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AMPD > SEC Filings for AMPD > Form 10-K on 12-Apr-2013All Recent SEC Filings

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Form 10-K for AMP HOLDING INC.


12-Apr-2013

Annual Report


Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

Forward Looking Statements

Some of the statements contained in this Form 10-K that are not historical facts are "forward-looking statements" which can be identified by the use of terminology such as "estimates," "projects," "plans," "believes," "expects," "anticipates," "intends," or the negative or other variations, or by discussions of strategy that involve risks and uncertainties. We urge you to be cautious of the forward-looking statements, that such statements, which are contained in this Form 10-K, reflect our current beliefs with respect to future events and involve known and unknown risks, uncertainties and other factors affecting our operations, market growth, services, products and licenses. No assurances can be given regarding the achievement of future results, as actual results may differ materially as a result of the risks we face, and actual events may differ from the assumptions underlying the statements that have been made regarding anticipated events. Factors that may cause actual results, our performance or achievements, or industry results, to differ materially from those contemplated by such forward-looking statements include without limitation:

Our ability to attract and retain management
Our ability to raise capital when needed and on acceptable terms and conditions
The intensity of competition
General economic conditions
Changes in regulations
Whether the market for electric vehicles continues to grow, and, if it does, the pace at which it may grow
Our ability to compete against large competitors in a rapidly changing market for electric vehicles

All written and oral forward-looking statements made in connection with this Form 10-K that are attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. Given the uncertainties that surround such statements, you are cautioned not to place undue reliance on such forward-looking statements.

Our Plan of Operation should be read in conjunction with our financial statements included herein.

Overview

On December 28, 2009, AMP Holding Inc. entered into and closed a Share Exchange Agreement with the AMP shareholders pursuant to which we acquired 100% of the outstanding securities of AMP in exchange for 14,890,904 shares of our common stock. Considering that, following the merger, the AMP Shareholders control the majority of our outstanding voting common stock and we effectively succeeded our otherwise minimal operations to those that are theirs, 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 our net monetary assets, which are deminimus, accompanied by a recapitalization. Accordingly, we have not recognized any goodwill or other intangible assets in connection with this reverse merger transaction. AMP is the surviving and continuing entities and the historical financials following the reverse merger transaction will be those of AMP. We were a "shell company" (as such term is defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended) immediately prior to our acquisition of AMP pursuant to the terms of the Share Exchange Agreement. As a result of such acquisition, we were initially focused on developing automotive electric drive trains but have subsequently shifted our focus to the design, engineering, marketing and sale of both repowered and new class 3 through 6 commercial trucks with an all-electric drivetrain and battery system. Consequently, we believe that acquisition caused us to cease to be a shell company as we no longer have nominal operations. Since that time, we have devoted the majority of our 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, as a subsequent event, in February 2013 AMP Holding formed a new wholly owned subsidiary, AMP Trucks Inc., an Indiana corporation. On March 13, 2013 AMP Trucks Inc. closed on the acquisition of assets of Workhorse Custom Chassis LLC ("Workhorse"). The assets included in this transaction were: 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 (the "Workhorse Assets"). We believe this acquisition propels AMP Holding Inc. into the unique position as a medium duty OEM which we believe will be capable of producing new chassis with electric, propane, compressed natural gas, and hybrid configurations, as well as gasoline drive systems.

Results of Operations

Year Ended December 31, 2012 Compared to Year Ended December 31, 2011

Revenue. Revenue was $272,098 for the year ended December 31, 2012 and consisted of a limited number of converted experimental vehicles. Revenue was $190,035 for the year ended December 31, 2011 and consisted of a limited number of customer conversions.

