Filed Pursuant to Rule 424(b)(3)
Registration No. 333-250045
PROSPECTUS SUPPLEMENT NO. 8
(to Prospectus dated April 6, 2022)

Up to 72,133,238 Shares of Class A Common Stock
Up to 2,314,418 Shares of Class A Common Stock Issuable
Upon Exercise of Warrants Up to 2,314,418 Warrants
This prospectus supplement supplements the prospectus dated
April 6, 2022 (as amended and supplemented from time to time,
the “Prospectus”), which forms a part of our registration statement
on Form S-l (No. 333-250045). This prospectus supplement
is being filed to update and supplement the information in the
Prospectus with the information contained in our Quarterly Report
on Form 10-Q for the quarter ended June 30, 2022 filed
with the Securities and Exchange Commission on August 4, 2022 (the “Quarterly
Report”). Accordingly, we have attached the Quarterly Report to
this prospectus supplement.
The Prospectus and this prospectus supplement relate to the
issuance by us of up to an aggregate of up to 2,314,418 shares of
our Class A common stock, $0.0001 par value per share
(“Class A common stock”), that are issuable upon the exercise
of 2,314,418 warrants (the “Private Placement Warrants”) originally
issued in a private placement in connection with the initial public
offering of DiamondPeak Holdings Corp. (“DiamondPeak”). We will
receive the proceeds from any exercise of any Private Placement
Warrants for cash.
The Prospectus and this prospectus supplement also relate to the
offer and sale from time to time by the selling securityholders
named in the Prospectus (the “Selling Securityholders”) of
(i) up to 72,133,238 shares of Class A common stock
(including up to 1,220,230 shares of Class A common stock that
have been issued and up to 2,314,418 shares of Class A common
stock that may be issued upon exercise of the Private Placement
Warrants and up to 1,649,489 shares of Class A common stock
that may be issued upon exercise of BGL Warrants (as defined in the
Prospectus)) and (ii) up to 2,314,418 Private Placement
Warrants. We will not receive any proceeds from the sale of any
shares of Class A common stock or Private Placement Warrants
by the Selling Securityholders pursuant to this Prospectus and this
prospectus supplement.
We are registering the securities for resale pursuant to the
Selling Securityholders’ registration rights under certain
agreements between us and the Selling Securityholders. Our
registration of the securities covered by the Prospectus and this
prospectus supplement does not mean that the Selling
Securityholders will offer or sell any of the securities. The
Selling Securityholders may sell the shares of Class A common
stock and Private Placement Warrants covered by the Prospectus and
this prospectus supplement in a number of different ways and at
varying prices. We provide more information about how the Selling
Securityholders may sell the securities in the section entitled
“Plan of Distribution.”
Our Class A common stock is listed on the Nasdaq Global Select
Market under the symbol “RIDE.” On August 3, 2022, the closing price of
our Class A common stock was $2.93 per share.
This prospectus supplement updates and supplements the information
in the Prospectus and is not complete without, and may not be
delivered or utilized except in combination with, the Prospectus,
including any amendments or supplements thereto. This prospectus
supplement should be read in conjunction with the Prospectus and if
there is any inconsistency between the information in the
Prospectus and this prospectus supplement, you should rely on the
information in this prospectus supplement.
See the section entitled “Risk Factors” beginning on
page 5 of the Prospectus to read about factors you should
consider before buying our securities.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal
offense.
The date of this prospectus supplement is August 4, 2022.
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x |
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
|
For
the quarterly period ended June 30, 2022 |
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:
(234) 285-4001
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 |
|
RIDE |
|
NASDAQ |
|
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 x 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 x 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 x |
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
x
As of August 1, 2022, 205,871,561 shares of the registrant’s
Class A common stock were outstanding.
LORDSTOWN MOTORS CORP.
INDEX
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,” 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, prospects, growth,
strategies and the industry in which we operate, 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, and developments in the industry in which we operate 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, and developments in the industry in which we operate,
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, 2021, as filed with the SEC on February 28,
2022 (the “Form 10-K”), and in subsequent reports that we file
with the Securities and Exchange Commission (the “SEC”), including
this Form 10-Q for the quarter ended June 30, 2022,
as well as the following:
|
● |
our
ability to continue as a going concern, which requires us to manage
costs, obtain significant additional funding to execute our
business plan, and achieve our production targets for the Endurance
in 2022 and beyond, and our ability to raise such funding on a
reasonable timeline and with suitable terms; |
|
● |
our
ability to raise sufficient capital in order to invest in the
tooling that we expect will enable us to eventually lower the
Endurance bill of materials cost, continue design enhancements of
the Endurance and fund any future vehicles we may
develop; |
|
● |
the
cost and other impacts of contingent liabilities such as current
and future litigation, claims, regulatory proceedings,
investigations, complaints, product liability claims, stockholder
demand letters, availability of insurance coverage and/or adverse
publicity, which may have a material adverse effect, whether or not
successful or valid, on our liquidity position, cash projections,
business prospects and ability and timeframe to obtain financing
(See Note 5 – Commitments and Contingencies); |
|
● |
our
ability to realize the benefits from our recently completed
transactions with Foxconn (as defined below) under the Asset
Purchase Agreement (See Note 1 — Organization and Description of
Business and Basis of Presentation), the Contract Manufacturing
Agreement (as defined below) and the Foxconn Joint Venture
Agreement (as defined below); |
|
● |
our
ability to execute our business plan, expansion plans, strategic
alliances and other opportunities, including development and market
acceptance of our planned products; |
|
● |
risks
related to our limited operating history, the rollout of our
business and the timing of expected business milestones, including
the ability to complete the engineering of the Endurance, to ensure
the completion of the retooling of the production facility, to
establish appropriate supplier relationships, to successfully
complete testing, homologation and certification and to start
commercial production and delivery of the Endurance, in accordance
with our projected timeline; |
|
● |
our
ability to source and maintain suppliers for our critical
components and the terms of such arrangements, and our ability to
complete building out our supply chain; |
|
● |
the
availability and cost of raw materials and components, particularly
in light of current supply chain disruptions and labor concerns,
inflation, and the consequences of such shortages on testing and
other activities, which could present challenges that impact the
timing of our commercial production; |
|
● |
our ability to successfully identify and implement actions that
will lower the Endurance bill of materials cost, including sourcing
benefits anticipated from our relationship with Foxconn; |
|
● |
our
ability to obtain binding purchase orders and build customer
relationships, including uncertainties as to whether and to what
degree we are able to convert previously-reported nonbinding
pre-orders and other indications of interest in our vehicle into
binding orders and ultimately sales; |
|
● |
our
ability to deliver on the expectations of customers with respect to
the pricing, performance, quality, reliability, safety and
efficiency of the Endurance and to provide the levels of after sale
service and support that they will require; |
|
● |
the risk that our technology, including our hub motors, do not
perform as expected; |
|
● |
our
ability to conduct business using a direct sales model, rather than
through a dealer network used by most other OEMs; |
|
● |
our
ability to remain in compliance with our debt covenants and the
risks associated with having pledged significant assets as
collateral for recently incurred indebtedness; |
|
● |
the
effects of competition on our ability to market and sell
vehicles; |
|
● |
our
ability to attract and retain key personnel; |
|
● |
the
pace and depth of electric vehicle adoption generally; |
|
● |
our
expectations regarding our ability to obtain and maintain
intellectual property protection and not infringe on the rights of
others; |
|
● |
our
ability to obtain required regulatory approvals and changes in
laws, regulatory requirements, governmental incentives and fuel and
energy prices; |
|
● |
the
impact of health epidemics, including the COVID-19 pandemic, on our
business, the other risks we face and the actions we may take in
response thereto; |
|
● |
cybersecurity threats
and compliance with privacy and data protection laws; |
|
● |
failure to timely
implement and maintain adequate financial, information technology
and management processes and controls and procedures; |
|
● |
the possibility that
we may be adversely affected by other economic, geopolitical,
business and/or competitive factors, including the direct and
indirect effects of the war in Ukraine. |
PART I
FINANCIAL INFORMATION
Item 1. Financial
Statements
Balance Sheets
(in thousands except for share data)
(Unaudited)
|
|
June 30, 2022 |
|
|
December 31, 2021 |
|
ASSETS: |
|
|
|
|
|
|
|
|
Current Assets |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
235,686 |
|
|
$ |
244,016 |
|
Inventory, net |
|
|
4,013 |
|
|
|
— |
|
Prepaid expenses and other current assets |
|
|
43,080 |
|
|
|
47,121 |
|
Total current assets |
|
$ |
282,779 |
|
|
$ |
291,137 |
|
Property, plant and equipment |
|
|
286,928 |
|
|
|
382,746 |
|
Intangible assets |
|
|
1,000 |
|
|
|
1,000 |
|
Other non-current assets |
|
|
27,487 |
|
|
|
13,900 |
|
Total Assets |
|
$ |
598,194 |
|
|
$ |
688,783 |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY: |
|
|
|
|
|
|
|
|
Current Liabilities |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
12,979 |
|
|
$ |
12,098 |
|
Accrued and other current liabilities |
|
|
34,355 |
|
|
|
35,507 |
|
Purchase price down payment from Foxconn |
|
|
— |
|
|
|
100,000 |
|
Note payable to Foxconn |
|
|
13,500 |
|
|
|
— |
|
Total current liabilities |
|
$ |
60,834 |
|
|
$ |
147,605 |
|
Warrant and other non-current liabilities |
|
|
1,601 |
|
|
|
1,578 |
|
Total liabilities |
|
$ |
62,435 |
|
|
$ |
149,183 |
|
Stockholders’ equity |
|
|
|
|
|
|
|
|
Class A common stock, $0.0001 par value, 300,000,000 shares
authorized; 205,871,561 and 196,391,349 shares issued and
outstanding as of June 30, 2022 and
December 31, 2021, respectively |
|
$ |
21 |
|
|
$ |
19 |
|
Additional paid in capital |
|
|
1,106,521 |
|
|
|
1,084,390 |
|
Accumulated deficit |
|
|
(570,783 |
) |
|
|
(544,809 |
) |
Total stockholders’ equity |
|
$ |
535,759 |
|
|
$ |
539,600 |
|
Total liabilities and stockholders' equity |
|
$ |
598,194 |
|
|
$ |
688,783 |
|
See Notes to Condensed Consolidated Financial Statements
Lordstown Motors Corp.
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, 2022 |
|
|
June 30, 2021 |
|
|
June 30, 2022 |
|
|
June 30, 2021 |
|
Net
sales |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
|
29,941 |
|
|
|
33,793 |
|
|
|
55,960 |
|
|
|
48,187 |
|
Research
and development expenses 1 |
|
|
10,510 |
|
|
|
76,544 |
|
|
|
72,374 |
|
|
|
168,356 |
|
Gain on sale |
|
|
(101,736 |
) |
|
|
— |
|
|
|
(101,736 |
) |
|
|
— |
|
Total operating (income) expenses |
|
$ |
(61,285 |
) |
|
$ |
110,337 |
|
|
$ |
26,598 |
|
|
$ |
216,543 |
|
Income (loss) from operations |
|
|
61,285 |
|
|
|
(110,337 |
) |
|
$ |
(26,598 |
) |
|
$ |
(216,543 |
) |
Other
income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense) |
|
|
1,991 |
|
|
|
1,877 |
|
|
|
499 |
|
|
|
(17,255 |
) |
Interest income |
|
|
383 |
|
|
|
260 |
|
|
|
125 |
|
|
|
387 |
|
Income (Loss) before income taxes |
|
$ |
63,659 |
|
|
$ |
(108,200 |
) |
|
$ |
(25,974 |
) |
|
$ |
(233,411 |
) |
Income tax expense |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Net income (loss) |
|
$ |
63,659 |
|
|
$ |
(108,200 |
) |
|
$ |
(25,974 |
) |
|
$ |
(233,411 |
) |
Income
(loss) per share attributable to common shareholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
0.32 |
|
|
|
(0.61 |
) |
|
|
(0.13 |
) |
|
|
(1.33 |
) |
Diluted |
|
|
0.32 |
|
|
|
(0.61 |
) |
|
|
(0.13 |
) |
|
|
(1.33 |
) |
Weighted-average number of common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
200,821 |
|
|
|
176,585 |
|
|
|
198,674 |
|
|
|
175,595 |
|
Diluted |
|
|
201,015 |
|
|
|
176,585 |
|
|
|
198,674 |
|
|
|
175,595 |
|
1 Research
and development expenses for the three and six months ended
June 30, 2022 are net of $18.4 million in operating expense
reimbursements as described in Note 1
See Notes to Condensed Consolidated Financial Statements
Lordstown Motors Corp.
Statements of Stockholders’
Equity/(Deficit)
(in thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2022 |
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
Total |
|
|
|
Common Stock |
|
|
Paid-In |
|
|
Accumulated |
|
|
Stockholders’ |
|
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
Equity |
|
Balance
at March 31, 2022 |
|
|
196,980 |
|
|
$ |
20 |
|
|
$ |
1,088,925 |
|
|
$ |
(634,442 |
) |
|
$ |
454,503 |
|
Issuance of common stock |
|
|
642 |
|
|
|
— |
|
|
|
1,237 |
|
|
|
— |
|
|
|
1,237 |
|
RSU Vesting |
|
|
1,687 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Common stock issued to YA |
|
|
6,562 |
|
|
|
1 |
|
|
|
13,733 |
|
|
|
— |
|
|
|
13,734 |
|
Stock compensation |
|
|
— |
|
|
|
— |
|
|
|
2,626 |
|
|
|
— |
|
|
|
2,626 |
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
63,659 |
|
|
|
63,659 |
|
Balance at June 30, 2022 |
|
|
205,871 |
|
|
$ |
21 |
|
|
$ |
1,106,521 |
|
|
$ |
(570,783 |
) |
|
$ |
535,759 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2021 |
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
Total |
|
|
|
Common Stock |
|
|
Paid-In |
|
|
Accumulated |
|
|
Stockholders’ |
|
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
Equity |
|
Balance
at March 31, 2021 |
|
|
176,579 |
|
|
$ |
18 |
|
|
$ |
962,949 |
|
|
$ |
(259,652 |
) |
|
$ |
703,315 |
|
Issuance of common stock |
|
|
27 |
|
|
|
— |
|
|
|
48 |
|
|
|
— |
|
|
|
48 |
|
Stock compensation |
|
|
— |
|
|
|
— |
|
|
|
3,840 |
|
|
|
— |
|
|
|
3,840 |
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(108,200 |
) |
|
|
(108,200 |
) |
Balance at June 30, 2021 |
|
|
176,606 |
|
|
$ |
18 |
|
|
$ |
966,837 |
|
|
$ |
(367,852 |
) |
|
$ |
599,003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2022 |
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
Total |
|
|
|
Common Stock |
|
|
Paid-In |
|
|
Accumulated |
|
|
Stockholders’ |
|
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
Equity |
|
Balance
at December 31, 2021 |
|
|
196,391 |
|
|
$ |
19 |
|
|
$ |
1,084,390 |
|
|
$ |
(544,809 |
) |
|
$ |
539,600 |
|
Issuance of common stock |
|
|
1,106 |
|
|
|
1 |
|
|
|
1,852 |
|
|
|
— |
|
|
|
1,853 |
|
RSU Vesting |
|
|
1,812 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Common stock issued to YA |
|
|
6,562 |
|
|
|
1 |
|
|
|
13,733 |
|
|
|
|
|
|
|
13,734 |
|
Stock compensation |
|
|
— |
|
|
|
— |
|
|
|
6,546 |
|
|
|
— |
|
|
|
6,546 |
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(25,974 |
) |
|
|
(25,974 |
) |
Balance at June 30, 2022 |
|
|
205,871 |
|
|
$ |
21 |
|
|
$ |
1,106,521 |
|
|
$ |
(570,783 |
) |
|
$ |
535,759 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2021 |
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
Total |
|
|
|
Common Stock |
|
|
Paid-In |
|
|
Accumulated |
|
|
Stockholders’ |
|
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
Equity |
|
Balance
at December 31, 2020 |
|
|
168,008 |
|
|
$ |
17 |
|
|
$ |
765,162 |
|
|
$ |
(134,441 |
) |
|
$ |
630,738 |
|
Issuance of common stock |
|
|
614 |
|
|
|
— |
|
|
|
1,098 |
|
|
|
— |
|
|
|
1,098 |
|
Common stock issued for exercise of warrants |
|
|
7,984 |
|
|
|
1 |
|
|
|
194,797 |
|
|
|
— |
|
|
|
194,798 |
|
Stock compensation |
|
|
— |
|
|
|
— |
|
|
|
5,780 |
|
|
|
— |
|
|
|
5,780 |
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(233,411 |
) |
|
|
(233,411 |
) |
Balance at June 30, 2021 |
|
|
176,606 |
|
|
$ |
18 |
|
|
$ |
966,837 |
|
|
$ |
(367,852 |
) |
|
$ |
599,003 |
|
See Notes to Condensed Consolidated Financial Statements
Lordstown Motors Corp.
Statements of Cash Flows
(in thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
Six months ended |
|
|
Six months ended |
|
|
|
June 30, 2022 |
|
|
June 30, 2021 |
|
Cash
flows from operating activities |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(25,974 |
) |
|
$ |
(233,411 |
) |
Adjustments to reconcile net loss to cash used by operating
activities: |
|
|
|
|
|
|
|
|
Stock-based compensation |
|
|
6,546 |
|
|
|
5,780 |
|
Gain
on disposal of fixed assets |
|
|
(101,736 |
) |
|
|
— |
|
Other
non-cash changes |
|
|
9,123 |
|
|
|
18,261 |
|
Forgiveness of note payable |
|
|
— |
|
|
|
(1,015 |
) |
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivables |
|
|
— |
|
|
|
19 |
|
Inventory |
|
|
(13,413 |
) |
|
|
— |
|
Prepaid expenses and other assets |
|
|
5,301 |
|
|
|
726 |
|
Accounts payable |
|
|
1,197 |
|
|
|
7,209 |
|
Accrued expenses and other liabilities |
|
|
(2,471 |
) |
|
|
31,057 |
|
Net Cash used by operating activities |
|
$ |
(121,427 |
) |
|
$ |
(171,374 |
) |
Cash flows from investing activities |
|
|
|
|
|
|
|
|
Purchases of capital assets |
|
$ |
(40,043 |
) |
|
$ |
(175,601 |
) |
Investment in Foxconn Joint Venture |
|
|
(13,500 |
) |
|
|
— |
|
Proceeds from the sale of capital assets |
|
|
37,553 |
|
|
|
— |
|
Net Cash used by investing activities |
|
$ |
(15,990 |
) |
|
$ |
(175,601 |
) |
Cash flows from financing activities |
|
|
|
|
|
|
|
|
Proceeds from notes payable |
|
$ |
13,500 |
|
|
$ |
82,016 |
|
Down
payments received from Foxconn |
|
|
100,000 |
|
|
|
— |
|
Issuance of common stock |
|
|
1,853 |
|
|
|
1,098 |
|
Proceeds from Equity Purchase Agreement with YA, net of issuance
costs |
|
|
13,734 |
|
|
|
— |
|
Net Cash provided by financing activities |
|
$ |
129,087 |
|
|
$ |
83,114 |
|
Decrease in cash and cash equivalents |
|
$ |
(8,330 |
) |
|
$ |
(263,861 |
) |
Cash and cash equivalents, beginning balance |
|
|
244,016 |
|
|
|
629,761 |
|
Cash and cash equivalents, ending balance |
|
$ |
235,686 |
|
|
$ |
365,900 |
|
|
|
|
|
|
|
|
|
|
Non-cash items |
|
|
|
|
|
|
|
|
Derecognition of Foxconn down payments for sale of capital
assets |
|
$ |
200,000 |
|
|
$ |
— |
|
Capital assets acquired with payables |
|
$ |
1,846 |
|
|
$ |
14,631 |
|
See Notes to Condensed Consolidated Financial Statements
LORDSTOWN MOTORS CORP
NOTES TO INTERIM FINANCIAL
STATEMENTS
(unaudited)
NOTE 1 — ORGANIZATION AND DESCRIPTION OF BUSINESS AND
BASIS OF PRESENTATION
Lordstown Description of Business
Lordstown Motors Corp., a Delaware corporation (“Lordstown”, the
“Company” or “we”), is an electric vehicle (“EV”) innovator
developing high-quality light duty commercial fleet vehicles, with
the Endurance all electric pick-up truck as our first vehicle being
launched in the Lordstown, Ohio facility. We are in the final
design and testing phase related to our production of the Endurance
but have yet to bring a completed product to market. We have also
recently established the Foxconn Joint Venture (defined below) to
jointly design, develop, test and industrialize all-electric
commercial vehicles (“EC Vehicles”) with Foxconn using its
Mobility-in-Harmony (“MIH”) platform, which would also be built at
the Lordstown, Ohio plant and potentially licensed for production
elsewhere in the world.
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 Hon Hai Technology Group (“HHTG”;
either HHTG or applicable affiliates of HHTG are referred to herein
as “Foxconn”), 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 outsourced all of the manufacturing of
the Endurance to Foxconn under the Contract Manufacturing Agreement
(defined below). Lordstown EV also entered into a lease pursuant to
which Lordstown EV leases space located at the Lordstown, Ohio
facility from Foxconn for its 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.
The purchase price for the Lordstown facility consisted of $230
million and a reimbursement payment for certain operating and
expansion costs incurred by Lordstown EV from September 1,
2021 until the APA Closing. Foxconn made down payments of the
purchase price totaling $200 million through April 15, 2022,
of which $50 million and $100 million were received during the
three and six months ended June 30, 2022, respectively. 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 was subsequently increased to $18.4 million as of
June 30, 2022 and will be finalized over a post-closing review
period.
Research and development costs are presented net of the $18.4
million reimbursement of costs by Foxconn for the three and six
months ended June 30, 2022. Included in the $18.4 million
reimbursement were approximately $7.7 million of research and
development costs incurred in 2021. Of the $10 million expansion
costs, $7.5 million is attributable to assets sold to Foxconn at
the APA Closing with the remaining $2.5 million being a prepayment
for open purchase orders as of the APA Closing related to expansion
costs. Also in connection with the APA Closing, the Company issued
warrants to Foxconn that are exercisable until the third
anniversary of the APA Closing for 1.7 million shares of
Class A common stock at an exercise price of $10.50 per share
(the “Foxconn Warrants”). In October 2021, prior to entering
into the APA, Foxconn purchased 7.2 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 will
(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. The CMA provides
us with an entirely variable manufacturing cost structure and
alleviates us of the burden to invest in and maintain the
facility.
The CMA requires Foxconn to use commercially reasonable efforts to
assist with reducing component and logistics costs, and otherwise
improving the commercial terms of procurement with suppliers, and
the parties to work together to reduce the overall bill of
materials cost of the Endurance. Foxconn conducts 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 will invoice 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 are based upon rolling weekly forecasts we provide
that are generally binding only for a twelve-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
no 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 will terminate immediately upon the occurrence of any
bankruptcy event.
Foxconn Joint Venture Agreement
Also in connection with the APA Closing, Lordstown EV and Foxconn
entered into a Limited Liability Company Agreement (the “Foxconn
Joint Venture Agreement”) and filed a Certificate of Formation on
May 11, 2022 to form MIH EV Design LLC, a Delaware limited
liability company, as a joint venture to design, develop, test and
industrialize EC Vehicles (the “Foxconn Joint Venture”). Foxconn
has committed $100 million to the Foxconn Joint Venture, consisting
of $55 million in the form of direct capital contributions, and a
$45 million loan to Lordstown EV pursuant to and on the conditions
set forth in the Notes (as defined below), the proceeds of which
will only be used to fund our capital contributions to the Foxconn
Joint Venture. Initially, Foxconn has an ownership interest in the
Foxconn Joint Venture of 55% and Lordstown EV has a 45% interest.
On June 24, 2022, Foxconn made its initial investments
totaling $16.5 million in the Foxconn Joint Venture pursuant to the
Foxconn Joint Venture Agreement. Lordstown EV’s 45% share, or $13.5
million, was invested with proceeds from issuance of the Notes on
June 27, 2022.
The Foxconn Joint Venture Agreement contemplates a license to the
Foxconn Joint Venture to use certain intellectual property owned by
Foxconn and its affiliated entities relating to certain automotive
related designs (the “FX IP”) to develop EC Vehicles, with the
Foxconn Joint Venture owning all intellectual property rights it
develops (other than the FX IP). The Foxconn Joint Venture
Agreement also contemplates an exclusive license of all
intellectual property owned by the Foxcon Joint Venture relating to
any EC Vehicle designed by the Foxconn Joint Venture to Lordstown
EV for use in the North American commercial market, and to Foxconn
for use outside of North America, each subject to customary and
reasonable licensing fees.
Pursuant to the Foxconn Joint Venture Agreement, the Foxconn Joint
Venture will be overseen by a five-person management board with
Foxconn initially having the right to appoint three members and
Lordstown EV initially having the right to appoint two members.
Certain major decisions, including, but not limited to, the
approval of budgets, raising additional equity, incurring third
party indebtedness, mergers, related party transactions,
dissolution and increases in the size of the management board,
require the consent of at least one member of the management board
appointed by Lordstown EV for so long as we own at least 30% of the
Foxconn Joint Venture. Other than with respect to certain customary
permitted transfers, neither Lordstown EV nor Foxconn is permitted
to transfer its interest in the Foxconn Joint Venture for a period
of three years following the formation of the Foxconn Joint
Venture. Thereafter, each party has a right of first refusal and a
tag-along right with respect to any proposed transfer by the other
party.
Under the Foxconn Joint Venture
Agreement, we are Foxconn’s primary development partner in North
America. We plan to develop a portfolio of electric vehicles
targeting commercial fleet customers, built at the Lordstown, Ohio
plant using the advanced designs from Foxconn and its affiliates.
We plan for Foxconn to supply the FX IP for the vehicles to be
customized for and homologated in North America by the Foxconn
Joint Venture, along with certain vehicle components and
subsystems, enabling us to leverage Foxconn’s manufacturing
expertise, supply-chain network and extensive experience in
software development and integration (key capabilities in the
production of EVs) to complement our EV design, development,
engineering and homologation contributions. No assurance can
be given that we will be able to realize the potential benefits of
the Foxconn Transactions (as defined below).
Note, Guaranty and Security Agreements
The Foxconn Joint Venture Agreement provides that Lordstown EV, as
the issuer, and guaranteed by our wholly-owned subsidiary Lordstown
EV Sales LLC, and the Company (collectively, the “Note Parties”),
will enter into note, guaranty and security agreements (the
“Notes”) with Foxconn, as the payee, pursuant to which Foxconn
makes term loans to Lordstown EV in an aggregate original principal
amount not to exceed $45 million as advances are requested by
Lordstown EV. On June 27, 2022, Foxconn funded $13.5 million
in exchange for Lordstown EV delivering a Note in such amount. The
proceeds were used for our initial investment in the Foxconn Joint
Venture.
To secure its obligations under Notes, Lordstown EV has granted
Foxconn a security interest in (i) all of Lordstown EV’s
equity interests in the Foxconn Joint Venture, and
(ii) personal property constituting the hub motor, battery
module and battery pack assembly lines. We may use the proceeds
only to fund our capital commitment of $45 million to the Foxconn
Joint Venture, pursuant to the Foxconn Joint Venture Agreement.
The Notes will accrue interest at a rate of 7.0% per annum, to be
paid-in-kind, and due on the earlier of (i) the first
anniversary of issuance and (ii) December 31, 2025,
unless earlier terminated in the event of a default. Pursuant to
the Foxconn Joint Venture Agreement, each Note maturing before
December 31, 2025 will be refinanced by Foxconn with a new
Note in the principal amount equal to the outstanding principal
amount of the refinanced Note, plus accrued and unpaid interest
thereon, and will have terms substantively identical to the terms
of the refinanced Note. Events of default include, among other
things, the breach of certain covenants or representations,
defaults under other loans or obligations, judgments, orders or
claims not vacated or otherwise paid, involvement in bankruptcy
proceedings, an occurrence of a change of control or the loss of
any material collateral (as such terms are defined in the Notes).
Each Note will contain negative covenants which, while in effect,
restrict the Note Parties from, among other things, incurring
certain types of other debt (subject to various baskets), making
certain expenditures or investments, any mergers or other
fundamental changes, or changing the character of the Note Parties’
businesses. While it is not intended that any amounts will become
due under the Notes prior to December 31, 2025, each Note has
a term of one year and the refinancing of each Note is subject to
certain conditions, including the absence of an event of default.
Given the risk of the incurrence of an event of default, we have
classified the Notes as a current liability.
Each Note and all accrued but unpaid interest thereon may be
prepaid, in whole or in part, at any time or from time to time,
without any penalty or premium. Lordstown EV will be required to
prepay each Note and all accrued but unpaid interest thereon with
proceeds received upon distributions from the Foxconn Joint Venture
or cash proceeds of certain asset dispositions.
Ongoing Operations
Even though the APA, the Contract
Manufacturing Agreement and the Foxconn Joint Venture Agreement
(together, the “Foxconn Transactions”) were consummated, we will
need additional funding to execute our 2022 business plan
and to achieve scaled production of the Endurance, due to the
capital required to complete testing and validation, purchase the
raw materials and vehicle components for saleable vehicles, invest
in the hard tooling to lower our bill of materials cost and fund
future engineering and corporate expenditures. As discussed above,
the Company incurred debt to fund our investment in the Foxconn
Joint Venture, and no assurance can be given that we will be able
to raise sufficient capital or to realize the potential benefits of
the Foxconn Transactions.
We continue to explore all financing alternatives as our operations
are anticipated to require significant capital investment for the
foreseeable future. We are also seeking strategic partners,
including other automakers, to provide additional capital/or and
other support to enable us to scale the Endurance program and to
develop new vehicle programs through the Foxconn Joint Venture. As
we seek additional sources of financing, there can be no assurance
that such financing would be available to us on favorable terms or
at all.
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 from those estimates.
Liquidity and Going
Concern
The accompanying unaudited condensed consolidated interim 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 unaudited condensed consolidated interim financial statements
are issued and will be able to realize its assets and discharge its
liabilities and commitments in the normal course of business.
Pursuant to the requirements of the Financial Accounting Standards
Board’s Accounting Standards Codification (“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 unaudited condensed
consolidated interim 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 unaudited condensed consolidated interim financial statements
are issued. When substantial doubt exists, 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 unaudited condensed consolidated interim 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
unaudited condensed consolidated interim financial statements are
issued.
We
had cash and cash equivalents of approximately $235.7
million and an accumulated
deficit of $570.8 million at June 30, 2022 and a net
loss of $26.0 million for the six months ended
June 30, 2022. Since inception, we have been
developing our flagship vehicle, the Endurance, an electric
full-size pickup truck. We have built a limited number of
pre-production vehicles (“PPVs”) during the first half of 2022 for
testing, certification, validation, regulatory approvals and to
demonstrate the capabilities of the Endurance to potential
customers. The Company’s ability to continue as a going concern is
dependent on our ability to realize the benefits of the Foxconn
Transactions, raise substantial additional capital, complete the
development of the Endurance, obtain regulatory approval, begin
commercial production and launch the sale of the Endurance. The
Company’s current level of cash and cash equivalents are not
sufficient to execute our 2022 business plan and achieve scaled
production of the Endurance due to the substantial additional
capital required to complete testing and validation, purchase the
raw materials and vehicle components for saleable vehicles, invest
in the hard tooling to lower our bill of materials cost and fund
future engineering and corporate expenditures. For the foreseeable
future, we will incur significant operating expenses, capital
expenditures and working capital funding that will deplete our cash
on hand. These conditions raise substantial doubt regarding the
Company’s ability to continue as a going concern for a period of at
least one year from the date of issuance of these condensed
consolidated financial statements. As a result of having
insufficient capital to execute our 2022 business plan, we have
substantially limited investments in tooling and other aspects of
the Endurance and our operations. The trade-offs we are making,
including related to hard tooling, are likely to result in higher
costs for the Company in the future and are likely to slow or
impair future design enhancements or options we may otherwise seek
to make available to customers.
Our research and development expenses and capital expenditures are
significant due to spending needed for prototype components,
vehicle validation tests, securing necessary parts/equipment, and
utilizing in-house and third-party engineering services. During
2021, we experienced the stress that the COVID-19 pandemic put on
the global automotive supply chain. Furthermore, in 2021 and 2022,
we have incurred significant freight charges due in part to the
COVID-19 pandemic and challenging logistics that created delays and
higher pricing on standard freight as well as to incur
substantially higher expedited freight charges to mitigate delays.
The Company expects continued supply chain constraints including
the availability of and long lead times for components, as well as
raw materials and other pricing pressures that are likely to
negatively impact our cost structure and production timeline. We
also have meaningful exposure to material losses and costs related
to ongoing litigation for which insurance is unlikely to be
available. See Note 5 – Commitments and Contingencies for
additional information.
In an effort to alleviate these
conditions, management continues to seek and evaluate opportunities
to raise additional funds through the issuance of equity or debt
securities, asset sales, through arrangements with strategic
partners or through financing from government or financial
institutions. We have engaged a
financial advisor to advise the Company on additional financing
alternatives. No assurances can be given that any such
financing will be available on commercially reasonable terms or at
all.
As further described in Note 7, on
July 23, 2021, the Company entered into the Equity Purchase
Agreement with YA II PN, LTD. (“YA”), pursuant to which YA has
committed to purchase up to $400 million of its Class A common
stock, at the Company’s direction from time to time, subject to the
satisfaction of certain conditions (the “Equity Purchase
Agreement”). During the year ended December 31, 2021, the
Company issued 9.6 million shares to YA and received $49.4 million,
net of equity issuance costs. During the six months ended
June 30, 2022, the Company issued 6.6 million shares to
YA and received $13.7 million, net of equity issuance costs. The
actual amount that the Company raises under this agreement will
depend on market conditions and limitations in the agreement. In
particular, without stockholder approval, the amount of shares the
Company can issue would be limited to up to 35.1 million shares
(unless the average price of all shares sold is $7.48 or higher)
(“the Exchange Cap”), less the 16.2 million shares already
issued, and therefore this share limitation and the current market
price that would be the basis for the price of the shares of
Class A common stock to be sold limit the funds the Company is
able to raise to significantly less than the original $400 million
commitment under the Equity Purchase Agreement. As of June 30,
2022, the Company was in compliance with the terms and conditions
of the Equity Purchase Agreement and the remaining availability
under the Equity Purchase Agreement was $336.2 million, however, the actual
availability under the Equity Purchase Agreement is limited due to
the conditions described above.
On
May 11, 2022, pursuant to the APA Closing, the Company
sold the Lordstown facility to Foxconn for $230 million and
a reimbursement payment for certain operating and expansion costs
incurred by the Company from September 1, 2021 through the APA
Closing (see Note 1).
Foxconn made down payments of the purchase price totaling $200
million through April 15, 2022, of which $50 million and $100
million was received during the three and six months ended
June 30, 2022, respectively, and the $30 million balance
of the purchase price as well as a reimbursement payment of
approximately $27.5 million were paid at the APA Closing. Under the
terms of the APA, the reimbursement payment was an estimate and
will be finalized over a post-closing review period.
In addition to providing the Company
with additional capital, the Foxconn Transactions should
provide the benefits of scaled manufacturing, more cost-effective
access to certain raw materials, components and inputs, and will
reduce the overhead costs associated with the Lordstown facility
that were previously borne by the Company. In connection with the
Foxconn Joint Venture Agreement, Foxconn will make term loans to
Lordstown EV exclusively to fund our capital commitments to the
Foxconn Joint Venture in an aggregate original principal amount not
to exceed $45 million pursuant to Notes. As of June 30, 2022,
$13.5 million was borrowed by Lordstown EV under a Note dated
June 24, 2022.
As we seek additional sources of
financing and strategic partners, there can be no assurance that
such financing would be available to us on favorable terms or at
all. The Company’s ability to obtain additional financing is
subject to several factors, including market and economic
conditions, the significant amount of capital required, the
fact that the Endurance bill of materials cost is currently, and
expected to continue to be, substantially higher than the
anticipated selling price of the Endurance, uncertainty surrounding
regulatory approval and the performance of the vehicle, meaningful
exposure to material expenses and losses related to ongoing
litigation, our performance and investor sentiment with respect to
the Company and our business and industry, as well as our ability
to effectively implement and realize the expected benefits of the
Foxconn Transactions. As a result of these uncertainties, and
notwithstanding management’s plans and efforts to date, there
continues to be substantial doubt about the Company’s ability to
continue as a going concern. If we are
unable to raise substantial additional capital in the near term,
our operations and production plans will be scaled back or
curtailed. If the funds raised are insufficient to provide a bridge
to full commercial production at a profit, our operations could be
severely curtailed or cease entirely and we may not realize
any significant value from our assets.
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Use of Estimates in Financial Statement Preparation
The preparation of financial statements in accordance with GAAP
requires the use of estimates and assumptions that affect the
reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities, if any, at the date of the
financial statements, and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ
from those estimates.
Cash and cash equivalents
Cash includes cash equivalents which are highly liquid investments
that are readily convertible to cash. The Company considers all
liquid investments with original maturities of three months or less
to be cash equivalents. The Company presents cash and cash
equivalents within Cash and cash equivalents on the Balance
Sheet.
The Company maintains its cash in bank deposit and securities
accounts that exceed federally insured limits. We have not
experienced significant losses in such accounts and management
believes it is not exposed to material credit risk.
Inventory and Inventory Valuation
Inventory is stated at the lower of cost or net realizable value
(“LCNRV”). Net realizable value (“NRV”) is the estimated future
selling price of the inventory in the ordinary course of business.
Non-cash charges to reflect the NRV of inventory on hand is
recorded within Selling, General & Administrative expenses
in the Company’s condensed consolidated statement of
operations.
Property, plant and equipment
Property and equipment are stated at cost less accumulated
depreciation. Depreciation will be computed using the straight-line
method over the estimated useful lives of the related assets.
Determination of useful lives and depreciation will begin once the
assets are ready for their intended use.
Upon retirement or sale, the cost and related accumulated
depreciation 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.
Further, interest on any debt financing arrangement is capitalized
to the purchased property, plant, and equipment if the requirements
for capitalization are met.
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. Recoverability of assets to be
held and used is measured by a comparison of the carrying amount of
an asset or asset group to estimated undiscounted future cash flows
expected to be generated by the asset or asset group. If the
carrying amount of an asset or asset group exceeds its estimated
undiscounted future cash flows, an impairment charge is recognized
by the amount by which the carrying amount of the asset or asset
group exceeds the fair value of the asset or asset group.
Equity-Method Investments
We
recognize our investments in unconsolidated entities over whose
operating and financial policies we have the ability to exercise
significant influence but not control, under the equity
method of accounting. We initially record our investments
based on our cash invested.
Research and development costs
The Company expenses research and
development costs as they are incurred. Research and development
costs consist primarily of personnel costs for engineering,
testing and manufacturing costs, along with expenditures for
prototype manufacturing, testing, validation, certification,
contract and other professional services and costs associated with
operating the Lordstown facility, prior to its sale.
Stock-based compensation
The Company has adopted ASC Topic 718, Accounting for
Stock-Based Compensation (“ASC Topic 718”), which establishes a
fair value-based method of accounting for stock-based compensation
plans. In accordance with ASC Topic 718, the cost of stock-based
awards issued to employees and non-employees over the awards' vest
period is measured on the grant date based on the fair value. The
fair value is determined using the Black-Scholes option pricing
model, which incorporates assumptions regarding the expected
volatility, expected option life and risk-free interest rate.
The resulting amount is charged to expense on the straight-line
basis over the period in which the Company expects to receive the
benefit, which is generally the vesting period. Further, pursuant
to ASU 2016-09 – Compensation – Stock Compensation (Topic
718), the Company has elected to account for forfeitures as
they occur.
Warrants
The Company accounts for the Public Warrants (as defined below),
the Private Warrants (as defined below) and the Foxconn Warrants as
described in Note 3 in accordance with the guidance contained in
ASC Topic 815-40-15-7D and 7F under which the Public Warrants, the
Private Warrants and the Foxconn Warrants do not meet the criteria
for equity treatment and must be recorded as liabilities.
Accordingly, the Company classifies the the Public Warrants, the
Private Warrants and the Foxconn Warrants as liabilities at their
fair value and adjusts the Public Warrants, the Private Warrants
and the Foxconn Warrants to fair value at each reporting period or
at the time of settlement. Any change in fair value is recognized
in the statement of operations. The Company accounts for the BGL
Warrants as equity as these warrants qualify as share-based
compensation under ASC Topic 718.
Income taxes
Income taxes are recorded in accordance with ASC Topic
740, Income Taxes (“ASC Topic 740”). Deferred tax
assets and liabilities are determined based on the difference
between the financial statement and tax basis of assets and
liabilities using enacted tax rates in effect for the year in which
the differences are expected to reverse. Valuation allowances are
provided, if based upon the weight of available evidence, it is
more likely than not that some or all of the deferred tax assets
will not be realized. The Company has recorded a full valuation
allowance against its deferred tax assets.
The Company accounts for uncertain tax positions in accordance with
the provisions of ASC Topic 740. When uncertain tax positions
exist, the Company recognizes the tax benefit of tax positions to
the extent that the benefit would more likely than not be realized
assuming examination by the taxing authority. The determination as
to whether the tax benefit will more likely than not be realized is
based upon the technical merits of the tax position as well as
consideration of the available facts and circumstances. The Company
recognizes any interest and penalties accrued related to
unrecognized tax benefits as income tax expense. The Company does
not have material uncertain tax positions.
Recent accounting pronouncements
In February 2016, the Financial Accounting Standards Board
(“FASB”) issued ASU 2016-02, Leases, and has subsequently
issued several supplemental and/or clarifying ASUs (collectively,
“ASC 842”) to increase transparency and comparability among
organizations by recognizing lease assets and lease liabilities on
the balance sheet and disclosing key information about leasing
arrangements. The Company adopted ASC 842 effective January 1,
2021, but there was no material impact on the condensed
consolidated financial statements.
NOTE 3 — FAIR VALUE MEASUREMENTS
The Company follows the accounting guidance in 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 issued the following warrants: (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
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 $10.50. The BGL Warrants are classified
as equity as they qualify as share-based compensation under ASC
Topic 718.
During the six months ended June 30, 2021, approximately 6.7
million Public Warrants and 0.6 million of the Private Warrants
were exercised which resulted in cash proceeds of $82.0 million. As
of December 31, 2021 and June 30, 2022, there were
2.3 million Private Warrants, 1.6 million BGL Warrants and no
Public Warrants outstanding. Additionally, as of June 30,
2022, there were also 1.7 million Foxconn Warrants outstanding. The
fair value of the Foxconn Warrants was $0.3 million at issuance.
The Public Warrants, the Private Warrants and the Foxconn Warrants
are classified as a liability with any changes in the fair value
recognized immediately in our condensed consolidated statements of
operations.
The following table summarizes the net (loss) gain on changes
in fair value (in thousands) related to the Public Warrants,
the Private Warrants, and the Foxconn Warrants:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Three months ended |
|
|
Six months ended |
|
|
Six months ended |
|
|
|
June 30, 2022 |
|
|
June 30, 2021 |
|
|
June 30, 2022 |
|
|
June 30, 2021 |
|
Public Warrants |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
(27,180 |
) |
Private Warrants |
|
|
1,797 |
|
|
|
877 |
|
|
|
277 |
|
|
|
8,919 |
|
Foxconn Warrants |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Net
gain (loss) on changes in fair value |
|
$ |
1,797 |
|
|
$ |
877 |
|
|
$ |
277 |
|
|
$ |
(18,261 |
) |
Observed prices for the Public Warrants are used as Level 1 inputs
as they were actively traded until being redeemed in
January 2021. The Private Warrants and the Foxconn Warrants
are measured at fair value using Level 3 inputs. These instruments
are not actively traded and are valued using a Monte Carlo option
pricing model and Black Scholes option pricing model, respectively,
that use observable and unobservable market data as inputs.
A Monte Carlo model was used to simulate a multitude of price paths
to measure fair value of the Private Warrants. The Monte Carlo
model simulates risk-neutral stock price paths utilizing two
parameters – a drift term (based on the risk-free rate and assumed
volatility) and an error term (determined using a random number and
assumed volatility). This analysis simulates possible paths
for the stock price over the term of the Private Warrants. For
each simulated price path, we evaluate the conditions under which
the Company could redeem each Private Warrant for a fraction of
whole shares of the underlying as detailed within the applicable
warrant agreement. If the conditions are met, we assume
redemptions would occur, although the Private Warrant holders would
have the option to immediately exercise if it were more
advantageous to do so. For each simulated price path, if a
redemption does not occur the holders are assumed to exercise the
Private Warrants if the stock price exceeds the exercise price at
the end of the term. Proceeds from either the redemption or the
exercise of the Private Warrants are reduced to a present value
amount at each measurement date using the risk-free rate for each
simulated price path. Present value indications from iterated
priced paths were averaged to derive an indication of value for the
Private Warrants.
The Foxconn Warrants do not have any redemption features and their
fair value was measured using the Black-Scholes closed-form option
pricing model. Inputs to the model include remaining term,
prevailing stock price, strike price, risk-free rate, and
volatility.
The stock price volatility rates utilized were 80% and 50% for the
valuations as of June 30, 2022 and December 31,
2021, respectively. This assumption considers 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 and the Foxconn Warrants, as
well as the volatility implied by the traded options of the
Company. The risk-free rates utilized were 2.956% and 1.123%
for the valuations as of June 30, 2022 and
December 31, 2021, respectively, for the Private
Warrants. The risk-free rate utilized for the valuation of
the Foxconn Warrants as of June 30, 2022 was 2.905%.
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, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
235,686 |
|
|
$ |
235,686 |
|
|
$ |
— |
|
|
$ |
— |
|
Private Warrants |
|
|
208 |
|
|
|
— |
|
|
|
— |
|
|
|
208 |
|
Foxconn Warrants |
|
|
323 |
|
|
|
— |
|
|
|
— |
|
|
|
323 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
Quoted prices in
active markets
(Level 1) |
|
|
Prices with
observable inputs
(Level 2) |
|
|
Prices with
unobservable inputs
(Level 3) |
|
December 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
244,016 |
|
|
$ |
244,016 |
|
|
$ |
— |
|
|
$ |
— |
|
Private Warrants |
|
|
485 |
|
|
|
— |
|
|
|
— |
|
|
|
485 |
|
The following table summarizes the changes in our Level 3 financial
instruments (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
December 31, 2021 |
|
|
Additions |
|
|
Settlements |
|
|
Loss / (Gain) on fair
value adjustments
included in earnings |
|
|
Balance at
June 30, 2022 |
|
Private Warrants |
|
$ |
485 |
|
|
|
— |
|
|
|
— |
|
|
|
(277 |
) |
|
$ |
208 |
|
Foxconn Warrants |
|
|
— |
|
|
|
323 |
|
|
|
— |
|
|
|
— |
|
|
|
323 |
|
NOTE 4 — PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, net, consisted of the following:
(in thousands)
|
|
|
|
|
|
|
|
|
June 30, 2022 |
|
|
December 31, 2021 |
|
Property, Plant & Equipment |
|
|
|
|
|
|
|
|
Land |
|
$ |
— |
|
|
$ |
326 |
|
Buildings |
|
|
— |
|
|
|
6,223 |
|
Machinery and equipment |
|
|
165 |
|
|
|
38,608 |
|
Vehicles |
|
|
522 |
|
|
|
465 |
|
Construction in progress |
|
|
286,241 |
|
|
|
337,124 |
|
|
|
$ |
286,928 |
|
|
$ |
382,746 |
|
Less: Accumulated depreciation |
|
|
— |
|
|
|
— |
|
Total |
|
$ |
286,928 |
|
|
$ |
382,746 |
|
As of
December 31, 2021, construction in progress included
manufacturing equipment, operating equipment and other general
assets, retooling and construction at the Company's facilities in
Lordstown, Ohio, Farmington Hills, Michigan, and Irvine,
California, along with tooling held at various supplier
locations. During the quarter
ended June 30, 2022, the Company sold its manufacturing
facility, certain equipment, and other assets located in Lordstown,
Ohio and recorded a gain of $101.7 million. We continue to own our
hub motor assembly line, as well as our battery module and pack
line assets, certain tooling and other excluded assets. We
outsourced all of the manufacturing of the Endurance and operation
of certain remaining assets to Foxconn under the Contract
Manufacturing Agreement.
The Company is currently preparing for commercial production of the
Endurance pickup truck and continues to invest in the necessary
tooling and equipment. Completed assets will be transferred to
their respective asset classes and depreciation will begin when an
asset is ready for its intended use, which is anticipated to be
triggered by the Company achieving its defined milestones for
commercial production, for the vast majority of our assets. As of
June 30, 2022, commercial production has not begun and
thus no depreciation was recognized for any of our assets in 2022
or 2021.
NOTE 5 — COMMITMENTS AND CONTINGENCIES
The Company has entered into a supply agreement with Samsung to
purchase lithium-ion cylindrical battery cells. The agreement
provides for certain pricing and minimum quantity parameters,
including our obligation to purchase such minimum amounts which
total approximately $11.5 million in 2022, subject to change for
increases in raw material pricing.
The Company is subject to various pending and threatened legal
proceedings arising in the ordinary course of business. The Company
records a liability for loss contingencies in the condensed
consolidated interim financial statements when a loss is known or
considered probable and the amount can be reasonably estimated. The
Company may also enter into discussions regarding settlement of
these matters, and may enter into settlement agreements if it
believes it is in the best interest of the Company. Settlement by
the Company or adverse decisions with respect to the matters
disclosed, individually or in the aggregate, may result in
liability material to the Company’s condensed consolidated results
of operations, financial condition or cash flows. As of
June 30, 2022, we have not established accruals or reserves as
to most of our proceedings. Our provisions are based on historical
experience, current information and legal advice, and they may be
adjusted in the future based on new developments. Estimating
probable losses requires the analysis of multiple forecasted
factors that often depend on judgments and potential actions by
third parties.
On October 30, 2020, the Company, together with certain of its
current and former executive officers including Mr. Burns,
Mr. LaFleur, Mr. Post and Mr. Schmidt, and certain
of our other current and former employees, were named as defendants
in a lawsuit filed by Karma Automotive LLC (“Karma”) in the United
States District Court for the Central District of California
(“District Court”). On November 6, 2020, the District Court
denied Karma’s request for a temporary restraining order. On
April 16, 2021, Karma filed an Amended Complaint that added
additional defendants (two Company employees and two Company
contractors that were previously employed by Karma) and a number of
additional claims alleging generally that the Company unlawfully
poached key Karma employees and misappropriated Karma’s trade
secrets and other confidential information. The Amended Complaint
contains a total of 28 counts, including: (i) alleged
violations under federal law of the Computer Fraud and Abuse Act
and the Defend Trade Secrets Act, (ii) alleged violations of
California law for misappropriation of trade secrets and unfair
competition; (iii) common law claims for breach of contract
and tortious interference with contract; (iv) common law
claims for breach of contract, including confidentiality
agreements, employment agreements and the non-binding letter of
intent; and (v) alleged common law claims for breach of duties
of loyalty and fiduciary duties. The Amended Complaint also asserts
claims for conspiracy, fraud, interstate racketeering activity, and
violations of certain provisions of the California Penal Code
relating to unauthorized computer access. Karma is seeking
permanent injunctive relief and monetary damages.
After several months of discovery, Karma filed a motion for
preliminary injunction on August 8, 2021, seeking to
temporarily enjoin the Company from producing any vehicle that
incorporated Karma’s alleged trade secrets. On August 16,
2021, Karma also moved for sanctions for spoliation of evidence. On
September 16, 2021, the District Court denied Karma’s motion
for a preliminary injunction, and denied, in part, and granted, in
part, Karma’s motion for sanctions. As a result of its partial
grant of Karma’s sanctions motion, the District Court awarded Karma
a permissive adverse inference jury instruction, the scope of which
will be determined at trial.
On January 14, 2022, Karma filed a motion for terminating
sanctions (i.e., judgment in its favor on all claims) against the
Company and defendant, Darren Post, as a result of Mr. Post’s
handling of documents subject to discovery requests. The Company
and Mr. Post opposed the request for sanctions. On
February 18, 2022, the Court granted in part Karma’s motion
for sanctions against Mr. Post and the Company, finding that
Karma was entitled to reasonable attorneys’ fees and costs incurred
as a result of Mr. Post’s and the Company’s failure to comply
with the Court’s discovery orders. Karma’s request for terminating
sanctions was denied. As a result of the Court’s order, on
March 4, 2022, Karma submitted its application for attorneys’
fees and costs in the amount of $0.1 million. The Company did not
oppose Karma’s application, and on March 21, 2022 the Court
ordered an award of Karma’s costs and attorneys’ fees against the
Company and Mr. Post in the amount of $0.1 million, which has
been paid by the Company.
On January 27, 2022, the District Court granted the parties’
request to vacate the scheduled case deadlines and August 2022
trial date. Fact discovery closed on July 5, 2022, and a jury
trial date has been set for December 6, 2022. The parties
are currently engaged in expert discovery and expect to exchange
reports and complete depositions in the third quarter of 2022.
On July 22, 2022, Karma filed a second motion for terminating
sanctions based upon Mr. Post’s installation of certain
software on his personal desktop and laptop computers in early
2022, which Karma alleges permanently deleted thousands of files
from the computers. Karma contends that the Company is also
responsible for the deletions because it failed to preserve the
computers following Mr. Post’s December 2021 disclosure
that the computers might contain Karma documents or information.
Karma has requested that the Court enter default judgment on all
claims against Mr. Post and the Company. Karma also asks
that, in the event terminating sanctions are not issued, the Court
order a negative adverse inference on “remaining issues,”
specifically that “Defendants Lordstown Motors Corp. and Darren
Post shall be presumed to have misappropriated Karma’s trade
secrets and confidential information, used Karma’s trade secrets
and confidential information, and deliberately and maliciously
destroyed evidence of their misappropriation and use of Karma’s
trade secrets and confidential information in considering all
damages and maliciousness.” The Company will oppose the motion. A
hearing on the motion is scheduled for August 22, 2022.
The Company is continuing to evaluate the matters asserted in the
lawsuit and is vigorously defending against Karma’s claims. The
Company continues to believe that there are strong defenses to the
claims and any damages demanded. At this time, however, the Company
cannot predict the outcome of this matter or estimate a range of
possible loss. However, as of June 30, 2022, we have
established an accrual of $4.0 million for this matter.
Six related putative securities class action lawsuits were filed
against the Company and certain of its current and former officers
and directors and former DiamondPeak Holdings Corp. (“DiamondPeak”)
directors between March 18, 2021 and May 14, 2021 in the
U.S. District Court for the Northern District of Ohio (Rico v.
Lordstown Motors Corp., et al. (Case No. 21-cv-616); Palumbo
v. Lordstown Motors Corp., et al. (Case No. 21-cv-633); Zuod
v. Lordstown Motors Corp., et al. (Case No. 21-cv-720); Brury
v. Lordstown Motors Corp., et al. (Case No. 21-cv-760); Romano
v. Lordstown Motors Corp., et al., (Case No. 21-cv-994); and
FNY Managed Accounts LLC v. Lordstown Motors Corp., et al. (Case
No. 21-cv-1021)). The matters have been consolidated and
the Court appointed George Troicky as lead plaintiff and Labaton
Sucharow LLP as lead plaintiff’s counsel. On September 10,
2021, lead plaintiff and several additional named plaintiffs filed
their consolidated amended complaint, asserting violations of
federal securities laws under Section 10(b),
Section 14(a), Section 20(a), and Section 20A of the
Exchange Act and Rule 10b-5 thereunder against the Company and
certain of its current and former officers and directors. The
complaint generally alleges that the Company and individual
defendants made materially false and misleading statements relating
to vehicle pre-orders and production timeline. Defendants filed a
motion to dismiss, which is fully briefed as of March 3, 2022.
A hearing on the motion to dismiss has not been scheduled and a
decision has not yet been rendered. We intend to vigorously defend
against the claims. The proceedings are subject to uncertainties
inherent in the litigation process. We cannot predict the outcome
of these matters or estimate the possible loss or range of possible
loss, if any.
Four related stockholder derivative lawsuits were filed against
certain of the Company’s officers and directors, former DiamondPeak
directors, and against the Company as a nominal defendant between
April 28, 2021 and July 9, 2021 in the U.S. District
Court for the District of Delaware (Cohen, et al. v. Burns, et al.
(Case No. 21-cv-604); Kelley, et al. v. Burns, et al. (Case
No. 12-cv-724); Patterson, et al. v. Burns, et al. (Case
No. 21-cv-910); and Sarabia v. Burns, et al. (Case
No. 21-cv-1010)). The derivative actions in the District Court
of Delaware have been consolidated. On August 27, 2021,
plaintiffs filed a consolidated amended complaint, asserting
violations of Section 10(b), Section 14(a),
Section 20(a) and Section 21D of the Exchange Act
and Rule 10b-5 thereunder, breach of fiduciary duties, insider
selling, and unjust enrichment, all relating to vehicle pre-orders,
production timeline, and the merger with DiamondPeak. On
October 11, 2021, defendants filed a motion to stay this
consolidated derivative action pending resolution of the motion to
dismiss in the consolidated securities class action. On
March 7, 2022, the court granted in part defendants' motion to
stay, staying the action until the resolution of the motion to
dismiss in the consolidated securities class action, but requiring
the parties to submit a status report if the motion to dismiss is
not resolved by September 3, 2022. The court further
determined to dismiss without a motion on the grounds that the
claim was premature plaintiffs' claim for contribution for
violations of Sections 10(b) and 21D of the Exchange Act
without prejudice. We intend to vigorously defend against the
claims. The proceedings are subject to uncertainties inherent in
the litigation process. We cannot predict the outcome of these
matters or estimate the possible loss or range of possible loss, if
any.
Another related stockholder derivative lawsuit was filed in U.S.
District Court for the Northern District of Ohio on June 30,
2021 (Thai v. Burns, et al. (Case No. 21-cv-1267)), asserting
violations of Section 10(b), Section 14(a),
Section 20(a) and Section 21D of the Exchange Act
and Rule 10b-5 thereunder, breach of fiduciary duties, unjust
enrichment, abuse of control, gross mismanagement, and waste, based
on similar facts as the consolidated derivative action in the
District Court of Delaware. On October 21, 2021, the court in
the Northern District of Ohio derivative action entered a
stipulated stay of the action and scheduling order relating to
defendants’ anticipated motion to dismiss and/or subsequent motion
to stay that is similarly conditioned on the resolution of the
motion to dismiss in the consolidated securities class
action. We intend to vigorously defend against the action. The
proceedings are subject to uncertainties inherent in the litigation
process. We cannot predict the outcome of these matters or estimate
the possible loss or range of possible loss, if any.
Another
related stockholder derivative lawsuit was filed in the Delaware
Court of Chancery on December 2, 2021 (Cormier v. Burns, et
al. (C.A. No. 2021-1049)), asserting breach of fiduciary
duties, insider selling, and unjust enrichment, based on similar
facts as the federal derivative actions. An additional related
stockholder derivative lawsuit was filed in the Delaware Court of
Chancery on February 18, 2022 (Jackson v. Burns, et al. (C.A.
No. 2022-0164)), also asserting breach of fiduciary duties,
unjust enrichment, and insider selling, based on similar facts as
the federal derivative actions. On April 19, 2022, the parties
in Cormier and Jackson filed a stipulation and proposed order
consolidating the two actions, staying the litigation until the
resolution of the motion to dismiss in the consolidated securities
class action and appointing Schubert Jonckheer & Kolbe LLP
and Lifshitz Law PLLC as Co-Lead Counsel. On May 10,
2022, the court granted the parties’ proposed stipulation and order
to consolidate the actions, and to stay the consolidated action
pending the resolution of the motion to dismiss in the consolidated
securities class action. While the action
remains stayed, on June 24, 2022, the plaintiffs filed a
consolidated complaint asserting similar claims, and substituting a
new plaintiff (Ed Lomont) for Cormier, who no longer appears to be
a named plaintiff in the consolidated action. We intend to
vigorously defend against these actions. The proceedings are
subject to uncertainties inherent in the litigation process. We
cannot predict the outcome of these matters or estimate the
possible loss or range of possible loss, if any.
Two putative class action lawsuits
were filed against former DiamondPeak directors and DiamondPeak
Sponsor LLC on December 8 and 13, 2021 in the Delaware Court
of Chancery (Hebert v. Hamamoto, et al. (C.A. No. 2021-1066);
and Amin v Hamamoto, et al. (C.A. No. 2021-1085)). The
plaintiffs purport to represent a class of investors in DiamondPeak
and assert breach of fiduciary duty claims based on allegations
that the defendants made or failed to prevent alleged
misrepresentations regarding vehicle pre-orders and production
timeline, and that but for those allegedly false and misleading
disclosures, the plaintiffs would have exercised a right to redeem
their shares prior to the de-SPAC transaction. On February 9,
2022, the parties filed a stipulation and proposed order
consolidating the two putative class action lawsuits, appointing
Hebert and Amin as co-lead plaintiffs, appointing Bernstein
Litowitz Berger & Grossmann LLP and Pomerantz LLP as
co-lead counsel and setting a briefing schedule for the motions to
dismiss and motions to stay. The motions to stay were fully
briefed as of February 23, 2022 and the court held oral
argument on February 28, 2022. On March 7, 2022, the
court denied the motion to stay. On March 10, 2022, defendants
filed their brief in support of their motion to dismiss. The motion
to dismiss was fully briefed on April 27, 2022, and was
scheduled for oral argument on May 10, 2022. On May 6,
2022, defendants withdrew the motion to dismiss without prejudice.
On July 22, 2022, co-lead plaintiffs filed an amended class
action complaint asserting similar claims. We intend to vigorously
defend against the claims. The proceedings are subject to
uncertainties inherent in the litigation process. We cannot predict
the outcome of these matters or estimate the possible loss or range
of possible loss, if any.
In addition, between approximately March 26, 2021 and
September 23, 2021, LMC received eight demands for
books and records pursuant to Section 220 of the Delaware
General Corporation Law from stockholders who state they are
investigating whether to file similar derivative lawsuits, among
other purposes. A lawsuit to compel inspection of books and records
under 8 Del. C. § 220 was filed against the Company on May 31,
2022 in the Delaware Court of Chancery (Turner v. Lordstown Motors
Corp. (C.A. No. 2022-0468)). The plaintiff seeks production of
documents related to, among other things, vehicle pre-orders,
production timeline, and stock sales by insiders. The parties are
engaged in discussions to resolve or narrow this action and do not
have a schedule for responding to the complaint. We intend to
vigorously defend against this action to the extent it is not
resolved. The proceedings are subject to uncertainties inherent in
the litigation process. We cannot predict the outcome of these
matters or estimate the possible loss or range of possible loss, if
any.
The Company has also received two subpoenas from the SEC for the
production of documents and information, including relating to the
merger between DiamondPeak and Lordstown EV Corporation (formerly
known as Lordstown Motors Corp.), a Delaware corporation (“Legacy
Lordstown”) and pre-orders of vehicles, and the Company has been
informed by the U.S. Attorney’s Office for the Southern District of
New York that it is investigating these matters. The Company has
cooperated, and will continue to cooperate, with these and any
other regulatory or governmental investigations and inquiries.
Lordstown was notified by
its primary insurer under our post-merger directors and
officers insurance policy that insurer is taking the
position that no coverage is available for the consolidated
securities class action, various shareholder derivative actions,
the consolidated stockholder class action, various demands for
inspection of books and records, the SEC investigation, and the
investigation by the United States Attorney’s Office for the
Southern District of New York described above, and certain
indemnification obligations, under an exclusion to the
policy called the “retroactive date exclusion.” The
insurer has identified other potential coverage issues as
well. Excess coverage attaches only after the underlying
insurance has been exhausted, and generally applies in conformance
with the terms of the underlying insurance. Lordstown is analyzing
the insurer’s position, and intends to pursue any
available coverage under this policy and other insurance. As a
result of the denial of coverage, no or limited insurance may
be available to us to reimburse our expenses or cover any potential
losses for these matters, which could be significant.
On March 24, 2022, the Company received a letter addressed to
its Board from the law firm of Purcell & Lefkowitz LLP
(“Purcell”) on behalf of three purported stockholders.
The stockholder letter alleged that we would be required by
Rules 14a-4(a)(3) and (b)(1) of the Exchange Act to
present two separate proposals at the annual meeting of
stockholders held on May 19, 2022 (the “2022 Annual Meeting”)
relating to the proposed amendment of our Second Amended and
Restated Certificate of Incorporation, as amended (the “Charter”)
to increase the number of authorized shares, such that separate
votes could be cast on a proposed increase in the number of shares
of Class A common stock and a proposed increase in the number
of shares of preferred stock. The Company does not believe that
separate proposals would be required by the Exchange Act.
Irrespective of the position asserted in the stockholder letter,
the Company no longer believes an increase in the shares of
preferred stock is needed and did not include this aspect of the
proposal in the definitive proxy statement for the 2022 Annual
Meeting filed with the SEC on April 8, 2022, as supplemented
on May 9, 2022 (the “2022 Proxy Statement”).
The stockholder letter also addressed the approval of the Charter
at the special meeting of stockholders held on October 22,
2020 (the “Special Meeting”), which included a 200 million share
increase in the number of authorized shares of Class A common
stock and was approved by majority of the then-outstanding shares
of both series of the Company’s common stock, voting as a single
class. The stockholder letter alleged that the Charter approval
required a separate vote in favor by at least a majority of the
outstanding shares of Class A common stock under
Section 242(b)(2) of the Delaware General Corporation Law
(“DGCL”), and that the 200 million shares in question are thus
unauthorized. The stockholder letter requested that the Company
present a proposal at the 2022 Annual Meeting seeking ratification
of the number of shares of Class A common stock authorized
under the Company’s current Charter.
The Board has completed its review of the matters raised by the
stockholder letter with the assistance of outside counsel not
involved in the underlying transactions at issue and determined,
(a) in reliance upon, among other things, advice of several
law firms including a legal opinion of Delaware counsel, that the
assertions regarding DGCL Section 242(b)(2) are wrong and
that a separate class vote of the Class A common stock was not
required to approve the amendment of the Charter at the Special
Meeting to increase the shares of Class A common stock, and
(b) that the remaining allegations therein are without merit.
However, no assurances can be made regarding the outcome of any
claims, proceedings or litigation regarding the authorization of
our Class A common stock, including the claims raised by the
stockholder letter. Any proceedings on these matters would be
subject to uncertainties inherent in the litigation process. Claims
alleging that a portion of our Class A common stock was not
authorized could lead to shares of our Class A common stock
being voidable and have a material adverse effect on the Company
and its prospects.
On May 20, 2022, the Company received a second letter
addressed to its Board from Purcell on behalf of the same three
purported stockholders regarding the vote at the 2022 Annual
Meeting to approve the amendment to our Charter to increase the
total number of authorized shares of Class A common stock from
300 million shares to 450 million shares (the “Charter Amendment”),
as further described in the 2022 Proxy Statement. The letter
asserted, among other things, that that in connection with the vote
at the Annual Meeting to approve the Charter Amendment, brokers had
cast discretionary votes on such proposal despite a statement in
the 2022 Proxy Statement that they would not have authority to do
so. The Proxy Statement erroneously indicated that brokers would
not have discretionary authority to vote with respect to the
proposal to approve the Charter Amendment and that if beneficial
owners did not provide direction to their broker as to how to vote,
a broker non-vote would result that would have the effect of a vote
cast against such proposal. The Company’s Current Report on
Form 8-K filed with the SEC on May 19, 2022 reported that
the Charter Amendment was approved at the Annual Meeting and that
the Charter was thereby amended, as the Charter Amendment had been
filed with the Secretary of State of the State of Delaware.
The Company’s Current Report on Form 8-K filed on May 23,
2022 reported that the Purcell letter had been received (and filed
it as an exhibit), that the report of the votes at the Annual
Meeting regarding the approval of the Charter Amendment was not
considered final and that, to date, none of the shares authorized
by the Charter Amendment had been issued. On May 31, 2022,
after further review by the Company and its Board of the votes on
the proposal to approve the Charter Amendment, due to uncertainty
in counting the number of votes cast “for” by brokers exercising
discretion without direction from the beneficial owner, the Board
determined not to consider the Charter Amendment approved by the
Company’s stockholders and we filed a Certificate of Correction
with the Secretary of State of the State of Delaware, voiding the
Charter Amendment and causing the number of authorized shares of
Class A common stock to remain at 300 million.
The
Company’s Form 8-K/A filed with the SEC on June 1, 2022,
amending and supplementing the Forms 8-K filed by the Company on
May 19, 2022, and May 23, 2022, reported that the Company
had filed the Certificate of Correction and announced that the
Board had called a special meeting of stockholders to be held on
August 17, 2022 (“Special Meeting”), to resubmit for approval
an amendment to our Charter to increase the number of authorized
shares of our Common Stock from 300 million to 450 million shares
(the “Certificate of Amendment”). On July 7,2022, we filed a
definitive proxy statement for the Special Meeting. The
Company did not issue any of the additional shares authorized by
the Charter Amendment and, unless and until the Certificate of
Amendment is approved by our stockholders and becomes effective,
does not intend to issue or reserve for issuance any such
additional shares.
Except as described above, the Company is not a party to any
material legal proceedings and is not aware of any pending or
threatened claims. From time to time however, the Company may be
subject to various legal proceedings and claims that arise in the
ordinary course of its business activities.
NOTE 6 — RELATED PARTY TRANSACTIONS
On November 7, 2019, the Company entered into a transaction
with Workhorse Group Inc., for the purpose of obtaining certain
intellectual property. In connection with granting this license,
Workhorse Group received 10% of the outstanding Legacy Lordstown
common stock and was entitled to royalties of 1% of the gross sales
price of the first 200,000 vehicle sales. In November 2020, we
pre-paid a royalty payment to Workhorse Group in the amount of
$4.75 million. The upfront royalty payment represented an advance
on the royalties discussed above. The upfront royalty payment was
recorded as other non-current assets as of June 30, 2022
and December 31, 2021.
As of September 30, 2021, Workhorse Group was no longer
determined to be a related party.
As
described in Note 1, the Company invested $13.5 million into the
Foxconn Joint Venture, of which the Company owns 45%. The
Company expects that the Foxconn Joint Venture will reimburse
certain of the Company’s costs, to the extent incurred, as they
relate to the development efforts undertaken by the Foxconn Joint
Venture. We intend to negotiate a Management Services Agreement
with the Foxconn Joint
Venture in order to address the services to be provided by
the Company to the Foxconn Joint
Venture. The board of managers of the Foxconn Joint
Venture and the Company also intend to implement a process
to review and approve all material transactions between the
Foxconn
Joint Venture and the Company. Our employees will perform
agreed-upon work on behalf of the Foxconn Joint
Venture, at the direction of its board of managers, that
will be reimbursed in accordance with the approved Foxconn Joint
Venture budget and at a value representing our cost.
NOTE 7 — CAPITAL STOCK AND LOSS PER SHARE
Our Charter provides
for 312 million authorized shares of capital stock, consisting of
(i) 300 million shares of Class A common stock and
(ii) 12 million shares of preferred stock each with a par
value of $0.0001. We had 205.9 million and 196.4 million
shares of common stock issued and outstanding as of June 30, 2022 and
December 31, 2021, respectively.
FASB ASC Topic 260, Earnings Per Share, requires the presentation
of basic and diluted earnings per share (“EPS”). Basic EPS is
calculated based on the weighted average number of shares
outstanding during the period. Dilutive EPS is calculated to
include any dilutive effect of our share equivalents. For the three
months ended June 30, 2022, our share equivalent included
0.2 million options,1.6 million BGL Warrants, 2.3 million Private
Warrants, and 1.7 million Foxconn Warrants outstanding. For
the three months ended June 30, 2021, our share
equivalent included 3.8 million options, 1.6 million BGL Warrants,
and 2.3 million Private Warrants outstanding. None of the stock
options or warrants were included in the calculation of diluted EPS
because we recorded a net loss for the six months ended
June 30, 2022 and for the three and six months ended
June 30, 2021 as including these instruments would be
anti-dilutive. For the three months ended June 30, 2022, we
included 0.2 million shares related to the options in the
calculation of diluted EPS.
The weighted-average number of shares outstanding for basic and
diluted loss per share is as follows:
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
months ended |
|
|
Three
months ended |
|
|
Six
months ended |
|
|
Six
months ended |
|
|
|
June 30, 2022 |
|
|
June 30, 2021 |
|
|
June 30, 2022 |
|
|
June 30, 2021 |
|
Basic
weighted average shares outstanding |
|
200,821 |
|
|
176,585 |
|
|
198,674 |
|
|
175,595 |
|
Diluted
weighted average shares outstanding |
|
201,015 |
|
|
176,585 |
|
|
198,674 |
|
|
175,595 |
|
On July 23, 2021, the Company entered into the
Equity Purchase Agreement with YA, pursuant to which YA has
committed to purchase up to $400 million of our Class A
common stock, at our direction from time to time, subject to the
satisfaction of certain conditions. Such sales of
Class A common stock, are subject to certain limitations, and
may occur from time to time at our sole discretion, over the
approximately 36-month period commencing on the date of the Equity
Purchase Agreement, provided that a registration statement covering
the resale by YA of the shares of Class A common stock
purchased from us is declared effective by the SEC and the other
conditions set forth in the Equity Purchase Agreement are
satisfied. We filed the registration statement with the SEC on
July 30, 2021, and it was declared effective on
August 11, 2021.
Under applicable Nasdaq rules and the Equity Purchase
Agreement, we will not sell to YA shares of our Class A common
stock in excess of 35.1 million shares, or the Exchange Cap, which
is 19.9% of the shares of Class A common stock outstanding
immediately prior to the execution of the Equity Purchase
Agreement, unless (i) we obtain stockholder approval to issue
shares of Class A common stock in excess of the Exchange Cap
or (ii) the average price of all applicable sales of shares of
Class A common stock under the Equity Purchase Agreement
(including the Commitment Shares described below in the number of
shares sold for these purposes) equals or exceeds $7.48 per share
(which represents the lower of (i) the Nasdaq Official Closing
Price (as reflected on Nasdaq.com) immediately preceding the
signing of the Equity Purchase Agreement; or (ii) the average
Nasdaq Official Closing Price of the Class A common stock (as
reflected on Nasdaq.com) for the five trading days immediately
preceding the signing of the Equity Purchase Agreement). At current
market prices of our shares of Class A common stock, without
stockholder approval, the Exchange Cap would limit the amount of
funds we are able to raise to significantly less than the $400
million commitment under the Equity Purchase Agreement.
We may direct YA to purchase amounts of our Class A common
stock under the Equity Purchase Agreement that we specify from time
to time in a written notice (an “Advance Notice”) delivered to YA
on any trading day. The maximum amount that we may specify in an
Advance Notice without YA’s consent is equal to the lesser of:
(i) an amount equal to thirty percent (30%) of the Daily Value
Traded of the Class A common stock on the trading day
immediately preceding an Advance Notice, or (ii) $30.0
million. For these purposes, “Daily Value Traded” is the product
obtained by multiplying the daily trading volume of our
Class A common stock by the volume weighted average price for
that trading day. Subject to the satisfaction or waiver of the
conditions under the Equity Purchase Agreement, we may deliver
Advance Notices from time to time, provided that we have delivered
all shares relating to all prior Advance Notices, and the purchase
price of the shares of Class A common stock will be equal to
97% of the simple average of the daily volume weighted average
prices for the three trading days following the Advance Notice as
set forth in the Equity Purchase Agreement.
As consideration for YA’s irrevocable commitment to purchase shares
of the Company’s Class A common stock upon the terms of and
subject to satisfaction of the conditions set forth in the Equity
Purchase Agreement, upon execution of the Equity Purchase
Agreement, the Company issued 0.4 million shares of its
Class A common stock to YA (the “Commitment Shares”).
During the year ended
December 31, 2021, inclusive of the 0.4 million
Commitment Shares, we issued 9.6 million shares to YA and
received $49.4 million cash, net of equity issuance costs.
During the six months ended June 30, 2022, we issued 6.6
million shares to YA and received $13.7 million cash, net of equity
issuance costs.
As of
June 30, 2022, we were in compliance with the terms and
conditions of the Equity Purchase Agreement and the remaining
availability under the Equity Purchase Agreement was
$336.2 million which is subject to certain limitations as
described above. At the current market price of the
Class A common stock, the actual availability under the Equity
Purchase Agreement is substantially lower.
Item 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This
Management's Discussion and Analysis of Financial Condition and
Results of Operations (“MD&A”) should be read in conjunction
with the accompanying condensed consolidated financial statements
and notes. Forward-looking statements in this MD&A are not
guarantees of future performance and may involve risks and
uncertainties that could cause actual results to differ materially
from those projected. Refer to the "Cautionary Note Regarding
Forward-Looking Statements" above and Item 1A. Risk Factors in our
Form 10-K, prior Quarterly Reports on Form 10-Q and below
for a discussion of these risks and uncertainties, including
without limitation, with respect to our estimated production
timeline, need for additional financing and the risks related to
realizing the benefits of our recent transactions with
Foxconn.
Our mission is to accelerate electric vehicle adoption and to be a
catalyst in the transition of commercial fleets to all-electric
vehicles for a more sustainable future. We are an EV innovator
focused on developing high-quality light-duty work vehicles.
Since inception, we have been developing our flagship vehicle, the
Endurance, an electric full-size pickup truck. During the first
half of 2022, we built PPVs for testing, validation, certification,
regulatory approvals and to demonstrate the capabilities of the
Endurance to potential customers. Subject to raising sufficient
capital, satisfactory completion of testing and receipt of
regulatory approvals, we expect commercial production and sales of
the Endurance to begin later in 2022.
Our current bill of materials cost
for the Endurance is well above our anticipated selling price. As a
result, we will incur significant losses with each vehicle we sell.
While we expect to achieve cost improvements over time, we do not
anticipate reaching a positive gross margin for the foreseeable
future. The primary factor driving the high material costs is our
use of components produced from soft tools that are intended for
very low volumes. We are also seeking strategic partners,
including other automakers, to provide additional capital/or and
other support to enable us to scale the Endurance program and to
develop new vehicle programs through the Foxconn Joint Venture. If
we raise sufficient capital, we would have the opportunity to
allocate funds to investments in hard tools that are designed for
long term use and higher production volumes. We have identified
significant piece price savings from these investments that we
would seek to realize over time. Such hard tool investments and
piece price reductions may not be sufficient to achieve
profitability, and we expect to continue to evaluate the need and
opportunity for design enhancements that may result in further
reductions in the bill of materials cost. However, no assurances
can be made regarding our ability to successfully identify and
implement actions that will lower the Endurance bill of materials
cost, including that we will have sufficient capital to make these
investments or our suppliers will be willing or able to manufacture
the tools. Until such time as we have sufficient capital and we are
able to lower the bill of materials cost, we expect to limit or
curtail our production of the Endurance in order to minimize our
losses, which we anticipate to be through 2023 or potentially
longer.
We plan to focus our sales and marketing efforts on direct sales
through our subsidiary, Lordstown EV Sales, LLC, to commercial
fleet operators and fleet management companies rather than through
third-party dealerships. However, we intend to explore other
distribution strategies as our business grows. An important aspect
of our sales and marketing strategy involves pursuing relationships
with specialty upfitting and fleet management companies to
incorporate the Endurance into their fleets or sales programs. As
their main area of business, fleet management companies act as an
intermediary facilitating the acquisition of new vehicles for the
ultimate end user fleets. They provide a valuable distribution
channel for us because of their extensive end user relationships
and ability to offer attractive financing rates. As a result of
this strategy, we expect that we will not be required to make
significant investments in a large direct sales force or
third-party dealership network, thereby avoiding substantial fixed
costs. Our expected limited initial production levels may make it
more difficult to get support from commercial fleets or fleet
management companies in the marketing, sale and distribution of the
Endurance.
We
intend to leverage our advanced technologies and highly talented
team to develop additional all-electric vehicles targeted for the
commercial market. We are currently working with Foxconn to
identify the first vehicle program to be developed through the
Foxconn Joint Venture, which will be funded with a $100 million
capital commitment from Foxconn as described in Note 1 —
Organization and
Description of Business and Basis of Presentation —
Lordstown
Description of Business — Foxconn Joint
Venture Agreement. Any such program will require substantially
more capital than the initial funding from Foxconn.
See Liquidity and Capital Resources
and Risk Factors under Part I - Item 1A. of our
Form 10-K, prior Forms 10-Q and below for further
discussion of the risks associated with the capital required to
execute our business plan, implementation of the Foxconn
Transactions and our production timeline.
The APA Closing with Foxconn on May 11, 2022 described in Note
1 resulted in more than $257 million in funding for the Company, of
which $200 million was received in the form of down payments prior
to the APA Closing, in addition to the $50 millon purchase of our
Class A common stock in October 2021. The Foxconn
Transactions represent a shift in our business strategy from a
fully vertically integrated designer, developer and manufacturer of
EVs into a less capital-intensive business focused on developing,
engineering, testing and industrializing vehicles in partnership
with Foxconn. See Note 1 for additional detail.
The sale of the Lordstown facility
allowed us to meaningfully reduce our operating complexity and
fixed cost structure by transferring to Foxconn the current and
future manufacturing employees along with nearly all of the fixed
and variable overhead costs, such as maintenance, utilities,
insurance and more. The Foxconn Transactions should also
provide more cost-effective access to certain raw materials,
components and other inputs over time. In addition, we believe we
would realize the benefits of scaled manufacturing sooner, as
Foxconn contracts with other OEMs to produce their vehicles in the
Lordstown facility.
We believe that outsourcing our
manufacturing to a highly qualified partner will enable us to
leverage Foxconn’s technology, supply chain network and expertise
to accelerate the launch of current and future vehicle programs.
The Foxconn Joint Venture Agreement will also allow us to leverage
our EV product development and engineering capabilities across a
broader platform. However, no assurances can be given that we will
be able to realize the anticipated benefits of the Foxconn
Transactions or as to the timing of such benefits. See Note
1 and Risk Factors under Part I - Item 1A. of our
Form 10-K, prior Forms 10-Q and below for further discussion
of the risks associated with the anticipated benefits of the
Foxconn Transactions.
Results of Operations for the three months ended
June 30, 2022 and 2021
(in thousands)
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Three months ended |
|
|
|
June 30, 2022 |
|
|
June 30, 2021 |
|
Net
sales |
|
$ |
— |
|
|
$ |
— |
|
Operating expenses |
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
|
29,941 |
|
|
|
33,793 |
|
Research
and development expenses 1 |
|
|
10,510 |
|
|
|
76,544 |
|
Gain on sale |
|
|
(101,736 |
) |
|
|
— |
|
Total operating (income) expenses |
|
|
(61,285 |
) |
|
|
110,337 |
|
Income (Loss) from operations |
|
|
61,285 |
|
|
|
(110,337 |
) |
Other income |
|
|
|
|
|
|
|
|
Other income |
|
|
1,991 |
|
|
|
1,877 |
|
Interest income |
|
|
383 |
|
|
|
260 |
|
Income (Loss) before income taxes |
|
|
63,659 |
|
|
|
(108,200 |
) |
Income tax expense |
|
|
— |
|
|
|
— |
|
Net income (loss) |
|
$ |
63,659 |
|
|
$ |
(108,200 |
) |
1 Research
and development expenses for the three ended June 30, 2022 are
net of $18.4 million in operating expense reimbursements under the
APA.
Selling, General and Administrative Expense
Selling,
general and administration expenses of $29.9 million during the
three months ended June 30, 2022 consisted primarily of
$12.2 million of personnel and professional fees, $9.0 million of
legal and insurance costs, and a $6.5 million charge to reflect the
NRV of inventory as described in Note 2. Total selling, general and
administrative expenses decreased $3.9 million during the
three months ended June 30, 2022 compared to three
months ended June 30, 2021 primarily due to decreases
of $8.5 million and $4.8 million in legal and professional fees,
respectively, offset by the NRV charge and increases in personnel
and insurance costs of $1.9 million and $1.3 million,
respectively. We anticipate legal
costs will remain substantial in light of our ongoing litigation
and the SEC investigation.
Research and Development Expense
Research and development expenses were $10.5 million during the
three months ended June 30, 2022, $18.4 million which was
attributable to the reimbursement of certain operating costs
incurred by the Company between September 1, 2021 and the APA
Closing as described in Note 1. Until we initiate commercial
production, the costs associated with operating the Lordstown
facility are included in Research and Development as they relate to
the design and construction of beta and pre-production vehicles,
along with manufacturing readiness.
During
the second quarter of 2022, we incurred $10.7 million in costs
associated with the Lordstown facility. Approximately $8.6
million of those costs would have transferred to Foxconn had the
transaction closed prior to the start of the second quarter, rather
than May 11, 2022. We will continue to
incur certain freight, certain engineering and Endurance specific
manufacturing design costs and insurance related to Company assets
located at the Lordstown facility. The costs we incurred associated
with the Lordstown facility during the second quarter of 2022 were
$4.6 million in personnel costs, $2.1 million in freight, $1.2
million in utilities and $2.8 million of other facility and
manufacturing costs. There will be a significant decrease in costs
associated with the Lordstown facility in the third quarter of 2022
compared to the first and second quarters of 2022, including
personnel and general operating and overhead costs now that the
Foxconn Transactions have been completed as described in Note 1.
However, once we commence commercial sales of the Endurance, we
will begin to report cost of goods sold that will represent the
direct materials costs, the per vehicle manufacturing fee charged
by Foxconn, delivery costs, warranty costs and accruals, and other
costs associated with selling vehicles, that together will be
substantially more than our anticipated selling price. See
Part I - Item 1A. Risk Factors in our Form 10-K and Forms
10-Q for further discussion of the risks related to the
commencement of commercial sales
Also included in Research and Development costs are the prototype
components used for part, module or system design testing and
validation, as well as full production of beta and pre-production
vehicles. In the second quarter of 2022, our prototype component
costs totaled $1.5 million, a $20.5 million decrease from the
second quarter of 2021. The substantial majority of the 2022 costs
represented parts used in the production of PPVs. We expect
prototype component costs to continue to decrease in subsequent
quarters as we prepare for the commercial launch of the
Endurance.
All other research and development expenses of $16.7 million
decreased $19.8 million during the three months ended
June 30, 2022 compared to 2021 primarily due to a $17.3
million decrease in outside engineering services as Endurance
development costs decline as we approach commercial production.
Costs for engineering personnel totaled $7.7 million in the current
period, a decrease of $0.3 million. As we approach commercial
production and deliveries, the costs associated with engineering,
testing, certification and validation are expected to increase
compared to the expenses incurred in the second quarter of 2022,
and decline thereafter.
Gain on Sale
Gain on sale totaled $101.7 million during the three months ended
June 30, 2022 which was primarily attributable to the
gain on the sale of the Lordstown facility sold to Foxconn as
described in Note 1.
Results of Operations for the six months ended
June 30, 2022 and 2021
(in thousands)
|
|
|
|
|
|
|
|
|
Six months ended |
|
|
Six months ended |
|
|
|
June 30, 2022 |
|
|
June 30, 2021 |
|
Net
sales |
|
$ |
— |
|
|
$ |
— |
|
Operating expenses |
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
|
55,960 |
|
|
|
48,187 |
|
Research
and development expenses 1 |
|
|
72,374 |
|
|
|
168,355 |
|
Gain on sale |
|
|
(101,736 |
) |
|
|
— |
|
Total operating expenses |
|
|
26,598 |
|
|
|
216,543 |
|
Loss from operations |
|
|
(26,598 |
) |
|
|
(216,543 |
) |
Other income (expense) |
|
|
|
|
|
|
|
|
Other income (expense) |
|
|
499 |
|
|
|
(17,255 |
) |
Interest income |
|
|
125 |
|
|
|
387 |
|
Loss before income taxes |
|
|
(25,974 |
) |
|
|
(233,411 |
) |
Income tax expense |
|
|
— |
|
|
|
— |
|
Net loss |
|
$ |
(25,974 |
) |
|
$ |
(233,411 |
) |
1 Research
and development expenses for the six months ended June 30,
2022 are net of $18.4 million in operating expense reimbursements
under the APA
Selling, General and Administrative Expense
Selling, general and administration expenses of $56.0 million
during the six months ended June 30, 2022 consisted
primarily of $18.4 million in legal and insurance costs, $24.6
million in personnel and professional fees, and a $9.4 million
charge to reflect the NRV of inventory. Total selling, general and
administrative expenses increased $7.8 million during the six
months ended June 30, 2022 compared to six ended
June 30, 2021 primarily due to the NRV charge for
inventory and a $5.9 million increase in personnel costs, offset by
decreases of $5.0 million in legal and insurance costs and $2.2
million professional fees. We anticipate legal costs will remain
substantial in light of our ongoing litigation and the SEC
investigation.
Research and Development Expense
Research and development expenses were $72.4 million during the six
months ended June 30, 2022, net of $18.4 million reimbursement
of certain operating costs incurred by the Company between
September 1, 2021 and the APA Closing as described in Note 1.
Until we initiate commercial production, the costs associated with
operating the Lordstown facility are included in Research and
Development as they relate to the design and construction of beta
and pre-production vehicles, along with manufacturing readiness.
During the first half of 2022, we incurred $32.7 million in costs
associated with the Lordstown facility, including $14.6 million in
personnel costs, $7.7 million in freight, $4.5 million in utilities
and $5.9 million of other facility and manufacturing costs. During
the first half of 2021, we incurred $26.4 million in costs
associated with operating the Lordstown facility, including $13.8
million in personnel costs, $3.2 million in utilities, and $9.4
million in other facility operating costs.
Also included in Research and Development costs are the prototype
components used for part, module or system design testing and
validation, as well as full production of beta and pre-production
vehicles. In the six months ended June 30, 2022, our prototype
component costs totaled $21.1 million compared to $72.6 million in
the same period of 2021. The substantial majority of the 2022 costs
represented parts used in the production of PPVs. We expect
prototype component costs to continue to decrease in future period
as we prepare for the commercial launch of the Endurance.
All other research and development expenses of $36.9 million, a
decrease of $32.5 million during the six months ended
June 30, 2022 compared to the same period in 2021
primarily due to a $32.4 million decrease in outside engineering
services and $2.4 million in freight as Endurance development costs
decline as we approach commercial production. Costs for engineering
personnel totaled $15.0 million in the current period, an increase
of $1.2 million compared to the same period of 2021.
Liquidity and Capital Resources
We
had cash and cash equivalents of approximately $235.7
million and an accumulated
deficit of $570.8 million at June 30, 2022 and a net
loss of $26.0 million for the six months ended
June 30, 2022.
In the first half of 2022, we continued to build PPVs for testing,
validation, certification, regulatory approvals, and to demonstrate
the capabilities of the Endurance to potential customers. Upon
commencing commercial production and sales later in 2022, and for
the foreseeable future, we will incur significant operating
expenses, capital expenditures and working capital funding that
will deplete our cash on hand. As a
result of having insufficient capital to execute our 2022 business
plan, we have substantially limited investments in tooling and
other aspects of the Endurance and our operations. The trade-offs
we are making, including related to hard tooling, are likely to
result in higher costs for the Company in the future and are likely
to slow or impair future design enhancements or options we may
otherwise seek to make available to customers. The Company’s
research and development expenses and capital expenditures are
significant due to spending needed for PPVs, vehicle validation
tests, securing necessary parts/equipment, and utilizing in-house
and third-party engineering services. During 2021, the Company
experienced the stress that the COVID-19 pandemic put on the global
automotive supply chain including with regard to the availability,
pricing and lead times for components and raw materials.
Furthermore, in 2021 and 2022, we have incurred significant freight
charges that in part were higher due to the COVID-19 pandemic and
challenging logistics that created delays and higher pricing on
standard freight as well as to incur substantially higher expedited
freight charges to mitigate delays. The Company expects continued
supply chain constraints as well as raw material and other pricing
pressures that are likely to negatively impact our cost structure
and production timeline. See Part I - Item 1A. Risk Factors in
our Form 10-K and Forms 10-Q for further discussion of the
risks associated with disruptions to the supply chain.
In addition, in order to secure adequate supply of battery cells,
we have an agreement with a certain supplier that obligates us to
purchase a minimum volume estimated to be $11.5 million in 2022,
subject to change for fluctuations in raw material pricing.
We also have meaningful exposure to material losses and costs
related to ongoing litigation and regulatory proceedings for which
insurance is unlikely to be available. See Note 5 – Commitments and
Contingencies for additional information.
Even with the consummation of and
proceeds and other expected benefits from the Foxconn Transactions
(see Note 1), we need additional funding to execute our 2022
business plan and achieve scaled production of the Endurance, due
to the capital required to complete testing and validation,
purchase the raw materials and vehicle components for saleable
vehicles, invest in the hard tooling to lower our bill of materials
cost and fund future engineering, operating and corporate
expenditures. If we are unable to raise substantial additional capital in the near
term, our ability to invest in hard
tooling to lower the bill of material cost of the Endurance will be
significantly scaled back or curtailed. If the funds raised are
insufficient to provide a bridge to full scale commercial
production at a profit, our operations could be severely curtailed
or cease entirely. Until such time as we have sufficient funds to
invest in the necessary actions to reduce our bill of material
costs, we will limit our curtail production in order to minimize
our losses.
In an effort to alleviate these
conditions, management continues to actively seek and evaluate
opportunities to raise additional funds through the issuance of
equity or debt securities, asset sales, arrangements with strategic
partners or obtaining financing from government or financial
institutions. We have engaged a
financial advisor to advise the Company on additional financing
alternatives. No assurances can be given that any such
financing will be available on commercially reasonable terms or at
all.
As part of our funding efforts, on
July 23, 2021, the Company entered into the Equity Purchase
Agreement with YA, pursuant to which YA has committed to purchase
up to $400 million of our Class A common stock, at our
direction from time to time, subject to the satisfaction of certain
conditions. During the year ended December 31, 2021, we issued
9.6 million shares to YA and received $49.4 million cash, net of
equity issuance costs. During the six months
ended June 30, 2022, we issued 6.6 million shares to YA and
received $13.7 million cash, net of equity issuance
costs.
The actual amount that we raise under
the Equity Purchase Agreement will depend on market conditions and
limitations in the agreement. In particular, without stockholder
approval, the Exchange Cap provision would limit the amount of
shares we can issue to 35.1 million shares (unless the
average price of all shares sold is $7.48 or higher), including the
16.2 million shares previously issued, and therefore this share
limitation and the current market price that would be the basis for
the price of the shares of Class A common stock to be sold
limit funds we are able to raise to significantly less than the
$400 million commitment under the Equity Purchase Agreement. As of
June 30, 2022, we were in compliance with the terms and
conditions of the Equity Purchase Agreement and the remaining
availability under the Equity Purchase Agreement was $336.2 million
which is subject to certain limitations as described above and in
Note 7 of the condensed consolidated financial statements. The APA
Closing with Foxconn provided more than $257 million in funding for
the Company, including the $230 million purchase price and $27.5
million in reimbursements, in addition to the $50 millon purchase
of our Class A common stock in October 2021. The Foxconn
Transactions represent a shift into a less capital-intensive
business. In addition, the Foxconn Joint Venture Agreement provides
that Foxconn will make term loans to Lordstown EV in an aggregate
original amount not to exceed $45 million as advances are requested
by Lordstown EV. Lordstown EV may use the funds only to fund
Lordstown EV’s capital commitment of $45 million pursuant to the
Foxconn Joint Venture Agreement. To secure its obligations under
each Note, Lordstown EV will grant to Foxconn a security interest
in (i) all of Lordstown EV’s equity interests in the Foxconn
Joint Venture, and (ii) personal property constituting the hub
motor assembly lines, battery module assembly lines and battery
pack assembly lines. Each outstanding Note will accrue interest at
a rate of 7.0% per annum, to be paid-in-kind, and is due on the
earlier of (i) the first anniversary of issuance and
(ii) December 31, 2025, unless earlier terminated in the
event of a default. Pursuant to the Foxconn Joint Venture
Agreement, each Note maturing before December 31, 2025 will be
refinanced by Foxconn with a new Note in the principal amount equal
to the outstanding principal amount of the refinanced Note, plus
accrued and unpaid interest thereon, and will have terms otherwise
substantively identical to the terms of the refinanced Note. As a
result, it is not expected, absent a default, that any amounts will
become due under the Notes prior to December 31, 2025.
Lordstown EV will be required to prepay each Note and all accrued
but unpaid interest thereon with proceeds received upon
distributions from the Foxconn Joint Venture or cash proceeds of
certain asset dispositions. On June 16, 2022, Lordstown EV
requested an initial advance of $13.5 million, which was funded by
Foxconn in exchange for the delivery by Lordstown EV of a Note in
such amount on June 24, 2022. See Note 1 of the condensed
consolidated financial statements for additional details.
As we seek additional sources of
financing, there can be no assurance that such financing would be
available to us on favorable terms or at all. Our ability to obtain
additional financing in the debt and equity capital markets is
subject to several factors, including market and economic
conditions, the significant amount of capital required, the fact
that our bill of materials cost is currently, and expected to
continue to be, substantially higher than our anticipated selling
price, uncertainty surrounding regulatory approval and the
performance of the vehicle, meaningful exposure to material losses
and costs related to ongoing litigation and the SEC investigation,
our performance and investor sentiment with respect to us and our
business and industry, as well as our ability to effectively
implement and realize the expected benefits of the Foxconn
Transactions. As a result of these uncertainties, and
notwithstanding management’s plans and efforts to date, there
continues to be substantial doubt about our ability to continue as
a going concern.
Pursuant to the requirements of the FASB’s 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 the consolidated financial
statements included in this report 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 financial
statements are issued. When substantial doubt exists, 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 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.
See Risk Factors under Part I -
Item 1A. of our Form 10-K, and prior Forms 10-Q and below for
further discussion of the risks associated with our need for
additional financing and loss exposures, among other
risks.
Summary of Cash Flows
The following table provides a summary of Lordstown’s cash flow
data for the period indicated:
(in thousands)
|
|
|
|
|
|
|
|
|
Six months ended |
|
|
Six months ended |
|
|
|
June 30, 2022 |
|
|
June 30, 2021 |
|
Net Cash used by operating activities |
|
$ |
(121,427 |
) |
|
$ |
(171,374 |
) |
Net
Cash used by investing activities |
|
$ |
(15,990 |
) |
|
$ |
(175,601 |
) |
Net
Cash provided by financing activities |
|
$ |
129,087 |
|
|
$ |
83,114 |
|
Net Cash Used by Operating Activities
For the six months ended June 30, 2022 compared to 2021,
net cash used by operating activities decreased by $49.9 million
primarily due to changes in working capital and the $17.5 million
received from Foxconn for the reimbursement of operating costs.
