Workhorse Group: Crony Capitalism at its Worst, Market Manipulation at its Best..

(Bloomberg, June 19, 2020)

“Formidable added that Workhorse’s investment in electric pickup-truck maker Lordstown Motors Corp. is the “kicker.” The 10% stake could be worth over $1 billion even if the market views Lordstown as only half as valuable as Nikola, the fund said.”

…The key take-away seems to be that Lordstown Motors, a random company started by the former CEO of Workhorse (that didn’t even have a functional website until October 2019 — several months into this story) basically just gave Workhorse $1 billion dollars in exchange for “IP” that at the time of the agreement wasn’t even past the prototype stage.

This would also suggest that all of the equipment sitting in this massive 685 football field large manufacturing facility was just given to Lordstown Motors completely free of charge..

But this is our economy today. If the kleptocrats in Manhattan think that it’s worth that much; it’s just worth that much, and if you think otherwise, you’re either blocked, subject to reduced distribution (throttled), downvoted into obscurity, or even branded as “fake news”….Read more

Just for anybody who isn’t up to date on all the terms of this Lordstown agreement, Workhorse is only entitled to a royalty advance if the aggregate of such advance exceeds the amount paid to Workhorse upon completion of any capital raise.

(11/7/19, at 5:18pm ET) -“LMC must pay the Company one percent of the aggregate debt and equity commitments funded to LMC upon completion of the Capital Raise”

“LMC must also pay a one percent royalty on the gross sales price of the first 200,000 Vehicles sold,……. but only to the extent that the aggregate amount of such royalty fees exceed the amount paid as the Royalty Advance.”

Steve Burns has estimated that his company will need upwards of $250 000 000 to get the plant up and running (it will probably be much more than that — new construction never goes as planned), which means Workhorse will be entitled to something upwards of $2.5 million after the initial capital raise.

Based upon estimates from Henrik Alex of Seeking Alpha, Workhorse’s entitlement to 1% of the gross proceeds from the first 200 000 vehicles could potentially produce (key word potentially — and that’s a stretch in and of itself) $105 million in royalty payments.

But it’s extremely important to note that Lordstown is a very long way away from coming anywhere close to producing 200 000 electric trucks. Don’t forget, LMC has only secured a temporary mortgage on the building, and has yet to even begin the retooling process.

Just to put that into perspective, Tesla has only sold 891 000 units since 2012…

Something else that stood out recently was a statement made by Steve Burns in a Q/A last month on Charged Magazine, where he openly admits that this is the first time a production facility has ever been sold completely intact, with all the equipment still sitting inside the building.

“Both of those plants were mostly gutted, because the parts in there can be used in other plants. The robots, paint booths, stamping presses, are all common components. These are very expensive to buy, so when a plant is shuttered, usually the OEM takes out the components to put in another place. Nobody’s ever seen a fully loaded, still-warm plant sold like this. For us, it was great. It really reduced the big capital expenditures, took out a lot of risk. And even if you’ve got a squeaky-clean plant with a nice gray floor, there’s still execution risk. Did you buy the right equipment? Does it all dance together when you orchestrate a dance, all the robots? It’s a lot of expenditure and a lot of risk. It’s why there aren’t really small car companies.” Link

Then there was the mysterious resignation of their Chief Financial Officer only 4 days after this deal was disclosed..

On November 11, 2019, Paul Gaitan notified Workhorse Group Inc. (the “Company”) that he intended to resign as Chief Financial Officer of the Company effectively immediately. Mr. Gaitan’s departure was not the result of any disagreement with the Company nor any issue related to the Company’s financial statements of accounting practices. In connection with Mr. Gaitan’s resignation, the Company has commenced a search for a replacement Chief Financial Officer. Gregory Ackerson, the Company’s Controller, has agreed to serve as the Company’s Interim Chief Financial Officer until the Company has engaged a full-time replacement Chief Financial Officer.”

You have to ask yourself this question: who in their right mind resigns from a company almost immediately after closing a deal to exchange their intellectual property (“IP”) for a whopping 10% ownership interest in a manufacturing facility equal in size to 685 football fields — an ownership interest that, 8 months later, ended being trumpeted by a hedge fund as potentially being worth up to $1 billion??

Workhorse was even endorsed by the President of the United States himself. Yes, Donald J. Trump personally endorsed this struggling, practically bankrupt company..

You’d think a deal that involves a massive production facility, electric vehicles, and an endorsement from the President of the United States of America would be capable of bringing home the performance bonus of a lifetime, yet he just up and left?

(Formidable Asset Management LLC, Bloomberg, June 19, 2020)
“Formidable added that Workhorse’s investment in electric pickup-truck maker Lordstown Motors Corp. is the “kicker.” The 10% stake could be worth over $1 billion even if the market views Lordstown as only half as valuable as Nikola, the fund said.”

Could it be because he didn’t want to take part in the mysterious $12.2 million non-cash license income that was suddenly added to Workhorses balance sheet in 4th quarter 2019?

It seems very disingenuous to be jumping to the conclusion that this implied deal would’ve been worth anything at that point, let alone the $12 million that was conveniently added to their balance sheet in 4th quarter 2019.

Remember, Mr. Burns still has yet to secure the financing, so one could make the argument that this is the very definition of invented income…

Just an FYI: this was Workhorse’s balance sheet at the time of that ‘Trump Tweet” last year.

Now to be fair to President Trump, he was just reiterating a press release from General Motors at the time, so we can’t completely put the blame on him. Trump’s a busy man. Nevertheless, it still sent the share price flying 200% intraday, and for months the majority of retail investors believed Workhorse, and not Lordstown Motors, was buying the plant.

Also, don’t forget: Workhorse sports a hefty stockholders deficit, and all of their assets have been fully pledged to their creditors.

2019 Annual Report

Just for anybody who’s new to this story, Workhorse also burns through cash like butter — and usually on practically non-existent sales revenue..

Not even including both the shares issuable in connection with the convertible note and the VT Hackney shares; when you add up the warrants, incentive-based compensation shares, then multiply that total by today’s $15 share price , you still end up with a valuation of roughly $1.8 billion…(don’t quote me on that — close, though)

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We’re talking about a company that somehow managed to burn through $14 million in the 3rd quarter of 2019, then in the 4th, burn through another $11.5 million (convertible proceeds: $38,950,000 + the $4 million Surefly asset sale + Cash Q3 $9.2 million — (subtract) the $1 million V.T. Hackney “asset purchase” and $15.85 million Marathon repayment).

So to sum it all up..

-We’ve got a tooless shack with a mortgage that expires in a few months

-a contract worth up to (keyword) $105 million on the first 200 000 vehicles

-Massive dilution potential

-Stockholders deficit (meaning all of the assets will go to the lenders in the event of default)

-Company burns through cash like butter

-a just finished prototype (with “IP” that was allegedly stolen)


Crony capitalism at its worst, market manipulation at its best..

DISCLAIMER This is all my opinion, and I am not a financial adviser. You should consult a financial adviser before making any decision with regard to publicly traded securities. This company carries an extremely high degree of risk, and you should not use this information as the basis for an investment decision. . 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****

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