Summary of Significant Accounting Principles
|6 Months Ended|
Jun. 30, 2019
|Organization, Consolidation and Presentation of Financial Statements [Abstract]|
|Organization, Consolidation and Presentation of Financial Statements Disclosure and Significant Accounting Policies [Text Block]||SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
The following accounting principles and practices are set forth to facilitate the understanding of data presented in the condensed consolidated financial statements:
Nature of operations and principles of consolidation
Workhorse Group Inc. (“Workhorse”, the “Company”, “we”, “us” or “our”) is a technology company focused on providing sustainable and cost-effective solutions to the commercial transportation sector. As an American manufacturer, we design and build high performance battery-electric vehicles and aircraft that make movement of people and goods more efficient and less harmful to the environment. As part of our solution, we also develop cloud-based, real-time telematics performance monitoring systems that enable fleet operators to optimize energy and route efficiency. Although we operate as a single unit through our subsidiaries, we approach our development through two divisions, Automotive and Aviation. We are currently focused on our core competency of bringing the N-GEN electric cargo van to market and fulfilling our existing backlog of orders. We are also exploring other opportunities in monetizing our intellectual property which could include a sale, license or other arrangement of assets that are outside of our core focus.
The Company’s wholly owned subsidiaries include Workhorse Technologies Inc., Workhorse Motor Works Inc., Workhorse Properties Inc. and Surefly, Inc
On May 3, 2019, the Company filed an amendment to its Articles of Incorporation to increase its authorized shares of common stock from 100,000,000 to 250,000,000.
Restatement of Previously Issued Consolidated Financial Statements
Subsequent to the filing of the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2019, filed with the SEC on August 9, 2019, management identified accounting adjustments related to an overstatement of the estimated warrant liability and interest expense. Certain warrants issued to lenders in 2018, were previously classified as liability financial instruments and marked-to-market at each reporting date with a corresponding adjustment to interest expense. On January 1, 2019, due to the payoff of debt to the lenders that the warrants were originally issued to, the warrants no longer met the criteria to be classified as liabilities and should have been reclassified to equity with no future mark-to-market adjustments. The adjustment resulted from the Company not recognizing that a reclassification event had occurred resulting in a change in the classification of certain of the Company’s outstanding warrants.
In addition, the Company determined that the classification of certain warrants issued in 2019 to lenders were misclassified as liability financial instruments, while they should have been classified as equity instruments and not marked-to-market.
Although the reclassification event occurred on January 1, 2019, and the missclassification of the 2019 warrants occurred in early 2019, management has determined that the $300,000 impact to the net loss for the three months ended March 31, 2019 is not material and therefore is not restating that period. The impact of the misstatement for the three months ended March 31, 2019, has been included in the adjustment for the three and six months ended June 30, 2019.
The following tables present the effect of the correction discussed above on selected line items of our previously reported consolidated balance sheet, consolidated statement of operations and statement of cash flows as of and for the three and six months ended June 30, 2019.
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 a history of negative working capital and stockholders’ deficits. Our existing capital resources are expected to be sufficient to fund our operations through the end of 2019. Unless and until we are able to generate a sufficient amount of revenue, reduce our costs and/or enter a strategic relationship, we expect to finance future cash needs through public and/or private offerings of equity securities and/or debt financings. If we are not able to obtain additional financing and/or substantially increase revenue from sales, we will be unable to continue as a going concern. 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,
meet its future bank covenant requirements, and successfully carry out 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 stock, preferred stock, and/or convertible debentures. Obtaining such working capital is not assured. The Company is currently in a production ramp up mode and placing greater emphasis on manufacturing capability.
The Marathon Credit Facility includes financial covenants that require our compliance beginning in the fourth quarter of 2019. We expect to be able to satisfy the covenant requirements either through results of operations or the available Equity Cure in the Credit Agreement.
In the opinion of Management, the Unaudited Condensed Consolidated Financial Statements include all adjustments that are necessary for the fair presentation of Workhorse’s financial conditions, results of operations and cash flows for the interim periods presented. Such adjustments are of a normal, recurring nature. Intercompany balances and transactions are eliminated in consolidation. The results of operations and cash flows for the interim periods presented may not necessarily be indicative of full-year results. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto of Workhorse contained in its Annual Report on Form 10-K for the year ended December 31, 2018.
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).
The entire disclosure for the organization, consolidation and basis of presentation of financial statements disclosure, and significant accounting policies of the reporting entity. May be provided in more than one note to the financial statements, as long as users are provided with an understanding of (1) the significant judgments and assumptions made by an enterprise in determining whether it must consolidate a VIE and/or disclose information about its involvement with a VIE, (2) the nature of restrictions on a consolidated VIE's assets reported by an enterprise in its statement of financial position, including the carrying amounts of such assets, (3) the nature of, and changes in, the risks associated with an enterprise's involvement with the VIE, and (4) how an enterprise's involvement with the VIE affects the enterprise's financial position, financial performance, and cash flows. Describes procedure if disclosures are provided in more than one note to the financial statements.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef