the 2012 Notes into 10,227,070 shares of common stock.  Further, the exercise price of the 2012 Warrants was reduced to $0.25 per share.

In addition to the 2012 Notes, the 2012 Investors also received common stock purchase warrants (the “2012 Warrants”) to acquire 1,939,250 shares of common stock of the Company.  The 2012 Warrants are exercisable for three years at an exercise price of $0.50 per share, reduced to $0.25 per share as noted above.  The value of the detachable 2012 Warrants was determined using a lattice-based valuation model that used an expected volatility, estimated by management as 50% based on a range of forecasted results, and an expected risk-free rate of return, based on market yields in effect on the grant dates for United States Treasury debt securities with a three year maturity.  The $91,493 value of the detachable 2012 Warrants was recorded as an increase in additional paid-in capital and a discount against the 2012 Notes.  The discount on the 2012 notes was amortized as interest expense during the period that the 2012 Notes were outstanding.  Amortization charged to the Statement of Operations is $91,493 for the year ended December 31, 2012.

The 2012 Notes and the 2012 Warrants carry standard anti-dilution provisions but in no event may the conversion price be reduced below $0.25.  Further, the 2012 Investors will have the right to participate in the next financing on a pro-rata basis up to $1,000,000.
 
 
13

 
5.  
 SHAREHOLDER AND RELATED PARTY ADVANCES

Investor advances are as follows:

June 30, 2014
   
December 31,2013
   
Rate
 
Date
Expire
 
Note
 
  -       43,000       3 %
11/30/2009
3/31/2012
    1  
  -       15,000       10 %
10/5/2012
10/5/2013
    1  
  -       100,000       10 %
10/16/2012
10/16/2013
    1  
  -       100,000       10 %
10/16/2012
10/16/2013
    1  
  -       50,000       10 %
10/19/2012
10/19/2013
    1  
  -       50,000       10 %
11/2/2012
11/2/2013
    1  
  -       50,000       10 %
11/8/2012
11/8/2013
    1  
  -       100,000       10 %
12/6/2012
12/6/2013
    1  
  -       50,000       10 %
12/19/2012
12/19/2013
    1  
  -       3,200       10 %
10/10/2013
10/10/2014
    1  
  -       2,500       10 %
11/5/2013
11/5/2014
    1  
  -       200,000       10 %
11/12/2013
11/12/2014
    1  
  -       50,000       10 %
12/2/2013
12/2/2014
    1  
  -       50,000       10 %
12/30/2013
12/30/2014
    1  
  -       80,000          
12/11/2013
      2  
  6,000       990,600          
Various 2013/14
      3  
  6,000       1,934,300                      

1
Advances were converted into equity during the second quarter of 2014
2
Paid on 3/8/2014.
3
Various non-interest bearing shareholders' deposits.  Being converted into equity third quarter 2014.

6.  
LEASE OBLIGATIONS

On October 1, 2011 the Company began leasing operating facilities under an agreement expiring on September 30, 2018.  Future minimum monthly lease payments under the agreement are currently $12,598 and increase 3% in October of each year.  Prepaid expenses and deposits include a security deposit equal to $12,275.  Aggregate maturities of lease obligations are as follows:

2014
   
76,723
 
2015
   
156,881
 
2016
   
161,588
 
2017
   
166,435
 
2018
   
127,614
 
     
689,241
 
 
Total rent expense under these operating type leases for the six months ended June 30, 2014 and 2013 was $76K and $73K, respectively, and $675K for the period from inception to June 30, 2014.
 
