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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2023

OR

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: 001-38821

Lordstown Motors Corp.

(Exact name of registrant as specified in its charter)

Delaware
(State or Other Jurisdiction of
Incorporation or Organization)

83-2533239
(I.R.S. Employer
Identification No.)

2300 Hallock Young Road
Lordstown, Ohio 44481
(Address of principal executive offices)

Registrant’s telephone number, including area code: (234285-4001

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

    

Trading symbol

    

Name of each exchange on which registered

Class A Common Stock, $0.0001 Par Value

RIDEQ

*

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 No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes  No 

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

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   

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

As of August 10, 2023, 15,953,212 shares of the registrant’s Class A common stock were outstanding.

* The registrant’s Class A common stock began trading exclusively on the over-the-counter market on July 7, 2023 under the symbol “RIDEQ.” The NASDAQ Global Select Market filed a Form 25 with the Securities and Exchange Commission on July 27, 2023 to remove the registrant’s Class A common stock from listing and registration on the NASDAQ Global Select Market. Delisting became effective ten days thereafter and deregistration under Section 12(b) of the Act will become effective 90 days later.

Table of Contents

LORDSTOWN MOTORS CORP.

Debtor-in-Possession

INDEX

June 30, 2023

    

    

PAGE
NUMBER

 

PART I FINANCIAL INFORMATION

Item 1.

Financial Statements (Unaudited)

6

Condensed Consolidated Balance Sheets as of June 30, 2023 and December 31, 2022

6

Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2023 and 2022

7

Condensed Consolidated Statements of Stockholders’ Equity/(Deficit) for the three and six months ended June 30, 2023 and 2022

8

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2023 and 2022

9

Notes to Condensed Consolidated Financial Statements

10

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

35

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

44

Item 4.

Controls and Procedures

44

PART II OTHER INFORMATION

  

Item 1.

Legal Proceedings

45

Item 1A.

Risk Factors

45

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

52

Item 5.

Other Information

52

Item 6.

Exhibits

53

2

Table of Contents

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report, including, without limitation, statements under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements can be identified by the use of forward-looking terminology, including the words “believes,” “estimates,” “anticipates,” “expects,” “intends,” “plans,” “may,” “will,” “potential,” “projects,” “predicts,” “continue,” “could” or “should,” or, in each case, their negative or other variations or comparable terminology, although not all forward-looking statements are accompanied by such terms. There can be no assurance that actual results will not materially differ from expectations. Such statements include, but are not limited to, any statements regarding our intentions, beliefs or current expectations concerning, among other things, our results of operations, financial condition, liquidity, financial or operational prospects, strategies and the effects of our filing of voluntary petitions under chapter 11 of the United States Bankruptcy Code (“Chapter 11”) and any other statements that are not statements of current or historical facts.

By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. Although we base these forward-looking statements on assumptions that we believe are reasonable when made, we caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity may differ materially from those made in or suggested by the forward-looking statements contained in this report. In addition, even if our results of operations, financial condition and liquidity are consistent with the forward-looking statements contained in this report, those results or developments may not be indicative of results or developments in subsequent periods. These statements are based on management’s current expectations, but actual results may differ materially due to various factors, including, but not limited to those described in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the Securities and Exchange Commission (the “SEC”) on March 6, 2023 (the “Form 10-K”), and in subsequent reports that we file with the SEC, including this Form 10-Q for the quarter ended June 30, 2023, as well as the following:

our ability to successfully complete the Chapter 11 Cases (as defined below), including our ability to successfully market and sell all, substantially all or some of our assets, to successfully resolve litigation and other claims that may be filed against us, and to develop, negotiate, confirm and consummate a Chapter 11 plan (a “Plan”);
our ability to obtain timely approval of the Bankruptcy Court (as defined below) with respect to our motions filed in the Chapter 11 Cases;
the adverse impact of the Chapter 11 Cases on our business, financial condition and results of operations, including due to significantly increased professional and other costs and the length of time that we will operate under Chapter 11 protection, a substantial reduction in our workforce and the claims that may be brought against the Company or our officers;
the impact of the Foxconn Litigation (as defined below), the SEC investigation and any other pending or future litigation or claims asserted with respect to the Company (including the Karma Action (as defined below)), and possible claims by suppliers for our inability to meet obligations to them, the availability of insurance coverage with respect to such litigation or claims, adverse publicity with respect to these matters, as well as the significant ongoing costs associated with such litigation (see Note 7 – Commitments and Contingencies and Note 9 – Subsequent Events);
the outcome of our efforts to market and sell our assets in connection with the Chapter 11 Cases and ability to realize value for such assets, including in light of the claims in the Karma action that certain assets were misappropriated by the Company and the accounting principles and estimates applied to value our assets for financial reporting purposes resulting in significant impairments and reserves that may not bear any relationship to their actual market value;
our ability to retain key employees, and the costs associated therewith, to facilitate the Chapter 11 Cases, and the impact of the loss of employees on our prospects for realizing any value from any sale of our assets;

3

Table of Contents

the adverse impact of ceasing production and sales of the Endurance and developing other vehicles and lack of ongoing meaningful revenue;
the adverse impact of the Company’s limited ability to continue to service the vehicles we have sold and the likelihood that we will not be able to sell any additional vehicles and may not recover value for the vehicles that we have sold;
risks regarding our limited liquidity and unlikely access to financing as we continue to incur significant costs during and in connection with the Chapter 11 Cases, have significant known and contingent liabilities and claims for which we will continue to incur legal costs and may be subject to significant uninsured losses, face uncertainty as to the ability to realize value through the sale of our assets and litigation claims, and other claims that may be filed against us, lack any meaningful revenue stream and do not expect an ongoing business following the Chapter 11 Cases;
risks related to the substantial costs and diversion of our personnel’s attention and resources due to the Chapter 11 Cases, our efforts to market and sell assets, litigation matters and other claims;
the impact of the delisting of our Class A common stock on the liquidity and trading price of our Class A common stock;
our ability to utilize, and any benefit to us from, our net operating losses, which is likely to be limited;
our ability to comply with terms and conditions of any financing, even if obtained;
our ability to maintain our relationships with our suppliers, vendors, customers and other third parties, including those suppliers providing services that are integral to maintaining our financial, information technology and other systems used to operate our business;
our suppliers’ and vendors’ likely unwillingness or ability to fulfill any obligations they may have under supply terms or agreements for ongoing support, including their warranty obligations to us, as a result of the Chapter 11 Cases or other disputes, that would cause us to incur substantial costs or liabilities, damage our reputation with our customers or potential acquirers of our assets, all of which would have a material adverse impact on the Company;
our ability to maintain adequate financial, information technology and management processes, controls and procedures, particularly in light of the substantial reduction in personnel in connection with the lack of support from Foxconn and the Chapter 11 Cases and the risk of further attrition;
potential changes to the amount, composition and value of our assets and liabilities depending on the outcome of the Chapter 11 Cases and the litigation and other claims asserted by or against the Company, including the claims asserted in the Karma Action;
the description of our operations, assets, liabilities, contingencies, liquidity and capital resources included in this report or in any filing we make with the Bankruptcy Court may not accurately reflect such matters during the pendency of or following the Chapter 11 Cases, or the actual market value of our assets in a sale process in light of the accounting principles and estimates applied compared to the results of an organized marketing process, which could result in a higher or lower value;
the fact that the periodic financial information we report to the Bankruptcy Court is not presented in accordance with GAAP and may differ materially from information that has been or may in the future be provided in our periodic SEC filings and may reflect estimates based on assumptions that may change significantly during the course of the Chapter 11 Cases or due to other contingencies;
the actions and decisions of our stakeholders and other third parties who have interests in our Chapter 11 Cases that may be inconsistent with our operational and strategic plans and adversely impact the Chapter 11 Cases or our ability to realize value from any of our assets; and
the costs associated with complying with our warranty obligations for vehicles sold to customers may be significant, and may necessitate we repurchase the vehicles and or refund the purchase price paid.

