UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the quarterly period ended |
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:
(Exact name of registrant as specified in its charter)
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Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
| Trading symbol |
| Name of each exchange on which registered | |
* |
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.
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).
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☐ | ||
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
As of November 13, 2023,
* 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 became effective 90 days later.
LORDSTOWN MOTORS CORP.
Debtor-in-Possession
INDEX
2
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 September 30, 2023, as well as the following:
| ● | our ability to successfully complete the Chapter 11 Cases (as defined below), including our ability to develop, negotiate, confirm and consummate a final Chapter 11 plan, which may be on the same or similar terms to the Proposed Plan (as defined below) or as may be amended, waived, modified or withdrawn at any time before confirmation; |
| ● | 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 significantly increased professional and other costs, the length of time that we will operate under Chapter 11 protection, the substantial reduction in our workforce and the claims that have been and may continue to be brought against the Company or our officers; |
| ● | our ability to pursue and the potential outcome of the Foxconn Litigation (as defined below); |
| ● | the impact of the SEC investigation and any other pending or future litigation or claims asserted with respect to the Company, and possible claims by suppliers and customers 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); |
| ● | our ability to retain key personnel, and the costs associated therewith, to continue to facilitate the Chapter 11 Cases and the limited expected operations of the Company when, and to the extent it does, emerge from bankruptcy; |
| ● | development activities with respect to future vehicles and certain assets related to those activities have ceased, the Company has a limited amount of assets and personnel that remain and such assets may be of limited value (other than cash on hand, the claims asserted in the Foxconn Litigation, other potential claims that the Company may have against other parties, and tax attributes) |
3
| and no revenue-producing business (See Note 1 – Description of Organization and Business Operations); |
| ● | 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 and related costs and may be subject to significant uninsured losses and costs associated with new claims that may be filed against us, face uncertainty as to the ability to realize value through our litigation claims and ability to maximize value with respect to our assets following the closing of the transactions contemplated by the LandX Asset Purchase Agreement (as defined below), absence of any identified sources of revenue, earnings, operations or near term actionable opportunities to acquire potential assets or businesses and the NOL Trading Restrictions (as defined below); |
| ● | risks related to the substantial costs and diversion of our personnel’s attention and resources due to the Chapter 11 Cases, legal matters and other existing or new claims; |
| ● | the impact of the delisting of our Class A common stock, potential issuances of additional shares of Class A common stock to resolve litigation claims, and the proposed trading restrictions designed to enable the Company to optimize its tax attributes following the effective date of the Proposed Plan (the “NOL Trading Restrictions”), on the liquidity and trading price of our Class A common stock; |
| ● | our shares may have little or no value; |
| ● | uncertainty with respect to the operations of the Company upon emergence from bankruptcy, as contemplated by the Proposed Plan, which are expected to be limited to resolution of remaining claims asserted against or by the Company, including the Foxconn Litigation, for which there will be limited resources, potential for significant costs that may require additional capital to be raised (including indebtedness, obligations or securities senior in priority to our Class A common stock or Preferred Stock (as defined below), and new and continuing liabilities (including indemnification obligations to directors and officers)); |
| ● | uncertainty as to whether stockholders will receive any payment or other distribution on account of our shares following the Chapter 11 Cases and, if the Preferred Stock retains its liquidation preference (and such preference is not subordinated or otherwise set aside), such shares will receive proceeds from any distribution until such preference is satisfied prior to any payment to holders of Class A common stock; |
| ● | our ability to use, and any benefit to us from, our net operating tax losses, which may be materially limited or have no value; |
| ● | our ability to comply with terms and conditions of any financing, even if obtained; |
| ● | our ability to maintain our relationships with the vendors and other third parties providing services that are integral to maintaining our financial, information technology, business data, and other systems used to maintain the limited operations and existence of the Company; |
| ● | the adverse impact of the Company’s inability to continue to service and comply with warranty obligations for the vehicles we have sold, including related potential regulatory actions, as a result of the sale of associated assets under the LandX Asset Purchase Agreement, to the extent we do not or cannot repurchase the vehicles, and to the extent any claims related thereto may not be expunged in connection with the Chapter 11 Cases, and 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, and 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 necessary substantial cost cutting actions, including reduction in personnel, the risk of further attrition and limited resources; |
| ● | as a result of our reduction of, or inability to maintain, insurance coverage we could be subject to potential losses and unexpected liabilities that could have a material adverse effect on the Company; insurance we presently have, including product liability coverage, may expire and we may not be able to obtain replacement policies or any such replacement policies may only be available at a substantially higher cost; |
4
| ● | the Proposed Plan was developed based on various assumptions regarding the Company’s potential assets and liabilities and the involvement of numerous parties, which assumptions may prove to be incorrect and could render the Proposed Plan unsuccessful and any payments thereunder may differ materially from estimates; |
| ● | there can be no assurance that the estimated amounts of allowed distributions to holders of Claims (as defined below) of creditors against the Debtors in connection with the Chapter 11 Cases set forth in the Disclosure Statement (as defined below) are correct, and the actual amount of allowed Claims may differ from the estimates; the estimated amounts are subject to certain risks, uncertainties and assumptions; and, should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, the actual amount of allowed Claims may vary from those estimated in the Disclosure Statement; |
| ● | a number of additional Claims may be filed in the Chapter 11 Cases, including on account of (i) rejection damages for executory contracts and unexpired leases rejected pursuant to the Proposed Plan and (ii) Claims of governmental units, for each of which the deadlines to file proofs of claim have not yet passed as of the date of this report; such Claims may be substantial and may result in a greater amount of allowed Claims than estimated in the Disclosure Statement; |
| ● | the SEC has obtained and is seeking a further extension of its deadline in the Chapter 11 Cases to bring an action to determine whether certain of the Debtors obligations to governmental units are not dischargeable under section 1141(d)(6) of the Bankruptcy Code; if the SEC brings and prevails in such non-dischargeability action, obligations of the Debtors owed to the SEC would become obligations of the Debtors after the effective date of the Proposed Plan, which could impact recoveries to holders of Claims and Interests (as defined below) pursuant to the Proposed Plan; |
| ● | the Debtors may not receive the acceptances from holders of Claims and Interest entitled to vote on the Proposed Plan required to confirm the Proposed Plan and even if the requisite acceptances of the Proposed Plan are received, the Bankruptcy Court might not confirm the Proposed Plan if the Bankruptcy Court finds that any of the statutory requirements for confirmation under the Bankruptcy Code has not been met; |
| ● | certain holders of Claims or Interests may object to confirmation of the Proposed Plan, including on the basis that the Debtors’ proposed classification and treatment of Claims and Interests under the Proposed Plan does not comply with the Bankruptcy Code, and there can be no assurance that such objections (if any) will be resolved or that the Bankruptcy Court will overrule such objections and confirm the Proposed Plan; |
| ● | 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, which could have a higher or lower value, including due to continued uncertainty in applying accounting principles and estimates for financial reporting purposes; |
| ● | the fact that the periodic financial information we report to the Bankruptcy Court is not presented in accordance with GAAP, and on a deconsolidated entity by entity basis based on certain assumptions which may or not ultimately be proven valid, 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; and |
| ● | 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 plans and adversely impact the Chapter 11 Cases or our ability to realize value from any of our remaining assets. |
The Company’s stockholders are cautioned that trading in shares of the Company’s Class A common stock during the pendency of the Chapter 11 Cases remains highly speculative and will pose substantial risks. Trading prices for the Company’s Class A common stock may bear little or no relation to actual recovery, if any, by holders thereof in the Chapter 11 Cases and the trading market (if any) may be very limited. In addition, the Proposed Plan includes the NOL Trading Restrictions, which are designed to enable the Company to optimize its tax attributes following the effective date of the Proposed Plan and generally restrict transactions involving any person or group of persons that is or as a result of such a transaction would
5
become a substantial stockholder (i.e., would beneficially own, directly or indirectly, 4.5% of all issued and outstanding shares of Class A common stock). Accordingly, the Company urges extreme caution with respect to existing and future investments in its Class A common stock.
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 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 (and which is also subject to the further qualifications provided therein 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 and closing of the transactions contemplated by the LandX Asset Purchase Agreement 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,” “Debtors,” “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), 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.
6
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
Lordstown Motors Corp.
Debtor-In Possession
Balance Sheets
(in thousands except for share data)
(Unaudited)
September 30, 2023 | December 31, 2022 | |||||
ASSETS: |
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Current Assets |
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Cash and cash equivalents | $ | $ | ||||
Short-term investments | — | |||||
Inventory, net | — | |||||
Prepaid expenses | ||||||
Other current assets |
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Total current assets | $ | $ | ||||
Property, plant and equipment, net |
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Assets held for sale |
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Other non-current assets | ||||||
Total Assets | $ | $ | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY: |
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Current Liabilities |
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Accounts payable | $ | $ | ||||
Accrued salaries, wages, and benefits | ||||||
Accrued legal and professional | ||||||
Accrued expenses and other current liabilities |
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Total current liabilities | $ | $ | ||||
Liabilities subject to compromise | — | |||||
Warrant and other non-current liabilities | ||||||
Total liabilities | $ | $ | ||||
Mezzanine equity | ||||||
Series A Convertible Preferred stock, $ | $ | $ | ||||
Stockholders’ equity |
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Class A common stock, $ | $ | $ | ||||
Additional paid in capital |
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Accumulated deficit |
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Total stockholders’ equity | $ | $ | ||||
Total liabilities and stockholders’ equity | $ | $ | ||||
See Notes to Condensed Consolidated Financial Statements
7
Lordstown Motors Corp.
Debtor-In Possession
Statements of Operations
(in thousands except for per share data)
(unaudited)
Three months ended | Three months ended |
| Nine months ended |
| Nine months ended | |||||||
| September 30, 2023 |
| September 30, 2022 | September 30, 2023 | September 30, 2022 | |||||||
Net sales | $ | — | $ | — | $ | $ | — | |||||
Cost of sales |
| — |
| — |
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Operating Expenses | ||||||||||||
Selling, general and administrative expenses |
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Research and development expenses |
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Reorganization items | — | — | ||||||||||
Impairment of property plant & equipment and intangibles | ||||||||||||
Total operating expenses | $ | $ | $ | $ | ||||||||
Loss from operations |
| ( | ( | $ | ( | $ | ( | |||||
Other income (expense) |
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(Loss) gain on sale of assets | ( | — | ( | |||||||||
Other (expense) income |
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Investment and interest income |
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Loss before income taxes | $ | ( | $ | ( | $ | ( | $ | ( | ||||
Income tax expense |
| — |
| — |
| — |
| — | ||||
Net loss | ( | ( | ( | ( | ||||||||
Less preferred stock dividend | ( | — | ( | — | ||||||||
Net loss attributable to common shareholders | $ | ( | $ | ( | $ | ( | $ | ( | ||||
Net loss per share attributable to common shareholders |
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Basic | ( | ( | $ | ( | $ | ( | ||||||
Diluted | ( | ( | ( | ( | ||||||||
Weighted-average number of common shares outstanding |
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Basic |
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Diluted | ||||||||||||
See Notes to Condensed Consolidated Financial Statements
8
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 September 30, 2023 | |||||||||||||||||||
Additional | Total | ||||||||||||||||||
Preferred Stock | Common Stock | Paid-In | Accumulated | Stockholders’ | |||||||||||||||
| Shares |
| Amount |
| Shares |
| Amount |
| Capital |
| Deficit |
| Deficit | ||||||
Balance at June 30, 2023 |
| $ | $ | $ | ( | $ | |||||||||||||
Issuance of common stock |
| — | — | — |
| — | — |
| — |
| — | ||||||||
RSU Vesting | — | — | — | — | — | — | — | ||||||||||||
Stock compensation |
| — | — | — |
| — |
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Accrual of Series A Convertible Preferred Stock dividends | — | — | — | ( | — | ( | |||||||||||||
Net income |
| — | — | — |
| — | — |
| ( |
| ( | ||||||||
Balance at September 30, 2023 |
| $ | $ | $ | $ | ( | $ | ||||||||||||
Three Months Ended September 30, 2022 | |||||||||||||||||||
Additional | Total | ||||||||||||||||||
Preferred Stock | Common Stock | Paid-In | Accumulated | Stockholders’ | |||||||||||||||
| Shares |
| Amount |
| Shares |
| Amount |
| Capital |
| Deficit |
| Equity | ||||||
Balance at June 30, 2022 | — | — | $ | $ | ( | $ | |||||||||||||
Issuance of common stock |
| — | — | — |
| — | — | — |
| — | |||||||||
RSU Vesting | — | — | — | ||||||||||||||||
Common stock issued to YA | — | — | |||||||||||||||||
Stock compensation | — | — | — |
| — | — |
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Net loss | — | — | — |
| — | — | ( |
| ( | ||||||||||
Balance at September 30, 2022 | — | — | $ | $ | $ | ( | $ | ||||||||||||
Nine Months Ended September 30, 2023 | |||||||||||||||||||
Additional | Total | ||||||||||||||||||
Preferred Stock | Common Stock | Paid-In | Accumulated | Stockholders’ | |||||||||||||||
| Shares |
| Amount |
| Shares |
| Amount |
| Capital |
| Deficit |
| Equity | ||||||
Balance at December 31, 2022 | $ | $ | $ | $ | ( | $ | |||||||||||||
Issuance of Class A common stock |
| — | — | — |
| — |
| — |
| — |
| — | |||||||
RSU vesting | — | — | — | — | ( | — | ( | ||||||||||||
Stock compensation | — | — | — | ||||||||||||||||
Accrual of Series A Convertible Preferred Stock dividends | — | — | — | ( | — | ( | |||||||||||||
Net loss |
| — | — | — |
| — |
| — |
| ( |
| ( | |||||||
Balance at September 30, 2023 | $ | $ | $ | $ | ( | $ | |||||||||||||
Nine Months Ended September 30, 2022 | |||||||||||||||||||
Additional | Total | ||||||||||||||||||
Preferred Stock | Common Stock | Paid-In | Accumulated | Stockholders’ | |||||||||||||||
| Shares |
| Amount |
| Shares |
| Amount |
| Capital |
| Deficit |
| Deficit | ||||||
Balance at December 31, 2021 | — | $ | — | $ | $ | $ | ( | $ | |||||||||||
Issuance of Class A common stock |
| — | — | — | |||||||||||||||
RSU vesting | — | — | — | — | — | — | |||||||||||||
Common stock issued to YA | — | — | |||||||||||||||||
Stock compensation |
| — | — | — | — | — | |||||||||||||
Net loss |
| — | — | — | — | — | ( | ( | |||||||||||
Balance at September 30, 2022 | — | $ | — | $ | $ | $ | ( | $ | |||||||||||
See Notes to Condensed Consolidated Financial Statements
9
Lordstown Motors Corp.
Debtor-In Possession
Statements of Cash Flows
(in thousands)
(unaudited)
Nine months ended | Nine months ended | |||||
September 30, 2023 |
| September 30, 2022 | ||||
Cash flows from operating activities |
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Net loss | $ | ( | $ | ( | ||
Adjustments to reconcile net loss to cash used by operating activities: |
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Stock-based compensation |
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Loss (gain) on disposal of fixed assets |
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| ( | |||
Impairment of property plant and equipment and intangible assets | ||||||
Depreciation of property plant and equipment | — | |||||
Write down of inventory and prepaid inventory | ||||||
Other non-cash changes | ( | |||||
Changes in assets and liabilities: | ||||||
Inventory | ( | ( | ||||
Prepaid expenses and other assets | ||||||
Accounts payable | ( | |||||
Accrued salaries, wages, and benefits | ( | ( | ||||
Accrued legal and professional | ( | |||||
Accrued expenses and other liabilities |
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Net Cash used in operating activities | $ | ( | $ | ( | ||
Cash flows from investing activities |
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Purchases of property plant and equipment | $ | ( | $ | ( | ||
Purchases of short-term investments | ( | ( | ||||
Maturities of short-term investments | — | |||||
Investment in Foxconn Joint Venture | — | ( | ||||
Proceeds from the sale of fixed assets | ||||||
Net Cash provided by (used in) investing activities | $ | $ | ( | |||
Cash flows from financing activities |
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Proceeds from notes payable for Foxconn Joint Venture | $ | — | $ | |||
Down payments received from Foxconn | — | |||||
Issuance of Class A common stock | — | |||||
Proceeds from Equity Purchase Agreement, net of issuance costs | — | |||||
Net Cash provided by financing activities | $ | — | $ | |||
Decrease in cash and cash equivalents | $ | ( | $ | ( | ||
Cash and cash equivalents, beginning balance |
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Cash and cash equivalents, ending balance | $ | $ | ||||
Non-cash items | ||||||
Capital assets acquired with payables | $ | — | $ | |||
See Notes to Condensed Consolidated Financial Statements
10
LORDSTOWN MOTORS CORP
Debtor-In Possession
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1 — DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS
Description of Business
On June 27, 2023, Lordstown Motors Corp., a Delaware corporation, together with its subsidiaries (“Lordstown,” the “Company,” “the Debtors” or “we”), filed voluntary petitions for relief (the “Chapter 11 Cases”) 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”).
In connection with the Chapter 11 Cases, we ceased production and sales of our flagship vehicle, the Endurance, and new program development and began a comprehensive marketing and sale process for all, substantially all or some of the Company’s assets in order to maximize the value of those assets. Furthermore, we continued our aggressive cost cutting actions that included significant personnel reductions. On September 29, 2023, we entered into an agreement to sell specified assets related to the design, production and sale of electric light duty vehicles focused on the commercial fleet market free and clear of liens, claims, encumbrances, and other interests, and assumed certain specified liabilities of the Company for a total purchase price of approximately $
Prior to the consummation of the Chapter 11 Cases, the Company was an original equipment manufacturer (“OEM”) of electric light duty vehicles focused on the commercial fleet market and, since inception, had been developing the Endurance. The Company’s strategy was designed to accelerate the launch of new commercial electric vehicles (“EVs”). This included working on its own vehicle programs as well as partnering with third parties, including Foxconn and its affiliates (as defined below), as the Company sought to leverage its vehicle development experience, its proprietary and open-source code and other non-proprietary technologies, its 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 and began to record sales 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 in 2023 until June 2023, when management made the decision to cease production and file the Chapter 11 Cases.
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 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 initial actions,
11
in May 2023, for job eliminations occurring during the third quarter of 2023. We have fewer than
During the nine months ended September 30, 2023, we sold
Voluntary Chapter 11 Petition
On June 27, 2023, the Debtors filed voluntary petitions for relief under Chapter 11 in the Bankruptcy Court. 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 under which they were authorized to conduct their business activities in the ordinary course, including 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”).
As part of the Chapter 11 Cases, on August 8, 2023, the Bankruptcy Court approved procedures (the “Bidding Procedures Order”) 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 (“Jefferies”), and other professionals conducted a comprehensive marketing process for the sale of assets consistent with the Bidding Procedures Order. In connection with that marketing and sale process, the Debtors received a “Qualified Bid” (as defined in the Bidding Procedures Order) from LAS Capital LLC, a Delaware limited liability company (“LAS Capital”) to purchase certain specified assets of Debtors.
Although the Debtors received several non-binding proposals for the purchase of specified assets, the Debtors through their Board of Directors, determined that none of these other proposals was a Qualified Bid in accordance with the Bidding Procedures and determined LAS Capital to be the successful bidder under the Bidding Procedures. As a result, the Debtors cancelled the auction in accordance with the Bidding Procedures, and proceeded to seek Bankruptcy Court approval of the sale.
On September 29, 2023, the Debtors entered into an Asset Purchase Agreement (the “LandX Asset Purchase Agreement”) with LAS Capital LLC, a Delaware limited liability company (“LAS Capital”), and Mr. Stephen S. Burns, an individual, as guarantor of certain obligations of LAS Capital under the LandX Asset Purchase Agreement. The LandX Asset Purchase Agreement was assigned to LAS Capital’s affiliate, LandX Motors Inc., a Delaware corporation (the assignee and “Purchaser”) and approved by the Bankruptcy Court on October 18, 2023. The closing of the transactions contemplated by the LandX Asset Purchase Agreement occurred on October 27, 2023, at which time the Purchaser acquired substantially all of the assets held for sale of the Debtors related to the design, production and sale of electric light duty vehicles focused on the commercial fleet market free and clear of liens, claims, encumbrances, and other interests, and assumed certain specified liabilities of the Debtors for a total purchase price of approximately $
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The Debtors have a limited amount of assets remaining (other than cash on hand, the claims asserted in the Foxconn Litigation and other potential claims that the Company may have against other parties, and tax attributes) following the closing under the LandX Asset Purchase Agreement. The sale of any remaining assets (whether in whole or in part) may not be consummated and would not result in any meaningful proceeds. No assurance can be made regarding the sufficiency of the Debtor’s assets to complete the Chapter 11 Cases, provide estimated recoveries to claimants and fund anticipated post-emergence activities. 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 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 has also been seeking 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. The Bankruptcy Court established October 10, 2023, as the deadline by which parties were required to file proofs of claim in the Chapter 11 Cases and December 26, 2023 for all governmental entities to file their proofs of claim. In addition, additional claims may be filed for executory contracts and unexpired leases rejected pursuant to the Proposed Plan. The Company cannot provide any assurances regarding what the Company’s total actual liabilities based on such claims will be.
On September 1, 2023, the Debtors filed a Joint Plan of Lordstown Motors Corp. and Its Affiliated Debtors and a related proposed disclosure statement. On October 24, 2023, the Debtors filed the First Amended Joint Plan of Lordstown Motors Corp. and Its Affiliated Debtors (the “First Amended Plan”) and a related proposed disclosure statement (the “First Amended Disclosure Statement”) with the Bankruptcy Court. On October 29, 2023, the Debtors made certain modifications to the First Amended Plan and First Amended Disclosure statement based on negotiations with parties and filed with the Bankruptcy Court Modified First Amended Joint Plan of Lordstown Motors Corp. and Its Affiliated Debtors (the “Proposed Plan”) and a related proposed modified disclosure statement (the “Disclosure Statement”). On October 30, 2023, the Debtors further revised the Proposed Plan and Disclosure Statement.
On October 31, 2023, the Bankruptcy Court held a hearing on the approval of the Disclosure Statement and the procedures to solicit votes to accept or reject the Proposed Plan. The Bankruptcy Court announced, among other things, that it would approve the Debtors’ Disclosure Statement and the procedures to be used in connection with the solicitation of votes on the Proposed Plan (the “Solicitation and Voting Procedures”). On November 1, 2023, the Bankruptcy Court entered an order approving the Disclosure Statement and the Solicitation and Voting Procedures (the “Disclosure Statement Order”). The Bankruptcy Court’s entry of the Disclosure Statement Order does not constitute the Bankruptcy Court’s confirmation or acceptance of the Proposed Plan and the Company can provide no assurance that the Proposed Plan will be accepted by creditors or stakeholders, who may object to the Proposed Plan, or confirmed by the Bankruptcy Court (or, even if confirmed, that the Proposed Plan will become effective).
The Debtors are authorized to solicit votes from their creditors and the Company’s shareholders for approval of the Proposed Plan. The Proposed Plan (and its consummation) remain subject to Bankruptcy Court approval and satisfaction of other conditions contained in the Proposed Plan. A hearing to consider confirmation of the Proposed Plan is scheduled for December 19, 2023, but may be rescheduled.
The Proposed Plan and Disclosure Statement describe, among other things, the terms of the Proposed Plan; the events leading to the Chapter 11 Cases; the treatment of claims and Interests under the Proposed Plan; certain events that have occurred or are anticipated to occur during the Chapter 11 Cases, including the process for the solicitation of votes to approve the Proposed Plan from certain of the Debtors’ creditors and Interest holders; and certain other aspects of the Proposed Plan.
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The Proposed Plan would, among other provisions: (i) provide an orderly structure for distributions to holders of claims of creditors (“Claims”) and treatment of equity interests of shareholders (“Interests”), (ii) preserve retained causes of action, including against Foxconn, to be pursued by the post-effective date Company, and (iii) seek to preserve the value of the Company’s NOLs, by leaving preferred and common equity Interests in the post-effective Company in place.
All distributions under the Proposed Plan would come from the Debtors’ cash on hand and other assets, which would generally be distributed, subject to the terms of the Proposed Plan, to classes of Claims and Interests in order of their respective priorities under the Bankruptcy Code. The Disclosure Statement provides disclosures regarding the anticipated recoveries to holders of Claims and Interests pursuant to the Proposed Plan, including holders of the Class A common stock, which remain to be determined. No assurance can be made with respect to any distributions or recoveries with respect to Claims or Interests under the Proposed Plan.
The Proposed Plan provides for the treatment of Claims filed against the Debtors in the securities class action captioned In re Lordstown Motors Corp. Securities Litigation, Case No. 4:21-cv-00616 (DAR) (the “Ohio Securities Class Action”), with holders of allowed Claims (if any) in the applicable class (if any) receiving Class A common stock in an amount calculated pursuant to the formula set forth in the Proposed Plan, after accounting for any recoveries from applicable insurers or other third parties and subject to the post-effective date Debtors’ election to cash out such Class A common stock Interests. Alternatively, the Proposed Plan provides for an elective class that permits the Ohio Securities Action lead plaintiff (the “Ohio Lead Plaintiff”) to elect to receive a $
The Proposed Plan also provides for the treatment of Claims filed against the Debtors on the same or similar basis as those set forth in the putative securities class action filed against the Debtors’ current Chief Executive Officer (Edward Hightower) and Chief Financial Officer (Adam Kroll) in the United States District Court for the Northern District of Ohio, styled Bandol Lim v. Edward Hightower et al., No.: 4:23-cv-01454-BYP (N.D. Ohio), which alleges claims arising from the purchase or acquisition of securities of Lordstown Motors Corp. between August 4, 2022 through and including June 26, 2023. The Proposed Plan limits recoveries (if any) from the Debtors on account of such Claims to available insurance. The Debtors dispute the merits of any such claims.
Holders of Claims and Interest in the Debtors that are in a class that is impaired under the Proposed Plan are entitled to vote to accept or reject the Proposed Plan unless their class is deemed to accept or reject pursuant to the terms of the Proposed Plan. After the approval of the Disclosure Statement on November 1, 2023, the Company promptly began soliciting votes on the Proposed Plan pursuant to the Solicitation Procedures approved by the Bankruptcy Court.
The Proposed Plan contemplates releases to directors and officers of the Debtors that served in the capacity as a director or officer of any of the Debtors at any time from the Petition Date through the effective date of the Proposed Plan. Subject to the Bankruptcy Court’s approval, the releases would be binding on holders of Claims and Interests (a) that affirmatively vote to accept the Proposed Plan or (b) are entitled to vote on the Proposed Plan, vote to reject the Proposed Plan, and check a box on their ballot opting into the releases. The releases are also binding on related parties to those described in (a) and (b) (e.g., affiliates, predecessors, successors, and related parties as set forth in the Proposed Plan), but only to the extent the parties in (a) and (b) have authority to bind such persons or entities to the releases.
Pursuant to the Proposed Plan, the Company would emerge from the bankruptcy proceedings and the Foxconn Litigation and other causes of action of the Debtors would be preserved and continue (and proceeds
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therefrom would be generated, if any), Claims filed in the Chapter 11 cases would continue to be resolved pursuant to the claims resolution process with allowed claims being treated in accordance with the Proposed Plan, the Debtors’ tax attributes would be preserved, distributions to holders of allowed Claims and allowed Interests would be made, and the Debtors’ ability to conduct business and enter into one or more transactions after the bankruptcy proceedings to maximize value would be preserved as set forth in the Proposed Plan, including transactions that could permit the post-bankruptcy Debtors to make use of substantial tax attributes. At this time, however, the Debtors do not know what the post-effective date operations will include and no assurances can be provided that the Proposed Plan would generate any value for the Company’s post-effective date equity holders.
The Proposed Plan provides for the appointment of new members to serve on the Company’s board of directors (the “New Board”) as of the effective date of the Proposed Plan. The New Board will be identified by the equity committee appointed by the Bankruptcy Court to represent the equity Interests in the Chapter 11 Cases (the “Equity Committee”) with the consent of the Debtors (such consent not to be unreasonably withheld). The New Board will, among other things, oversee and direct the administration of the post-effective date Debtors’ operations in accordance with the Proposed Plan. On the effective date, or as soon as is reasonably practicable thereafter, the New Board will establish such procedures and protocols as it deems necessary to carry out its duties and appoint officers of the Debtors. The officers of the post-effective date Debtors will have the rights and responsibilities set forth in the new organizational documents of the Post-Effective Date Debtors, which may include the NOL Trading Restrictions to facilitate the preservation of the Company’s NOLs.
Neither the Debtors’ filing of the Proposed Plan and Disclosure Statement, nor this report, is a solicitation of votes to accept or reject the Proposed Plan. Votes on the Proposed Plan will be solicited in accordance with the Solicitation and Voting Procedures approved by the Bankruptcy Court and applicable law. See Note 9 – Subsequent Events.
The description of the Proposed Plan and Disclosure Statement contained in this report is qualified in its entirety by reference to the full text of the solicitation versions of the Proposed Plan and Disclosure Statement, copies of which are filed with this Quarterly Report on Form 10-Q as Exhibit 10.2 and are incorporated herein by reference.
Information contained in the Proposed Plan and the Disclosure Statement is subject to change substantially, whether as a result of amendments, supplements, or other modifications to the Proposed Plan, third-party actions, including governmental claims, or otherwise. The Proposed Plan is not binding on any party, including the Debtors, unless and until it is approved by the stakeholders entitled to vote and confirmed by the Bankruptcy Court and consummated. Information in the Disclosure Statement is subject to change and may be further supplemented. Neither the Debtors’ filing of the Proposed Plan and Disclosure Statement, nor this report, is a solicitation of votes to accept or reject the Proposed Plan. Votes on the Proposed Plan will be solicited in accordance with the solicitation and voting procedures filed with and approved by the Bankruptcy Court and applicable law.
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 (as defined below), the parties’ joint venture agreement, the Foxconn APA (as defined below), and the CMA (as defined below) 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.
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Cessation of Production
Shortly after commencing the Chapter 11 Cases, the Company ceased production of the Endurance and new program development. As a result of closing the transactions contemplated by the LandX Asset Purchase Agreement, the Company has no remaining revenue-producing operations and its primary operations consist of expenses associated with completing the Chapter 11 Cases. Accordingly, the Company lacks any revenue related to selling vehicles, and may have substantial contingent obligations related to those vehicles we sold (see “NHTSA Matters” under Note 7 – Commitments and Contingencies for additional information). Our ongoing operations during the third quarter of 2023 primarily included support of vehicles that had been delivered to customers, custody and maintenance of our assets for prospective sale under the process established in the Chapter 11 Cases or otherwise (which sale was completed on October 27, 2023), support for the sale process, legal matters, and administration and facilitation of the Chapter 11 Cases and related proceedings.
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 the Foxconn APA (as defined below) and outsource manufacturing of the Endurance to Foxconn under the CMA. On November 7, 2022, we entered into an Investment Agreement with Foxconn under which Foxconn agreed to make additional equity investments in the Company (the “Investment Agreement”). The Foxconn APA, the CMA and the Investment Agreement together are herein referred to as the “Foxconn Transactions.”
Investment Agreement
Under the Investment Agreement, Foxconn agreed to make additional equity investments in the Company through the purchase of $
On November 22, 2022, the parties completed the initial closing under the Investment Agreement, pursuant to which Foxconn purchased approximately $
The Investment Agreement provided for the second closing of Class A common stock (the “Subsequent Common Closing”), at which time, the Company maintains that Foxconn was required to purchase approximately
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
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purchase price of $
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 $
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 was 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.
Closing of the Foxconn APA
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 “Foxconn Asset Purchase Agreement” or “Foxconn APA” and the closing of the transactions contemplated thereby, the “Foxconn APA Closing”).
Pursuant to the Foxconn APA, Foxconn purchased Lordstown EV’s manufacturing facility located in Lordstown, Ohio. Lordstown EV had continued 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 had outsourced 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 had leased 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.
We received $
Research and development costs are presented net of the $
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exercisable until the third anniversary of the Foxconn APA Closing for
Contract Manufacturing Agreement
On May 11, 2022, Lordstown EV and Foxconn entered into a manufacturing supply agreement (the “CMA” or “Contract Manufacturing Agreement”) in connection with the Foxconn APA Closing. Pursuant to the CMA, 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. Foxconn did not provide the aforementioned procurement and post delivery services. The CMA was intended to provide us with an almost entirely variable manufacturing cost structure and to alleviate 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 were generally responsible for all motor vehicle regulatory compliance and reporting. The Contract Manufacturing Agreement also allocated 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, 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
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.
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.
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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 the expected or estimated amount of the total allowed claims in accordance with the Financial Accounting Standards Board’s Accounting Standards Codification (“ASC”) Topic 852-10. However, the ultimate settlement of these liabilities remain subject to analysis and negotiation, approval of the Bankruptcy Court, application of the Bankruptcy Code remaining deadlines for claims to be submitted (including governmental claims), and these liabilities may be settled or resolved for materially different amounts based on these proceedings and continued consideration of claims that may be modified, allowed, or disallowed. These amounts are also subject to adjustments if we make changes to our assumptions or estimates related to claims as additional information becomes available to us. Such adjustments may be material, and the Company will continue to evaluate the amount and classification of its pre-petition liabilities. Any additional liabilities that are subject to compromise will be recognized accordingly, and the aggregate amount of “Liabilities subject to compromise” may change materially. 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, lack of any sources of revenue, 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 realize further value from 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 our ongoing operations are expected to be limited, (ii) the effects of disruption from the Chapter 11 Cases, including the loss of a significant number of personnel, (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 $
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
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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 the Proposed Plan or other alternative liquidating transaction, (ii) the resolution of contingent and other claims, liabilities and the Foxconn Litigation (see Note 7 – Commitments and Contingencies), (iii) the outcome of the Company’s efforts to realize value, if any, from its remaining 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 and prosecution of 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). The Bankruptcy Court established October 10, 2023 as the deadline by which parties were required to file proofs of claim in the Chapter 11 Cases, and December 26, 2023 as the bar date for all governmental entities to file their proofs of claims. We cannot provide any assurances regarding what the Company’s total actual 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 marketing process culminated in the Debtors entering into the LandX Asset Purchase Agreement on September 29, 2023, providing for the sale of specified assets of the Company related to the design, production and sale of electric light duty vehicles focused on the commercial fleet market free and clear of liens, claims, encumbrances, and other interests, and assume certain specified liabilities of the Company for a total purchase price of $
As a result of closing the transactions contemplated by the LandX Asset Purchase Agreement, the Company has no remaining revenue-producing operations, and its primary operations consist of expenses associated with completing the Chapter 11 Cases. The Debtors have a limited amount of assets remaining (other than cash on hand, the claims asserted in the Foxconn Litigation and other potential claims that the Company may have against other parties, and tax attributes) following the closing under the LandX Asset Purchase Agreement. The sale of any remaining assets (whether in whole or in part) may not be consummated and would not result in meaningful proceeds. No assurance can be made regarding the sufficiency of the Debtor’s assets to complete the Chapter 11 Cases, provide estimated recoveries to claimants and fund anticipated post-emergence activities. Further, the assets included in this report are historical and are being reported prior to, and without regard to, the sale of assets to LandX and therefore, do not reflect the value ascribed by such sale. The assets 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 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.
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The Company has also been seeking 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. The Bankruptcy Court established October 10, 2023, as the deadline by which parties were required to file proofs of claim in the Chapter 11 Cases and December 26, 2023 for all governmental entities to file their proofs of claim. In addition, additional claims may be filed for executory contracts and unexpired leases under the Proposed Plan. We are conducting an extensive claims reconciliation process to analyze approximately $
If confirmation by the Bankruptcy Court of the Proposed Plan or alternative plan under Chapter 11 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 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 and , 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 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 shares of the issued and outstanding Class A common stock would automatically be combined into
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 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.
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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 remove the 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 became effective 90 days later. We remain subject to SEC reporting obligations.
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.
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.
Reorganization Items
Reorganization items represent the expenses directly and incrementally resulting from the Chapter 11 cases and are separately reported as Reorganization items in our statements of operations.
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 in June 2023. There were
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were recognized for the three and nine months ended September 30, 2022, as the Company had not yet commenced commercial production of the Endurance. As of September 30, 2023, inventory is presented as assets held for sale on the Company’s Balance Sheet. All of our inventory was sold pursuant to closing the LandX Asset Purchase Agreement in the fourth quarter of 2023, the effect of which is not reflected in these financial statements (See Note 9 – Subsequent Events).
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. As of September 30, 2023, property, plant and equipment is presented as assets held for sale on the Company’s Balance Sheet. Substantially all of our property, plant and equipment was sold pursuant to closing the LandX Asset Purchase Agreement in the fourth quarter of 2023, the effect of which is not reflected in these financial statements (See Note 9 – Subsequent Events and Note 4 – Property, Plant and Equipment and Assets Held for Sale for details regarding our classification of assets held for sale).
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 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 as of June 30, 2023. For the quarter ended September 30, 2023, the Company recognized an impairment charge of $
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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 Topic 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 $
As of September 30, 2023, following the Reverse Stock Split, we had
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