Expenses. Our expenses for the year ended December 31, 2012 were $4,544,587 and included payroll and payroll taxes ($1,773,232), stock based compensation ($338,853), legal and professional ($709,883), advertising (429,483), and batteries, motors and supplies ($240,907). Our expenses for the year ended December 31, 2011 were $8,895,746 and included payroll and payroll taxes ($2,903,916), stock based compensation ($2,002,891), batteries, motors and supplies ($1,131,467), consulting ($759,791), and legal and professional ($546,866). The major reasons for the decrease in comparing the year ended 2012 to 2011 was a change in emphasis from automotive to truck development (battery, motors, and supply expense dropped by $890,560), a reduction in the number of employees (payroll and payroll taxes dropped by $1,130,684), and a decrease in stock based compensation (dropped by $1,664,038). These three items accounted for 85% of the $4,351,159 decrease in expense from 2011 to 2012.


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Net loss. Net loss for the years ended December 31, 2012 and 2011 were $4,272,489 and $8,705,711, respectively.

Liquidity and Capital Resources

As of December 31, 2012, we had current assets of $93,846 including cash of $39,819 and current liabilities of $2,438,540. As of December 31, 2011, we had current assets of $267,717 including cash of $89,488 and current liabilities of $1,936,648.

Operating Activities

Our operating activities from continuing operations resulted in net cash used by operations of $2,201,281 for the year ended December 31, 2012 compared to net cash used by operations of $5,878,893 for the year ended December 31, 2011. The net cash used by operations for the year ended December 31, 2012 reflects a net loss of $4,272,489 offset by the following items that reconcile net loss from operations to cash used by operations: stock based compensation of $338,853, amortized discount on convertible debentures of $91,493, depreciation of $63,629, loss on sale of assets of $14,454, interest expense of $106,164 on convertible debentures converted to common stock, and $773,000 of legal and professional services accepted as consideration for issuance of common stock. The net cash used by operations for the year ended December 31, 2012 was also impacted by the following changes in operating assets and liabilities: increases in accounts payable of $399,497, accounts payable, related parties of $124,916 and customer deposits of $35,000, and decreases in inventory of $80,998, prepaid expenses and deposits of $38,185, and accounts receivable of $5,019. The net cash used by operations for the year ended December 31, 2011 reflects a net loss of $8,705,711 offset by the following items that reconcile net loss from operations to cash used by operations: stock based compensation of $2,002,891, depreciation of $58,037, and loss on sale of assets of $7,644. The net cash used by operations for the year ended December 31, 2011 was also impacted by the following changes in operating assets and liabilities: increases in account payables of $915,945, inventory of $122,000, prepaid expenses and deposits of $41,355, and accounts payable, related parties of $5,026, and decreases in accounts receivable of $53,023 and customer deposits of $52,393.

Investing Activities

Our investing activities for the year ended December 31, 2012 resulted in net cash outflow of $22,753 including $28,753 for the acquisition of equipment offset by proceeds of $6,000 from the sale of equipment. Our investing activities for the year ended December 31, 2011 resulted in net cash outflow of $156,750 for the acquisition of prototype vehicles, equipment and software.

Financing Activities

Our financing activities resulted in a cash inflow of $2,174,365 for the year ended December 31, 2012 and included cash inflows from the issuance of convertible debentures of $1,939,250 and shareholder advances, net of repayments, of $246,000 and cash outflows for payments on long-term debt of $10,885. During December 2012 accounts payable of $513,636 were converted to notes payable. Our financing activities resulted in a cash inflow of $5,739,838 for the year ended December 31, 2011 and included cash inflows from the issuance of common stock of $5,427,016, shareholder advances, net of repayments, of $269,000 and proceeds from long-term debt of $50,000 and cash outflows for payments on long-term debt of $6,178. Equipment valued at $14,937 was acquired through debt financing in December 2011.

Presently, due to the lack of revenue we are not able to meet our operating and capital expenses. There is doubt about our ability to continue as a going concern, as the continuation of our business is dependent upon successful roll out of our products and maintaining a break even or profitable level of operations. We have incurred operating losses since inception, and this is likely to continue through the fiscal year ending December 31, 2013. Our independent auditors, for the year ended December 31, 2012, have issued an opinion on our financial statements that raise substantial doubt about our ability to continue as a going concern.