There can be no guarantees regarding the liabilities for which the Company will be responsible, that we will be able to sell some or all of our assets in an orderly fashion, that we will otherwise realize any significant value for our assets or our damages through the Foxconn Litigation, that we will be able to successfully complete our Chapter 11 Cases, or that our creditors or stockholders will receive any recovery from the bankruptcy proceedings. Trading prices for our securities may bear little or no relationship to the actual recovery, if any, by holders of our securities in bankruptcy proceedings.

4

Table of Contents

In light of these risks and uncertainties, we caution you not to place undue reliance on these forward-looking statements and the periodic financial information reported to the Bankruptcy Court (which are also subject to the qualifications provided with respect thereto). Any forward-looking statement that we make in this report speaks only as of the date of such statement, and we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws. Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, particularly due to the fact that the Chapter 11 Cases were initiated near the end of the reporting period and have resulted in material changes in the nature of the Company’s operations and cost structure after the reporting period discussed herein, and, unless specifically expressed as such, and should only be viewed as historical data.

Unless the context indicates otherwise, references in this report to the “Company,” “Lordstown,” “we,” “us,” “our” and similar terms refer to Lordstown Motors Corp. (f/k/a DiamondPeak Holdings Corp.) and its consolidated subsidiaries (including Legacy Lordstown (as defined below)). References to “DiamondPeak” refer to our predecessor company prior to the consummation of merger completed on October 23, 2020 pursuant to the Agreement and Plan of Merger, dated as of August 1, 2020 (the “Business Combination Agreement”), by and among DiamondPeak, DPL Merger Sub Corp. (“Merger Sub”) and Lordstown Motors Corp. (“Legacy Lordstown” and now known as Lordstown EV Corporation (as defined below)), pursuant to which Merger Sub merged with and into Legacy Lordstown, with Legacy Lordstown surviving the merger as a wholly-owned subsidiary of DiamondPeak (the “Merger” and, together with the other transactions contemplated by the Business Combination Agreement, the “Business Combination”).

Unless the context indicates otherwise, all shares of the Company’s Class A common stock are presented after giving effect to the 1:15 reverse stock split of the outstanding Class A common stock, which became effective as of 12:01 a.m. Eastern Time on May 24, 2023.

5

Table of Contents

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements

Lordstown Motors Corp.

Debtor-In Possession

Balance Sheets

(in thousands except for share data)

(Unaudited)

June 30, 2023

December 31, 2022

ASSETS:

  

  

Current Assets

 

  

 

  

Cash and cash equivalents

$

115,732

$

121,358

Short-term investments

22,000

100,297

Inventory, net

13,672

Prepaid expenses and other current assets

 

16,697

 

20,548

Total current assets

$

154,429

$

255,875

Property, plant and equipment, net

 

 

193,780

Assets held for sale

 

6,882

 

Other non-current assets

1,783

2,657

Total Assets

$

163,094

$

452,312

LIABILITIES AND STOCKHOLDERS’ EQUITY:

 

  

 

  

Current Liabilities

 

  

 

  

Accounts payable

$

3,507

$

12,801

Accrued expenses and other current liabilities

 

13,358

 

56,033

Total current liabilities

$

16,865

$

68,834

Liabilities subject to compromise

84,995

Warrant and other non-current liabilities

779

1,446

Total liabilities

$

102,639

$

70,280

Mezzanine equity

Series A Convertible Preferred stock, $0.0001 par value, 12,000,000 shares authorized; 300,000 shares issued and outstanding as of June 30, 2023 and December 31, 2022

$

31,484

$

30,261

Stockholders’ equity

 

  

 

  

Class A common stock, $0.0001 par value, 450,000,000 shares authorized; 15,953,212 and 15,928,299, as adjusted reflecting the May 2023 1:15 reverse stock split, shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively

$

24

$

24

Additional paid in capital

 

1,182,370

 

1,178,960

Accumulated deficit

 

(1,153,423)

 

(827,213)

Total stockholders’ equity

$

28,971

$

351,771

Total liabilities and stockholders’ equity

$

163,094

$

452,312

See Notes to Condensed Consolidated Financial Statements

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Lordstown Motors Corp.

Debtor-In Possession

Statements of Operations

(in thousands except for per share data)

(unaudited)

Three months ended

Three months ended

   

Six months ended

   

Six months ended

  

June 30, 2023

   

June 30, 2022

June 30, 2023

June 30, 2022

Net sales

$

2,151

$

$

2,340

$

Cost of sales

 

60,739

 

 

91,550

Operating Expenses

Selling, general and administrative expenses

 

57,688

29,941

 

72,375

 

55,960

Research and development expenses

 

12,303

10,510

 

26,728

 

72,374

Impairment of property plant & equipment and intangibles

25,041

139,481

Total operating expenses

$

95,032

$

40,451

$

238,584

$

128,334

Loss from operations

 

(153,620)

(40,451)

$

(327,794)

$

(128,334)

Other income (expense)

 

  

 

  

 

  

 

(Loss) gain on sale of assets

(2,609)

101,736

(2,609)

101,736

Other income

 

93

1,991

 

157

 

499

Investment and interest income

 

1,645

383

 

4,036

 

125

Loss before income taxes

$

(154,491)

$

63,659

$

(326,210)

$

(25,974)

Income tax expense

 

 

 

 

Net loss

(154,491)

63,659

(326,210)

(25,974)

Less preferred stock dividend

(618)

(1,223)

Net loss attributable to common shareholders

$

(153,873)

$

63,659

$

(324,987)

$

(25,974)

Net loss per share attributable to common shareholders

 

  

 

  

 

  

 

  

Basic

(9.69)

4.75

$

(20.39)

$

(1.96)

Diluted

(9.69)

4.75

(20.47)

(1.96)

Weighted-average number of common shares outstanding

 

  

 

  

 

  

    

 

  

Basic

 

15,940

13,388

 

15,936

    

 

13,245

Diluted

15,940

13,401

15,936

13,245

See Notes to Condensed Consolidated Financial Statements

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Lordstown Motors Corp.

Debtor-In Possession

Statements of Stockholders’ Equity/(Deficit)

(in thousands)

(Common Stock adjusted to reflect May 2023 reverse stock split)

(unaudited)

Three Months Ended June 30, 2023

Additional

Total

Preferred Stock

Common Stock

Paid-In

Accumulated

Stockholders’

   

Shares

   

Amount

   

Shares

   

Amount

   

Capital

   

Deficit

   

Deficit

Balance at March 31, 2023

 

300

30,866

15,935

$

24

$

1,180,723

$

(998,932)

$

181,815

Issuance of common stock

 

 

 

 

RSU Vesting

18

(20)

(20)

Stock compensation

 

 

2,284

 

 

2,284

Accrual of Series A Convertible Preferred Stock dividends

618

(617)

(617)

Net income

 

 

 

(154,491)

 

(154,491)

Balance at June 30, 2023

 

300

$

31,484

15,953

$

24

$

1,182,370

$

(1,153,423)

$

28,971

Three Months Ended June 30, 2022

Additional

Total

Preferred Stock

Common Stock

Paid-In

Accumulated

Stockholders’

   

Shares

   

Amount

   

Shares

   

Amount

   

Capital

   

Deficit

   

Equity

Balance at March 31, 2022

13,132

$

20

1,088,925

$

(634,442)

$

454,503

Issuance of common stock

 

43

 

1,237

 

1,237

RSU Vesting

113

Common stock issued to YA

437

1

13,733

13,734

Stock compensation

 

2,626

 

2,626

Net loss

 

63,659

 

63,659

Balance at June 30, 2022

13,725

$

21

$

1,106,521

$

(570,783)

$

535,759

Six Months Ended June 30, 2023

Additional

Total

Preferred Stock

Common Stock

Paid-In

Accumulated

Stockholders’

   

Shares

   

Amount

   

Shares

   

Amount

   

Capital

   

Deficit

   

Equity

Balance at December 31, 2022

300

$

30,261

15,928

$

24

$

1,178,960

$

(827,213)

$

351,771

Issuance of Class A common stock

 

 

 

 

 

RSU vesting

25

(65)

(65)

Stock compensation

4,698

4,698

Accrual of Series A Convertible Preferred Stock dividends

1,223

(1,223)

(1,223)

Net loss

 

 

 

 

(326,210)

 

(326,210)

Balance at June 30, 2023

300

$

31,484

15,953

$

24

$

1,182,370

$

(1,153,423)

$

28,971

Six Months Ended June 30, 2022

Additional

Total

Preferred Stock

Common Stock

Paid-In

Accumulated

Stockholders’

   

Shares

   

Amount

   

Shares

   

Amount

   

Capital

   

Deficit

   

Deficit

Balance at December 31, 2021

$

13,093

$

19

$

1,084,390

$

(544,809)

$

539,600

Issuance of Class A common stock

 

74

1

1,852

1,853

RSU vesting

121

Common stock issued to YA

437

1

13,733

13,734

Stock compensation

 

6,546

6,546

Net loss

 

(25,974)

(25,974)

Balance at June 30, 2022

$

13,725

$

21

$

1,106,521

$

(570,783)

$

535,759

See Notes to Condensed Consolidated Financial Statements

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Lordstown Motors Corp.

Debtor-In Possession

Statements of Cash Flows

(in thousands)

(unaudited)

Six months ended

Six months ended

June 30, 2023

  

June 30, 2022

Cash flows from operating activities

 

 

  

Net loss

$

(326,210)

$

(25,974)

Adjustments to reconcile net loss to cash used by operating activities:

 

 

  

Stock-based compensation

 

4,698

 

6,546

(Loss) gain on disposal of fixed assets

 

2,609

 

(101,736)

Impairment of property plant and equipment and intangible assets

139,481

Depreciation of property plant and equipment

54,308

Write down of inventory and prepaid inventory

24,105

Other non-cash changes

(1,761)

9,123

Changes in assets and liabilities:

Inventory

(10,537)

(13,413)

Prepaid expenses and other assets

4,596

5,301

Accounts payable

(5,997)

1,197

Accrued expenses and other liabilities

 

39,016

 

(2,471)

Net Cash used in operating activities

$

(75,692)

$

(121,427)

Cash flows from investing activities

  

  

Purchases of property plant and equipment

$

(10,188)

$

(40,043)

Purchases of short-term investments

(32,147)

Maturities of short-term investments

112,203

Investment in Foxconn Joint Venture

(13,500)

Proceeds from the sale of capital assets

198

37,553

Net Cash provided by (used in) investing activities

$

70,066

$

(15,990)

Cash flows from financing activities

  

  

Proceeds from notes payable for Foxconn Joint Venture

$

$

13,500

Down payments received from Foxconn

100,000

Issuance of Class A common stock

1,853

Proceeds from Equity Purchase Agreement, net of issuance costs

13,734

Net Cash provided by financing activities

$

$

129,087

Decrease in cash and cash equivalents

$

(5,626)

$

(8,330)

Cash and cash equivalents, beginning balance

 

121,358

 

244,016

Cash and cash equivalents, ending balance

$

115,732

$

235,686

Non-cash items

Capital assets acquired with payables

$

321

$

1,846

See Notes to Condensed Consolidated Financial Statements

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LORDSTOWN MOTORS CORP

Debtor-In Possession

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 1 — DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS

Description of Business

Lordstown Motors Corp., a Delaware corporation (“Lordstown,” the “Company” or “we”), is an original equipment manufacturer (“OEM”) of electric light duty vehicles focused on the commercial fleet market. Since inception, we have been developing our flagship vehicle, the Endurance, an electric full-size pickup truck.

Our strategy was designed to accelerate the launch of new commercial electric vehicles (“EVs”). This included working on our own vehicle programs as well as partnering with third parties, including Foxconn and its affiliates (as defined below), as we sought to leverage our vehicle development experience, our proprietary and open-source code and other non-proprietary technologies, our existing Endurance vehicle platform, and potential new vehicle platforms to drive commonality and scale, and more efficiently develop and launch EVs, to enhance capital efficiency and achieve profitability.

In the third quarter of 2022, the Company started commercial production of the Endurance with the first two vehicles completing assembly in September. The Company subsequently completed homologation and testing and received required certifications enabling us to record sales of the first three vehicles in the fourth quarter of 2022. Engineering readiness, quality and part availability governed the initial timing and speed of the Endurance launch. The rate of Endurance production remained very low as we addressed launch and supplier quality related issues until June 30, 2023 when management made the decision to cease production. During the second quarter of 2023, we delivered 33 Endurance trucks to customers as we continued to evaluate the merits of producing and selling vehicles to customers in order to seed the commercial fleet market, demonstrate the capabilities of the Endurance, and support our OEM partnership pursuits.

Leading up to filing the Chapter 11 Cases (as further discussed below), it became apparent that we would be unable to effectively implement and realize the anticipated benefits of the Foxconn Transactions (as defined below) as Foxconn continued to shift its approach to the nature of the partnership and the product, failed to meet funding commitments and refused to engage with the Company on various initiatives contemplated by the Foxconn Transactions that were essential to sustain ongoing operations. Due to the failure to identify a strategic partner for the Endurance, lack of expected funding and other support from Foxconn (as discussed in more detail below) and extremely limited ability to raise sufficient capital in the current market environment, we determined it was in the best interests of the Company’s stakeholders to take aggressive actions to cut costs and preserve cash, file the Chapter 11 Cases and cease production of the Endurance and new program development. As part of these actions, two notices were provided to a substantial number of employees under the Worker Adjustment and Retraining Notification Act (“WARN Act”) in May 2023, for job eliminations to occur in July 2023. Therefore, this reduction in costs occurred after the end of the second quarter of 2023.

Foxconn Transactions

The Company entered into a series of transactions with affiliates of Hon Hai Technology Group (“HHTG”, either HHTG or applicable affiliates of HHTG are referred to herein as “Foxconn”), beginning with the Agreement in Principal that was announced on September 30, 2021, pursuant to which we entered into definitive agreements to sell our manufacturing facility in Lordstown, Ohio under an Asset Purchase Agreement (as defined below) and outsource manufacturing of the Endurance to Foxconn under a Contract Manufacturing Agreement (as defined below). On November 7, 2022, we entered into an Investment Agreement with Foxconn under which Foxconn agreed to make an additional equity investment in the Company (the “Investment Agreement”). The Asset Purchase Agreement, Contract Manufacturing Agreement and the Investment Agreement together are herein referred to as the “Foxconn Transactions.”

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Investment Agreement

Under the Investment Agreement, Foxconn agreed to make additional equity investments in the Company through the purchase of $70 million of Class A common stock, $0.0001 par value per share (“Class A common stock”), and up to $100 million in Series A Convertible Preferred Stock, $0.0001 par value per share (the “Preferred Stock”), subject to certain conditions, including, without limitation, regulatory approvals and satisfaction of certain EV Program (as defined herein) budget and EV Program milestones established by the parties. The Preferred Stock funding could only be used in connection with planning, designing, developing, engineering, testing, industrializing, certifying, homologating and launching one or more EVs in collaboration with Foxconn (the “EV Program”).

On November 22, 2022, the parties completed the initial closing under the Investment Agreement, pursuant to which Foxconn purchased approximately $22.7 million of Class A common stock and $30 million of Preferred Stock (the “Initial Closing”).

The Investment Agreement provided for the second closing of Class A common stock (the “Subsequent Common Closing”), at which time Foxconn was required to purchase approximately 10% of the Class A common stock for approximately $47.3 million. The Subsequent Common Closing was to occur within 10 business days following the parties’ receipt of a written communication from the U.S. government’s Committee on Foreign Investment in the United States (“CFIUS”) that CFIUS has concluded that there are no unresolved national security concerns with respect to the transactions (“CFIUS Clearance”) and subject to satisfaction of the other conditions set forth in the Investment Agreement (which the Company believes were or would have been satisfied). CFIUS Clearance was received on April 25, 2023, which means the Subsequent Common Closing was to occur on or before May 8, 2023. The Company was ready, willing and able to complete the Subsequent Common Closing on a timely basis.

In addition, following the parties’ agreement to the EV Program budget and the EV Program milestones and satisfaction of those EV Program milestones and other conditions set forth in the Investment Agreement, Foxconn was to purchase in two tranches, a total of 0.7 million additional shares of Preferred Stock at a purchase price of $100 per share for aggregate proceeds of $70 million (the “Subsequent Preferred Funding”). The parties agreed to use commercially reasonable efforts to agree upon the EV Program budget and EV Program milestones no later than May 7, 2023.

The completion of the Subsequent Common Closing and the Subsequent Preferred Funding would have provided critical liquidity for the Company’s operations. Since April 21, 2023, Foxconn has disputed its obligations under the Investment Agreement to consummate the Subsequent Common Closing and to use necessary efforts to agree upon the EV Program budget and EV Program milestones to facilitate the Subsequent Preferred Funding. Foxconn initially asserted that the Company was in breach of the Investment Agreement due to the Company’s previously disclosed receipt of a notice (the “Nasdaq Notice”) from the Listing Qualifications Department of The Nasdaq Stock Market LLC (“Nasdaq”), which Nasdaq Notice indicated that the Company’s Class A common stock price dropped below the $1.00 per share threshold set forth in Nasdaq Listing Rule 5450(a)(1) (the “Bid Price Requirement”) and that the Company had a 180-day period to remedy the drop in the stock price. As previously disclosed, Foxconn purported to terminate the Investment Agreement if that purported breach was not cured within 30 days.

The Company continues to believe that the breach allegations by Foxconn are without merit, and that Foxconn was obligated to complete the Subsequent Common Closing on or before May 8, 2023. Despite the Company taking action to satisfy the Bid Price Requirement as of June 7, 2023, and discussions between the parties to seek a resolution regarding the Investment Agreement, Foxconn did not proceed with the Subsequent Common Closing or any Subsequent Preferred Funding. As a result of Foxconn’s actions, the Company has been deprived of critical funding necessary for its operations. To seek relief for Foxconn’s contractual breaches and other fraudulent and tortious conduct the Company believes were committed by Foxconn, the Company commenced the Foxconn Litigation.

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Closing of the APA with Foxconn

On May 11, 2022, Lordstown EV Corporation, a Delaware corporation and wholly-owned subsidiary of the Company (“Lordstown EV”), closed the transactions contemplated by the asset purchase agreement with Foxconn EV Technology, Inc., an Ohio corporation, and an affiliate of HHTG, dated November 10, 2021 (the “Asset Purchase Agreement” or “APA” and the closing of the transactions contemplated thereby, the “APA Closing”).

Pursuant to the APA, Foxconn purchased Lordstown EV’s manufacturing facility located in Lordstown, Ohio. Lordstown EV continues to own our hub motor assembly line, as well as our battery module and pack line assets, certain tooling, intellectual property rights and other excluded assets, and outsources all of the manufacturing of the Endurance to Foxconn under the Contract Manufacturing Agreement. Lordstown EV also entered into a lease pursuant to which Lordstown EV leases space located at the Lordstown, Ohio facility from Foxconn for Lordstown EV’s Ohio-based employees for a term equal to the duration of the Contract Manufacturing Agreement plus 30 days. The right of use asset and liability related to this lease is immaterial.

We received $257 million in proceeds related to the sale, consisting of the $230 million initial purchase price for the assets, plus $8.9 million for expansion investments and an $18.4 million reimbursement payment for certain operating costs incurred by us from September 1, 2021 through the APA Closing. Foxconn made down payments of the purchase price totaling $200 million through April 15, 2022, of which $100 million was received in both 2022 and 2021. The $30 million balance of the purchase price and a reimbursement payment of approximately $27.5 million were paid at the APA Closing; $17.5 million was attributable to the reimbursement of certain operating expenses reported in research and development and $10 million was attributable to expansion costs. Under the terms of the APA, the $17.5 million reimbursement costs were an estimate which upon final settlement was subsequently increased to $18.4 million.

Research and development costs are presented net of the $18.4 million reimbursement of costs by Foxconn for the year ended December 31, 2022. Included in the $18.4 million reimbursement were approximately $7.7 million of research and development costs incurred in 2021. Also, in connection with the APA Closing, the Company issued the Foxconn Warrants (as defined herein), which are exercisable until the third anniversary of the APA Closing for 0.13 million shares of Class A common stock at an exercise price of $157.50 per share (the “Foxconn Warrants”). In October 2021, prior to entering into the APA, Foxconn purchased 0.48 million shares of the Company’s Class A common stock for approximately $50.0 million.

Contract Manufacturing Agreement

On May 11, 2022, Lordstown EV and Foxconn entered into a manufacturing supply agreement (the “Contract Manufacturing Agreement” or “CMA”) in connection with the APA Closing. Pursuant to the Contract Manufacturing Agreement, Foxconn was to (i) manufacture the Endurance at the Lordstown facility for a fee per vehicle, (ii) following a transition period, procure components for the manufacture and assembly of the Endurance, subject to sourcing specifications provided by Lordstown EV, and (iii) provide certain post-delivery services. To date, Foxconn has not provided the aforementioned procurement and post delivery services. The CMA provided us with an almost entirely variable manufacturing cost structure and alleviated the burden to invest in and maintain the Lordstown facility.

The CMA required Foxconn to use commercially reasonable efforts to assist with reducing component and logistics costs and reducing the overall bill of materials (“BOM”) cost of the Endurance, and otherwise improving the commercial terms of procurement with suppliers. However, we did not realize any material reduction of raw material or component costs or improvement in commercial terms based on Foxconn’s actions. Foxconn was required to conduct testing in accordance with procedures established by us and we are generally responsible for all motor vehicle regulatory compliance and reporting. The Contract Manufacturing Agreement also allocates responsibility between the parties for other matters, including component defects, quality assurance and warranties of manufacturing and design. Foxconn invoiced us for manufacturing costs on a fee per vehicle produced basis, and to the extent purchased by Foxconn,

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component and other costs. Production volume and scheduling were based upon rolling weekly forecasts we provided that were generally binding only for a 12-week period, with some ability to vary the quantities of vehicle type.

The CMA became effective on May 11, 2022 and continues for an initial term of 18 months plus a 12-month notice period in the event either party seeks to terminate the agreement. In the event neither party terminates the Contract Manufacturing Agreement following the initial term, it will continue on a month-to-month basis unless terminated upon 12 months’ prior notice. The CMA can also be terminated by either party due to a material breach of the agreement and terminates immediately upon the occurrence of any bankruptcy event.

Voluntary Chapter 11 Petition

On June 27, 2023, the Company and its subsidiaries (the “Debtors”) filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”). The Chapter 11 cases are being jointly administered under the caption In re: Lordstown Motors Corp., et al., Cases No. 23-10831 through 23-10833 (the “Chapter 11 Cases”). Additional information about the Chapter 11 Cases, including access to documents filed with the Bankruptcy Court, is available online at https://www.kccllc.net/lordstown/document/list, a website administered by Kurtzman Carson Consultants LLC ("KCC"), a third-party bankruptcy claims and noticing agent. The information on this website is not incorporated by reference and does not constitute part of this Form 10-Q.

The Bankruptcy Court has approved certain motions filed by the Debtors that were designed primarily to mitigate the impact of the Chapter 11 Cases on the Company’s remaining operations, customers and employees. The Debtors are authorized to conduct their business activities in the ordinary course, and pursuant to orders entered by the Bankruptcy Court, the Debtors are authorized to, among other things and subject to the terms and conditions of such orders: (i) pay employees’ wages and related obligations; (ii) pay certain taxes; (iii) pay critical vendors; (iv) continue to honor certain customer obligations; (v) maintain their insurance program; (vi) continue their cash management system and (v) establish certain procedures to protect any potential value of the Company’s net operating loss carryforwards and other tax attributes (the “NOLs”). Shortly after filing the Chapter 11 Cases, the Company ceased production of the Endurance and new program development and, accordingly, the Company has no meaningful ongoing revenue stream.

As part of the Chapter 11 Cases, on August 8, 2023, the Bankruptcy Court approved procedures for the Debtors to conduct a comprehensive marketing and sale process for all, substantially all or some of their assets in order to maximize the value of those assets. The Debtors’ investment banker, Jefferies LLC, has reached out to a wide range of potential buyers. The Debtors have received a number of non-binding indications of interest. The procedures approved by the Bankruptcy Court provide that August 24, 2023 is the deadline by which the Company may select and file with the Bankruptcy Court one or more stalking horses with respect to their assets. The deadline to submit bids is September 8, 2023 and the auction, if any, is scheduled for September 19, 2023. Each of these dates is subject to change and the sale process may be cancelled in accordance with the procedures approved by the Bankruptcy Court. The Company can provide no assurance that any sale of assets (whether in whole or in part) will be consummated or what the proceeds or other terms of any such transaction may be. Further, the assets included in this report or in any filing we make with the Bankruptcy Court may not reflect the fair values thereof during the pendency of or following the Chapter 11 Cases or the value of our assets in an organized sale process in light of the uncertainty of the estimates and assumptions used in the applicable reporting principles, and such values may be higher or lower as a result.

The Company also intends to use the tools of Chapter 11 to fully, finally, and efficiently resolve its contingent and other liabilities and to pursue the Foxconn Litigation before the Bankruptcy Court. However, the Company provides no assurance as to the timing or outcome of the resolution of these matters by the Bankruptcy Court or any other court in which these matters may be adjudicated, including as a result of the proceedings that will occur outside of the Bankruptcy Court prior to a final disposition by the Bankruptcy

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Court, including the Karma Action. In addition, the Bankruptcy Court has not established a deadline by which parties are required to file proofs of claim in the Chapter 11 Cases. The Company cannot provide any assurances regarding when such deadline will be, the amount or nature of the claims that may be filed by such deadline, or what the Company’s total estimated liabilities based on such claims will be.

On July 31, 2023, the Bankruptcy Court granted Karma (defined below) relief from the automatic stay imposed by the commencement of the Chapter 11 Cases and to allow the multi-week trial in the Karma Action scheduled in September 2023 to continue. The Company is continuing to vigorously defend against Karma’s claims and continues to believe that there are strong defenses to the claims and damages demanded. However, the outcome of the Karma Action is subject to uncertainties inherent in the litigation process and no assurances can be given regarding the outcome of the trial or the impact of the Karma Action on the Company, including with respect to the amount of any claim that Karma may have against the Company and the Company’s ability to sell assets that Karma contends were misappropriated by the Company or that incorporate trade secrets or property that Karma claims were misappropriated by the Company. See Note 7 – Commitments and Contingencies and Note 9 – Subsequent Events.

On July 20, 2023, Hon Hai Precision Industry Co., Ltd. (a/k/a Hon Hai Technology Group), Foxconn EV Technology, Inc., and Foxconn EV System LLC filed a motion to dismiss the Chapter 11 Cases or to convert the cases under Chapter 7 of the Bankruptcy Code (the “Foxconn Motion to Dismiss”). The movants allege that the Debtors filed the Chapter 11 Cases in bad faith, that the Debtors do not have a reasonable likelihood of rehabilitation, and that dismissal or conversion would benefit the Debtors’ creditors. The Debtors believe that there are strong defenses to the movants’ assertions and intend to vigorously oppose the motion. However, no assurances can be given regarding the outcome of the motion.

Foxconn Litigation

On June 27, 2023, the Company commenced an adversary proceeding against Foxconn (the “Foxconn Litigation”) in the Bankruptcy Court seeking relief for fraudulent and tortious conduct as well as breaches of the Investment Agreement, the parties’ joint venture agreement, the APA, and the CMA that the Company believes were committed by Foxconn. As set forth in the complaint relating to the adversary proceeding, Foxconn’s actions have caused substantial harm to the Company’s operations and prospects and significant damages. See “Foxconn Transactions” above and Note 7 – Commitments and Contingencies for additional information. The Foxconn Litigation is Adversary Case No. 23-50414.

Cessation of Production

Shortly after commencing the Chapter 11 Cases, the Company ceased production of the Endurance and new program development. Accordingly, the Company lacks any meaningful revenue related to selling vehicles. Our ongoing operations as of the end of the second quarter and continuing into the third quarter of 2023 primarily include support of vehicles that have been delivered to customers, custody and maintenance of our assets for prospective sale under the process established in the Chapter 11 Cases or otherwise, support for the sale process and administration and facilitation of the Chapter 11 Cases and related proceedings.

Basis of Presentation

The accompanying unaudited condensed consolidated interim financial statements are presented in conformity with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial statements and the instructions to the Quarterly Report on Form 10-Q and Rule 10-01 of Regulation S-X. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to these rules and regulations. Accordingly, these unaudited condensed consolidated interim financial statements should be read in conjunction with our audited consolidated financial statements and related notes included in our Form 10-K.

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In the opinion of management, these unaudited condensed consolidated interim financial statements reflect all adjustments necessary for a fair presentation of our interim financial results. All such adjustments are of a normal and recurring nature. The results of operations for any interim period are not indicative of results for the full fiscal year. The accompanying unaudited condensed consolidated interim financial statements include our accounts and those of our controlled subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the dates of the financial statements and the amounts of expenses during the reporting periods. Actual amounts realized or paid could differ materially from those estimates.

Since filing the Chapter 11 petitions, the Company has operated as debtor-in-possession under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code. In the accompanying Balance Sheet, the “Liabilities subject to compromise” line is reflective of expected allowed claim amounts in accordance with the Financial Accounting Standards Board’s Accounting Standards Codification (“ASC”) Topic 852-10 and are subject to change materially based on the proceedings and continued consideration of claims that may be modified, allowed, or disallowed. Refer to Note 7 – Commitments and Contingencies for further detail.

Liquidity and Going Concern

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. The going concern basis of presentation assumes that the Company will continue in operation one year after the date these consolidated financial statements are issued and will be able to realize its assets and discharge its liabilities and commitments in the normal course of business. As a result of the Company’s recurring losses from operations, accumulated deficit, cessation of production of the Endurance and lack of any meaningful revenue stream, as well as the risks and uncertainties related to (i) the Company’s ability to successfully complete the Chapter 11 Cases, including our ability to sell all, substantially all or some of our assets, to successfully resolve litigation and other claims that may be filed against us, and to develop, negotiate, confirm and consummate a Plan, after which we do not expect to conduct ongoing business, (ii) the effects of disruption from the Chapter 11 Cases, including challenges with respect to retaining employees, (iii) the costs of the Chapter 11 Cases and (iv) the costs of defending the Company in substantial litigation and claims, along with the risk of future litigation or claims that we have and may continue to experience, substantial doubt exists regarding our ability to continue as a going concern for a period of at least one year from the date of issuance of these consolidated financial statements. The consolidated financial statements do not include any adjustments to the carrying amounts and classification of assets, liabilities, and reported expenses that may be necessary if the Company were unable to continue as a going concern.

Pursuant to the requirements of ASC Topic 205-40, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, management must evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for one year from the date these consolidated financial statements are issued. This evaluation does not take into consideration the potential mitigating effect of management’s plans that have not been fully implemented or are not within control of the Company as of the date the consolidated financial statements are issued. When substantial doubt exists under this methodology, management evaluates whether the mitigating effect of its plans sufficiently alleviates substantial doubt about the Company’s ability to continue as a going concern. The mitigating effect of management’s plans, however, is only considered if both (1) it is probable that the plans will be effectively implemented within one year after the date that the consolidated financial statements are issued, and (2) it is probable that the plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the consolidated financial statements are issued.

The Company had cash, cash equivalents, and short-term investments of approximately $137.7 million and an accumulated deficit of $1,153.4 million at June 30, 2023 and a net loss of $154.5 million and $326.2 million for the three and six months ended June 30, 2023, respectively.

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Due to the failure to identify a strategic partner for the Endurance, lack of expected funding and other support from Foxconn (as discussed in more detail above and elsewhere in this report) and extremely limited ability to raise sufficient capital in the current market environment, we determined it was in the best interests of the Company’s stakeholders to take aggressive actions to cut costs and preserve cash, file the Chapter 11 Cases and cease production of the Endurance and new program development. On June 27, 2023, we voluntarily initiated the Chapter 11 Cases in the Bankruptcy Court. Since filing the Chapter 11 petitions, we have operated our business as debtors-in-possession in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. After we filed our Chapter 11 petitions, the Bankruptcy Court granted certain relief enabling us to conduct our business activities in the ordinary course, including, among other things and subject to the terms and conditions of such orders, authorizing us to pay employee wages and benefits, to pay taxes, to maintain our insurance policies, to honor certain of our customer obligations, to continue to operate our cash management system in the ordinary course, to pay the prepetition claims of certain of our vendors and to establish certain procedures to protect any potential value of the Company’s NOLs.

Our liquidity and ability to continue as a going concern is dependent upon, among other things: (i) our ability to develop, confirm and consummate a Plan or other alternative liquidating transaction, (ii) the resolution of contingent and other claims, liabilities, the Karma Action and the Foxconn Litigation (see Note 7 – Commitments and Contingencies and Note 9 – Subsequent Events), (iii) the outcome of the Company’s efforts to sell all or a portion of its assets, and (iv) the cost, duration and outcome of the Chapter 11 Cases.

We have incurred significant professional fees and other costs in connection with preparation for the Chapter 11 Cases and expect to continue to incur significant professional fees and costs throughout our Chapter 11 Cases. In addition, we are subject to significant contingent liabilities, the full scope of which is uncertain at this time (see Note 7 – Commitments and Contingencies and Note 9 – Subsequent Events). Further, the Bankruptcy Court has not established a deadline by which parties are required to file proofs of claim in the Chapter 11 Cases and we cannot provide any assurances regarding when such deadline will be, the amount or nature of the claims that may be filed by such deadline, or what the Company’s total estimated liabilities based on such claims will be.

The Bankruptcy Court approved procedures for the Debtors to conduct a comprehensive marketing and sale process with respect to all, substantially all or some of their assets in order to maximize the value of those assets. The Company provides no assurance that it will successfully complete any such dispositions or the pricing and other terms of any such transactions. The Company also intends to use the tools of Chapter 11 to fully, finally, and efficiently resolve its contingent and other liabilities and to pursue the Foxconn Litigation before the Bankruptcy Court. However, the Company provides no assurance as to the timing or outcome of the resolution of these matters by the Bankruptcy Court or any other court in which these matters may be adjudicated, including as a result of the proceedings that will occur outside of the Bankruptcy Court prior to a final disposition by the Bankruptcy Court, including the Karma Action. See Note 1 - Description of Organization and Business Operations - Description of Business – Voluntary Chapter 11 Petition, Note 7 – Commitments and Contingencies and Note 9 – Subsequent Events.

On July 20, 2023, certain Foxconn entities filed the Foxconn Motion to Dismiss. See Note 1 — Description Of Organization And Business Operations. The movants allege that the Debtors filed the Chapter 11 Cases in bad faith, that the Debtors do not have a reasonable likelihood of rehabilitation, and that dismissal or conversion would benefit the Debtors’ creditors. The Debtors believe that there are strong defenses to the movants’ assertions and intend to vigorously oppose the motion. However, no assurances can be given regarding the outcome of the motion. If confirmation by the Bankruptcy Court of a Plan does not occur, or if the Bankruptcy Court otherwise finds that it would be in the best interest of holders of claims and interests or upon the showing of cause, the Bankruptcy Court may convert the Chapter 11 Cases to cases under Chapter 7 of the Bankruptcy Code. In such event, a Chapter 7 trustee would be appointed or elected to liquidate the Company's assets for distribution in accordance with the priorities established by the Bankruptcy Code. The condensed consolidated financial statements do not include any adjustments relating to the recoverability and

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classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty. As a result of these and other circumstances, there is substantial doubt regarding our ability to continue as a going concern, The value available to our various stakeholders, including our creditors and stockholders, is highly uncertain. The trading prices for our securities may bear little or no relationship to the actual recovery, if any, by holders of our securities in the Chapter 11 Cases, if any.

Reverse Stock Split

At the annual meeting of stockholders held on May 22, 2023 (the “2023 Annual Meeting”), the stockholders of the Company approved a proposal to amend the Company’s Second Amended and Restated Certificate of Incorporation (the “Charter”) to effect a reverse split of the Company’s outstanding shares of Class A common stock at a ratio within a range of between 1:3 and 1:15, with the timing and the exact ratio of the reverse split to be determined by the Board of Directors of the Company (the “Board”) in its sole discretion. The Board authorized a 1:15 reverse stock split (the “Reverse Stock Split”) of the outstanding Class A common stock, which became effective as of 12:01 a.m. Eastern Time on May 24, 2023 (the “Effective Time”).

The Company filed a Certificate of Amendment (the “Amendment”) to the Charter on May 22, 2023, which provided that, at the Effective Time, every fifteen shares of the issued and outstanding Class A common stock would automatically be combined into one issued and outstanding share of Class A common stock.

The Reverse Stock Split was intended to improve the marketability and liquidity of the Class A common stock. In addition, the Reverse Stock Split was intended to increase the per share market price of the Class A common stock in order to satisfy the Minimum Bid Price Requirement. On June 7, 2023, the Company received a written notice from the Listing Qualifications Department of Nasdaq informing the Company that it had regained compliance with the Bid Price Requirement.

Nasdaq Delisting

On June 28, 2023, the Company received written notice from the Listing Qualifications Department of Nasdaq notifying the Company that, as a result of the Chapter 11 Cases and in accordance with Nasdaq Listing Rules 5101, 5110(b) and IM-5101-1, Nasdaq had determined that the Company’s Class A common stock was no longer suitable for listing on the Nasdaq Global Select Market. Trading of our Class A common stock was suspended at the opening of business on July 7, 2023 and a Form 25 was filed with the SEC on July 27, 2023 to delist the Class A common stock from Nasdaq. We will remain subject to SEC reporting obligations.

See Note 9 – Subsequent Events – Nasdaq Delisting.

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates in Financial Statement Preparation

The preparation of condensed consolidated financial statements in accordance with GAAP is based on the selection and application of accounting policies that require us to make significant estimates and assumptions that affect the reported amounts in the consolidated financial statements, and related disclosures in the accompanying notes to the financial statements. Actual results could differ from those estimates. Estimates and assumptions are periodically reviewed and the effects of changes are reflected in the condensed consolidated Financial Statements in the period they are determined to be necessary. The Chapter 11 Cases will result in continuous changes in facts and circumstances that will cause the Company’s estimates and assumptions to change, potentially materially. We undertake no obligation to update or revise any of the disclosures, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.

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There have been no material changes to the critical accounting policies and estimates described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, except for the areas noted below, primarily driven by the filing of the Chapter 11 Cases.

Liabilities Subject to Compromise

As noted above, since filing the Chapter 11 petitions, the Company has operated as debtor-in-possession under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code. In the accompanying Balance Sheet, the “Liabilities subject to compromise” line is reflective of expected allowed claim amounts in accordance with ASC 852-10 and are subject to change materially based on the proceedings and continued consideration of claims that may be modified, allowed, or disallowed. Refer to Note 7 – Commitments and Contingencies for further detail.

Inventory and Inventory Valuation

Substantially all of the Company’s inventory is specific to the production of the Endurance and is stated at the lower of cost or net realizable value (“NRV”). NRV is the estimated value of the inventory in the context of the Chapter 11 Cases, which is minimal due to its unique nature. In addition to the NRV analysis, the Company recognizes an excess inventory reserve to adjust for inventory quantities in excess of anticipated Endurance production. As discussed above, the Company ceased production of the Endurance on June 30, 2023. Accordingly, NRV and excess inventory charges of $4.3 million and $24.1 million for the three and six months ended June 30, 2023, respectively, are recorded within Cost of Sales in the Company’s Condensed Consolidated Statement of Operations. No such charges were recognized for the three and six months ended June 30, 2022, as the Company had not yet commenced commercial production of the Endurance.

Property, plant and equipment

Property and equipment are stated at cost less accumulated depreciation and impairment charges. Depreciation is computed using the straight-line method over the estimated useful lives and residual values of the related assets. Upon retirement or sale, the cost and related accumulated depreciation and impairments are removed from the balance sheet and the resulting gain or loss is reflected in operations. Maintenance and repair expenditures are expensed as incurred, while major improvements that increase functionality of the asset are capitalized and depreciated ratably to expense over the identified useful life.

Due to the failure to identify a strategic partner for the Endurance, lack of expected funding and other support from Foxconn (as discussed in more detail above and elsewhere in this report) and extremely limited ability to raise sufficient capital in the current market environment, we determined it was in the best interests of the Company’s stakeholders to take aggressive actions to cut costs and preserve cash, file the Chapter 11 Cases and cease production of the Endurance and new program development.

Valuation of Long-Lived and Intangible Assets

Long-lived assets, such as property, plant, and equipment are reviewed for potential impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. Asset impairment calculations require us to apply judgment in estimating asset group fair values and future cash flows, including periods of operation, projections of product pricing, production levels, product costs, market supply and demand, inflation, projected capital spending and, specifically for fixed assets acquired, assigned useful lives, residual values functional obsolescence, asset condition and discount rates. When performing impairment tests, we estimate the fair values of the assets using management’s best assumptions, which we believe would be consistent with the assumptions that a hypothetical marketplace participant would use. Estimates and assumptions used in these tests are evaluated and updated as appropriate. The assessment of whether an asset group should be classified as held and used or held for sale requires us to apply judgment in estimating the probable timing of the sale, and in testing for impairment loss, judgment is required in estimating the net proceeds from the sale. Actual asset impairment losses could vary considerably from estimated impairment losses if actual results are not consistent with the assumptions

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and judgments used in estimating future cash flows and asset fair values. Changes in these estimates and assumptions could materially affect the determination of fair value and any impairment charge.

For assets to be held and used, including identifiable intangible assets and long-lived assets subject to amortization, we initiate our review whenever events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable. Recoverability of a long-lived asset subject to amortization is measured by comparison of its carrying amount to the expected future undiscounted cash flows that the asset is expected to generate. Any impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value. Significant management judgment is required in this process. The uncertainties regarding the ability to determine the realizable value for our property, plant and equipment, including in light of the timing of the filing of the Chapter 11 Cases and lack of available reference data for market transactions, particularly with respect to Endurance-specific assets, resulted in a determination by the Company of the fair value of the assets based on their estimated residual or salvage values, which represent a range of 0% to 4% of original acquisition cost. This resulted in an impairment charge of $23.7 million for the quarter ended June 30, 2023.

The Company also evaluated the decision to actively market the sale of its long-lived fixed assets in connection with the Chapter 11 Cases, against ASC 360-10-45-9 “Long-Lived Assets to Be Disposed of By Sale.” See Note 4 – Property, Plant and Equipment and Assets Held for Sale for details regarding our impairment assessment and classification of assets held for sale.

Warrants

As a result of the Chapter 11 Cases, the fair value of the Company’s warrants was deemed to be zero and adjusted accordingly as of June 30, 2023.

Recently issued accounting pronouncements

There are no recently issued, but not yet adopted, accounting pronouncements which are expected to have a material impact on the Company’s Condensed Financial Statements and related disclosures.

NOTE 3 — FAIR VALUE MEASUREMENTS

Recurring Fair Value Measurements

The Company follows the accounting guidance in ASC Topic 820, Fair Value Measurements (“ASC Topic 820”) for its fair value measurements of financial assets and liabilities measured at fair value on a recurring basis. Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. The three-tiered fair value hierarchy, which prioritizes when inputs should be used in measuring fair value, is comprised of: (Level I) observable inputs such as quoted prices in active markets; (Level II) inputs other than quoted prices in active markets that are observable either directly or indirectly and (Level III) unobservable inputs for which there is little or no market data. The fair value hierarchy requires the use of observable market data when available in determining fair value.

The Company has short-term investments which are primarily commercial paper that are classified as Level II. The valuation inputs for the short-term investments are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant inputs are observable in the market or can be corroborated by observable market data for substantially the full term of the assets.

The Company has issued the following warrants (with exercise prices shown in pre-Reverse Stock Split amounts): (i) warrants (the “Public Warrants”) to purchase shares of Class A common stock with an exercise price of $11.50 per share, (ii) warrants (the “Private Warrants”) to purchase Class A common stock with an

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exercise price of $11.50 per share, (iii) warrants (the “BGL Warrants”) to purchase Class A common stock with an exercise price of $10.00 per share, and (iv) the Foxconn Warrants to purchase shares of Class A common stock with an exercise price of $10.50The BGL Warrants were issued as part of the Business Combination in October 2020, which are set to expire in October 2023, are classified as equity as they qualify as share-based compensation under ASC Topic 718, Compensation – Stock Compensation (“ASC Topic 718”).

As of June 30, 2023, following the Reverse Stock Split, we had 0.113 million Foxconn Warrants with an exercise price of $157.50, 0.153 million Private Warrants with a strike price of $172.50 and 0.107 million BGL Warrants with a strike price of $150.00 outstanding. As of June 30, 2022, on a pre-Reverse Stock Split basis, we had outstanding 2.3 million Private Warrants and 1.6 million BGL Warrants. The fair value of the Foxconn Warrants was $0.3 million at issuance. The Private Warrants and the Foxconn Warrants were classified as a liability with any changes in the fair value recognized immediately in our condensed consolidated statements of operations. As a result of the Chapter 11 Cases, the fair value of the Company’s warrants was deemed to be zero and adjusted accordingly as of June 30, 2023.The following table summarizes the net gain on changes in fair value related to the Private Warrants and the Foxconn Warrants:

(in thousands)

Three months ended

Three months ended

Six months ended

Six months ended

June 30, 2023

June 30, 2022

June 30, 2023

June 30, 2022

Private Warrants

$

27

$

1,797

$

254

$

277

Foxconn Warrants

34

170

Net gain on changes in fair value

$

61

$

1,797

$

424

$

277

The Private Warrants and the Foxconn Warrants were measured at fair value using Level 3 inputs. These instruments are not actively traded and were valued as of June 30, 2022 using a Monte Carlo option pricing model and Black-Scholes option pricing model, respectively, that use observable and unobservable market data as inputs.

The stock price volatility rate utilized was 80% for the valuation as of June 30, 2022. This assumption considered observed historical stock price volatility of other companies operating in the same or similar industry as the Company over a period similar to the remaining term of the Private Warrants, as well as the volatility implied by the traded options of the Company. The risk-free rate utilized was 2.454% for the valuation for the three and six months ended June 30, 2022.

The following tables summarize the valuation of our financial instruments (in thousands):

    

Total

    

Quoted prices in
active markets
(Level 1)

    

Prices with
observable inputs
(Level 2)

    

Prices with unobservable inputs
(Level 3)

June 30, 2023

Cash and cash equivalents

$

115,732

$

115,732

$

$

Short-term investments

22,000

22,000

Private Warrants

Foxconn Warrants

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Total