 
7.  
 STOCK BASED COMPENSATION

Options to directors, officers and employees
The Company maintains, as adopted by the board of directors, the 2013 Incentive Stock Plan, the 2012 Incentive Stock Plan, the 2011 Incentive Stock Plan and the 2010 Stock Incentive Plan (the plans) providing for the issuance of up to 11,000,000 options to employees, officers, directors or consultants of the Company.  Incentive stock options granted under the plans may only be granted with an exercise price of not less than fair market value of the Company’s common stock on the date of grant (110% of fair market value for incentive stock options granted to principal stockholders).  Non-qualified stock options granted under the plans may only be granted with an exercise price of not less than 85% of the fair market value of the Company’s common stock on the date of grant.  Awards under the plans may be either vested or unvested options.  The unvested options vest ratably over two years for options with a five or three year term and after one year for options with a two year term.
 
 
14


In addition to the plans, the Company has granted, on various dates, stock options to directors, officers and employees to purchase common stock of the Company.  The terms, exercise prices and vesting of these awards vary.

The following table summarizes option activity for directors, officers and employees:

   
Number of Shares
   
Weighted
Average
Exercise Price
per Share
   
Weighted
Average Grant
Date Fair Value
 per Share
   
Weighted
Average
Remaining
Exercise Term
in Months
 
Outstanding at December 31, 2010
   
4,940,000
   
$
0.56
   
$
0.33
     
77
 
Exercisable at December 31, 2010
   
1,854,625
   
$
0.53
   
$
0.32
     
75
 
Granted
   
3,425,000
     
0.63
     
0.28
     
54
 
Exercised
   
(29,750
)
   
0.41
     
0.26
     
40
 
Forfeited
   
-
     
-
     
-
     
-
 
Expired
   
-
     
-
     
-
     
-
 
Outstanding at December 31, 2011
   
8,335,250
   
$
0.59
   
$
0.31
     
58
 
Exercisable at December 31, 2011
   
4,588,875
   
$
0.57
   
$
0.31
     
60
 
Granted
   
2,025,000
     
0.13
     
0.05
     
40
 
Exercised
   
-
     
-
     
-
     
-
 
Forfeited
   
(1,315,375
)
   
0.61
     
0.27
     
40
 
Expired
   
(1,314,375
)
   
0.55
     
0.29
     
51
 
Outstanding at December 31, 2012
   
7,730,500
   
$
0.48
   
$
0.25
     
44
 
Exercisable at December 31, 2012
   
6,080,000
   
$
0.54
   
$
0.29
     
46
 
Granted
   
2,100,000
     
0.29
     
0.12
     
45
 
Exercised
   
(21,126
)
   
0.11
     
0.04
     
29
 
Forfeited
   
-
     
-
     
-
     
-
 
Expired
   
(505,000
)
   
0.70
     
0.20
     
-
 
Outstanding at December 31, 2013
   
9,304,374
   
$
0.44
   
$
0.23
     
39
 
Exercisable at December 31, 2013
   
6,670,937
   
$
0.51
   
$
0.27
     
38
 
Granted
                               
Exercised
                               
Forfeited
                               
Expired
                               
Outstanding at June 30, 2014
   
9,304,374
   
$
0.44
   
$
0.23
     
39
 
Exercisable at June 30, 2014
   
6,670,937
   
$
0.51
   
$
0.27
     
38
 
 
The Company recorded $ 68,238, $421,281, $325,673 and $ 2,276,379 compensation expense for stock options to directors, officers and employees for the six months ended June 30, 2014, 2013, 2012 and the period from inception (February 20, 2007) to June 30, 2014, respectively.  As of June 30, 2014, unrecognized compensation expense of $452,755 is related to non-vested options granted to directors, officers and employees which is anticipated to be recognized over the next 30 months, commensurate with the vesting schedules.
 
 
15

 

Options to consultants
The Company has also granted, on various dates, stock options to purchase common stock of the Company to consultants for services previously provided to the Company.  The terms, exercise prices and vesting of these awards vary.

The following table summarizes option activity for consultants:

   
Number of Shares
   
Weighted
Average
Exercise Price
per Share
   
Weighted
Average Grant
Date Fair Value
 per Share
   
Weighted
Average
Remaining
Exercise Term
in Months
 
Outstanding at December 31, 2010
   
810,000
   
$