We require funds to enable us to address our minimum current and ongoing expenses, expand marketing and promotion activity connected with the development and marketing of our products and to generate market share. Our cash on hand will not be sufficient to satisfy all of our cash requirements as we continue to progress and expand. We estimate that we will require between $8,000,000 and $12,000,000 to carry out our business plan for the next twelve months. Because we cannot anticipate when we will be able to generate significant revenues from sales, we will need to raise additional funds to continue to finalize engineering design and validation, develop new business, respond to competitive pressures and to respond to unanticipated requirements or expenses. If we are not able to generate significant revenues from the sale of our products, we will not be able to maintain our operations or achieve a profitable level of operations.


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The financial requirements of our Company will be dependent upon the financial support through credit facilities and additional sales of our equity securities. The issuance of additional equity securities by us may result in a significant dilution in the equity interests of our current shareholders. Should additional financing be needed, there is no assurance that we will be able to obtain further funds required for our continued operations, or that additional financing will be available to us when needed, or if available, that it can be obtained on commercially reasonable terms. If we are not able to obtain the additional financing on a timely basis, we will not be able to meet our other obligations as they become due and we will be forced to scale down or perhaps even cease our operations.

We can give no assurance that we will be successful in implementing any phase, all phases of the proposed business plan, or that we will be able to continue as a going concern.

Credit Facility

Presently we have no revolving Credit Facility established. There is no guarantee that we will be able to enter into an agreement to establish a line of credit or that if we do enter into such agreement that it will be on favorable terms.

Off-Balance Sheet Arrangements

The Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company's financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

Federal Tax Credit Qualification by the IRS

The Company has been qualified by the IRS for a vehicle federal tax credit of up to $7,500. The Company joins a list of plug-in electric drive motor vehicle manufacturers, including Ford Motor Company, General Motors Corporation, Tesla, Toyota, and 13 EV manufacturers in all, qualifying purchasers for up to a $7,500 tax credit when purchasing an electric vehicle.

Additionally, many states offer additional sales tax exemptions and zero emission tax credits of up to $5,000 that can also be applied to the purchase.

California Air Resources Board Approval

On February 20, 2013 the California Air Resource Board (CARB) approved the medium to heavy duty AMP commercial truck for sale in the state of California. Most other states use this approval for sale of vehicles in their state.

Critical Accounting Policies and Estimates

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

Nature of operations

A development stage company, AMP is a technology-driven business that that plans to deliver a full-performance, all electric, powertrain for medium duty commercial vehicles. Operating with three specific approaches, AMP converts existing internal combustion engine based vehicles to all electric powertrains, provides original equipment manufacturers (OEM's) with AMP designed and integrated modular electric components, and provides electric powertrain engineering to end-users. AMP has not recorded significant revenue since inception in February 2007, and is developing its operations through a sale, design and manufacturing facility located near Cincinnati, Ohio.

Use of estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.

Property and depreciation

Property and equipment is recorded at cost. Depreciation is provided on the straight-line and accelerated methods over the estimated useful lives of the respective assets.

Advertising

Advertising and public relation costs are charged to operations when incurred. Advertising and public relation expense was approximately $429,000 and $294,000 for the years ended December 31, 2012 and 2011, respectively, and $1,266,000 for the period from inception to December 31, 2012.


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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 December 31, 2012 cumulative deferred tax assets of approximately $4,828,000 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 $3,600,000 are available for carryover to be used against taxable income generated through 2030, net operating losses of approximately $6,700,000 are available for carryover to be used against taxable income generated through 2031, and net operating losses of approximately $3,900,000 are available for carryover to be used against taxable income generated through 2032. The Company had not filed income tax returns during its period as a shell company.

Research and development costs

Research and development costs are expensed as they are incurred. Research and development expense incurred was approximately $2,077,000 and $4,835,000 for the years ended December 31, 2012 and 2011, respectively, and $11,691,000 for the period from inception to December 31, 2012 consisting of consulting, payroll and payroll taxes, engineering temporaries, purchased supplies, legal fees, parts and small tools.

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