Net Cash Used by Investing Activities
For the six months ended June 30, 2022 compared to 2021,
cash used by investing activities decreased $159.6 million
primarily due to lower capital spending in 2022. Cash used by
investing activities in 2022 also included a $13.5 million
investment into the Foxconn Joint Venture and was net of $37.5
million in proceeds from the sale of capital assets to Foxconn. The
$200 million in down payments received prior to closing are
reflected as financing proceeds and are reflected as a non-cash
transaction when the down payment was applied at the APA Closing
and the Company’s repayment obligation was terminated. The capital
spending in 2021 represented the early investments to retool the
Lordstown Facility, acquire testing equipment and related
capabilities, and to prepare for manufacturing.
Net Cash Provided by Financing Activities
For the six months ended June 30, 2022 compared to 2021,
cash flows from financing activities increased $46 million.
Financing cash flows in 2022 was primarily related to the $100
million down payment received from Foxconn, $13.5 million from
proceeds from Foxconn notes payable and $13.7 million from
sales under the Equity
Purchase Agreement, net of issuance costs. Financing cash
flows in 2021 was primarily due to $82.0 million of cash proceeds
from the exercise of warrants in 2021.
Off-Balance Sheet Arrangements
We have no obligations, assets or liabilities, which would be
considered off-balance sheet arrangements as of
June 30, 2022. We do not participate in transactions that
create relationships with unconsolidated entities or financial
partnerships, often referred to as variable interest entities,
which would have been established for the purpose of facilitating
off-balance sheet arrangements. We have not entered into any
off-balance sheet financing arrangements, established any special
purpose entities, guaranteed any debt or commitments of other
entities, or purchased any non-financial assets.
Recent Accounting Pronouncements
See Note 2 to the condensed consolidated financial statements
for more information about recent accounting pronouncements, the
timing of their adoption, and management’s assessment, to the
extent they have made one, of their potential impact on Lordstown’s
financial condition and results of operations.
Item 3. Quantitative and
Qualitative Disclosures About Market Risk
On June 30, 2022, we had cash and cash equivalents of
approximately $235.7 million. We believe that a 10 basis point
change in interest rates is likely in the near term. Based on our
current level of investment, an increase or decrease of 10 basis
points in interest rates would not have a material impact to our
cash balances.
Item 4. Controls and
Procedures
Management’s Evaluation of our Disclosure Controls and
Procedures
Disclosure controls and procedures (as defined in
Rules 13a-15(e) and 15d-15(e) under the Exchange
Act) are controls and other procedures that are designed to ensure
that information required to be disclosed in our reports filed or
submitted under the Exchange Act, are recorded, processed,
summarized and reported within the time periods specified in the
SEC’s rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to
ensure that information required to be disclosed in company reports
filed or submitted under the Exchange Act is accumulated and
communicated to management, including our Chief Executive Officer
and Chief Financial Officer, as appropriate, to allow timely
decisions regarding required disclosure.
We do not expect that our disclosure controls and procedures will
prevent all errors and all instances of fraud. Disclosure controls
and procedures, no matter how well conceived and operated, can
provide only reasonable, not absolute, assurance that the
objectives of the disclosure controls and procedures are met.
Further, the design of disclosure controls and procedures must
reflect the fact that there are resource constraints, and the
benefits must be considered relative to their costs. Because of the
inherent limitations in all disclosure controls and procedures, no
evaluation of disclosure controls and procedures can provide
absolute assurance that we have detected all our control
deficiencies and instances of fraud, if any. The design of
disclosure controls and procedures also is based partly on certain
assumptions about the likelihood of future events, and there can be
no assurance that any design will succeed in achieving its stated
goals under all potential future conditions.
Based upon their evaluation, our
Chief Executive Officer and Chief Financial Officer concluded that
our disclosure controls and procedures were not effective due to
the material weakness described below and discussed in our
Form 10-K for the year ended December 31,
2021.
In the course of preparing the Company’s financial statements for
the Form 10-K, our management identified the following
material weakness in internal control over financial reporting:
|
● |
The
Company did not have a sufficient number of trained resources with
assigned responsibilities and accountability for the design and
operation of internal controls over financial
reporting. |
As a consequence, the Company did not effectively operate
process-level control activities related to procure-to-pay
(including operating expenses, prepaid expenses, and accrued
liabilities), review and approval of manual journal entries, and
user access controls to ensure appropriate segregation of
duties.
These control deficiencies create a reasonable possibility that a
material misstatement to the consolidated financial statements will
not be prevented or detected on a timely basis, and therefore we
conclude that the deficiencies represent a material weakness in
internal control over financial reporting and our internal control
over financial reporting is not effective as of December 31,
2021.
As required by Rules 13a-15 and 15d-15 under the Exchange Act,
our Chief Executive Officer and Chief Financial Officer carried out
an evaluation of the effectiveness of the design and operation of
our disclosure controls and procedures as of
June 30, 2022. Based upon their evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures were not effective as our
remediation efforts are ongoing.
Management’s Remediation Plan
Our
management has prepared a remediation plan that is being instituted
in 2022 under the oversight of the Audit Committee. The management
team has also engaged third-party consultants to assist in the
implementation of our remediation plan. The plan involves hiring
and training additional qualified personnel and holding personnel
accountable to their responsibilities for the operating
effectiveness of internal controls over financial reporting. During
the six months ended June 30, 2022, the Company
hired key professionals to support financial reporting and trained
additional qualified personnel. The Company will seek to hire
additional qualified personnel during the balance of 2022.
We have made progress with our remediation plan and our goal is to
remediate our material weakness during fiscal year 2022. However, a
material weakness will not be considered remediated until the
applicable controls operate for a sufficient period of time and
management has concluded, through testing, that these controls are
operating effectively. We are committed to continuing to improve
our internal control processes and will continue to review,
optimize and enhance our financial reporting controls and
procedures, however, there can be no assurance that this will occur
within 2022.
Notwithstanding the identified material weakness, management
believes that the condensed consolidated financial statements
included in this Quarterly Report on Form 10-Q present fairly
in all material respects our condensed consolidated financial
position, results of operations and cash flows for the period
presented.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial
reporting (as such term is defined in Rules 13a-15(f) and
15d-15(f) of the Exchange Act) during the quarter ended
June 30, 2022 that have materially affected, or are
reasonably likely to materially affect, our internal control over
financial reporting except for the remediation efforts with regard
to the material weakness described above.
PART II: OTHER
INFORMATION
Item
1. Legal Proceedings
For a description of our legal
proceedings, see Note 5 - Commitments and
Contingencies of the notes to the condensed consolidated
financial statements of this Quarterly Report on
Form 10-Q.
Item 1A. Risk Factors
There are no material changes
from the risk factors set forth in Part I, “Item 1A. Risk
Factors” in our Form 10-K and prior Forms 10-Q, except as set
forth below. In addition to the risk factor set forth below and the
other information set forth in this report, you should carefully
consider the factors discussed in Part I, “Item 1A. Risk
Factors” in our Form 10-K and Forms 10-Q, which could
materially affect our business, financial condition or future
operating results.
If Lordstown EV fails
to fulfill its obligations or remain in compliance with its debt
covenants under the Notes, Foxconn could foreclose on significant
assets securing the Notes or seek repayment from us, or both, which
may have an adverse effect on our business prospects and financial
conditions.
Pursuant to the Foxconn Joint
Venture Agreement, Foxconn and Lordstown EV are each obligated to
make capital contributions to the Foxconn Joint Venture. Foxconn
has committed $100 million to the Foxconn Joint Venture, consisting
of $55 million in the form of direct capital contributions, and a
$45 million loan to Lordstown EV pursuant to the Notes, the
proceeds of which will only be used to fund Lordstown EV’s capital
contributions to the Foxconn Joint Venture and which are guaranteed
by Lordstown EV Sales LLC and the Company. To secure its
obligations under the Notes, Lordstown EV will grant to Foxconn a
security interest in (i) all of Lordstown EV’s equity
interests in the Foxconn Joint Venture, and (ii) personal
property constituting the hub motor, battery module and battery
pack assembly lines.
On June 16, 2022,
Lordstown EV requested an initial advance of $13.5 million, which
was funded by Foxconn in exchange for the delivery by Lordstown EV
of a Note in such amount on June 24, 2022, and on
June 27, 2022, the partners made their initial investments
totaling $30 million in the Foxconn Joint Venture pursuant to the
Foxconn Joint Venture Agreement.
Lordstown EV’s failure to
make payments when due or comply with certain covenants under the
Notes may be deemed an event of default, and such default could
lead to Foxconn foreclosing on the assets pledged as security under
the Notes or seeking repayment of the Notes from us, or both, which
could have a material adverse effect on our financial condition,
operations, and cash flows. We cannot be certain that Lordstown EV
or the Company will maintain sufficient capital to repay the Notes
when due or maintain compliance with the covenants under the Notes,
and we may be forced to reduce or delay capital expenditures, sell
assets, seek additional capital or restructure or refinance our
indebtedness, to the extent permitted under the Notes. Further, as
a result of covenants restricting our corporate actions and future
debt, we may be limited in pursuing certain future financing and
transactions that would otherwise be beneficial to our business and
operations. Foreclosure on our assets and restrictions on our
operations may lead to delays in establishing and developing our
electric vehicles. In addition, the Foxconn Joint Venture may not
succeed and may be terminated due to the failure to establish a
sustainable partnership and our business prospects, financial
conditions and operations may be materially and adversely
affected.
Item 2. Unregistered Sales of
Equity Securities and Use of Proceeds
Except as described below and previously disclosed in a Current
Report on Form 8-K, there were no sales of equity securities
during the quarter ended June 30, 2022 that were not
registered under the Securities Act.
On May 11, 2022, the Company issued the Foxconn Warrants to
Foxconn that are exercisable until May 11, 2025 for 1.7
million shares of Class A common stock at an exercise price of
$10.50 per share.
On
May 17, 2022, May 23, 2022 and June 6, 2022,
pursuant to the Equity Purchase Agreement the Company sold an
aggregate of
6.6 million shares of Class A common stock
to YA and received $13.7 million cash, net of equity issuance
costs.
The shares were issued and sold to accredited investors in reliance
upon the exemption from the registration requirements of the
Securities Act of 1933 afforded by Section 4(a)(2) of the
Securities Act of 1933.
Item 5. Other Information
On August 3, 2022 (the “Effective Date”), following
Mr. Ninivaggi’s appointment as the Company's Executive
Chairman of the Board, Mr. Ninivaggi and the Company entered
into an amended and restated employment agreement (the “A&R
Employment Agreement”), which amends and restates
Mr. Ninivaggi’s original Employment Agreement, dated
August 26, 2021, as amended by the Amendment to the Employment
Agreement, dated November 9, 2021 (the “Prior Employment
Agreement”). Pursuant to the A&R Employment Agreement,
Mr. Ninivaggi will receive an annual salary in an amount up to
$675,000 consisting of (i) a cash component of $450,000 (the
“Non-Contingent Base Salary”), and (ii) a contingent component
of $225,000 (the “Contingent Base Salary”) payable if the aggregate
market value of the Company’s equity securities exceeds the Market
Cap Threshold (as defined below). The “Market Cap Threshold” is
$750,000 million in 2022, $1 billion in 2023 and $1.25 billion
thereafter, measured based on the closing market price of the
Class A common stock as quoted on the stock exchange or
national market system on which the Class A common stock is
then listed for any five (5) consecutive trading days in
December of the applicable calendar year. Mr. Ninivaggi
and the Company may agree for all or a portion of the Contingent
Base Salary to be earned in the form of Class A common stock.
Mr. Ninivaggi will also receive an annual bonus with an annual
target bonus equal to 80% of the actual amount of his annual
salary, based on Company and individual performance and subject to
the discretion of the Board of Directors or a committee thereof.
For the fiscal year ending December 31, 2022,
Mr. Ninivaggi will be entitled to receive an annual bonus at a
target equal to 105% of his actual annual salary earned in such
year.
Under Mr. Ninivaggi’s employment agreement, if his employment
is terminated by the Company without “cause” or by
Mr. Ninivaggi resigning for “good reason,” Mr. Ninivaggi
is entitled to receive, subject to his execution and non-revocation
of a general release of claims, an amount equal to eight months of
base salary, calculated based on the amount of the Non-Contingent
Base Salary in effect at the time, unless the Market Cap Threshold
had been achieved at the time of termination, in which case his
full annual salary in effect at the time will be used, and $25,000,
and accelerated vesting of all outstanding and unvested equity
awards, provided that any outstanding and unvested
performance-based restricted stock unit awards will only vest upon
achievement of applicable performance metrics. In addition, if
Mr. Ninivaggi’s employment is terminated for any reason other
than “cause” or Mr. Ninivaggi’s resigns for “good reason,”
Mr. Ninivaggi is entitled to receive any actual bonus earned
but unpaid as of the date of termination and a prorated target
bonus for the year of termination, calculated using the
Non-Contingent Base Salary in effect at the time, unless the Market
Cap Threshold had been achieved at the time of termination, in
which case his full annual salary in effect at the time will be
used. Pursuant to his employment agreement, Mr. Ninivaggi is
also subject to certain restrictive covenants, including
(i) perpetual confidentiality and non-disparagement covenants,
(ii) an assignment of inventions covenant and
(iii) non-competition and customer and employee
non-solicitation covenants during and for the two-year period
following any termination of employment.
The foregoing description does not purport to be complete and is
subject to, and qualified in its entirety by, the full text of the
A&R Employment Agreement, a copy of which is attached hereto as
Exhibit 10.7 and incorporated herein by reference.
Item 6. Exhibits
Exhibit Index
|
|
|
Exhibit No. |
|
Description |
3.1 |
|
Certificate
of Correction of Certificate of Amendment of Lordstown Motors Corp.
filed on May 31, 2022 (incorporated by reference to Company’s
Current Report on Form 8-K filed with the SEC on June 1,
2022) |
10.1 |
|
Manufacturing
Supply Agreement, dated May 11, 2022, between Lordstown EV
Corporation and Foxconn EV System LLC (incorporated by reference to
the Company’s Current Report on Form 8-K filed with the SEC on
May 11, 2022) |
10.2 |
|
Limited
Liability Company Agreement of MIH EV Design LLC, dated
May 11, 2022, among MIH EV Design, LLC, Foxconn EV
Technology, Inc. and Lordstown EV Corporation (incorporated by
reference to the Company’s Current Report on Form 8-K filed
with the SEC on May 11, 2022) |
10.3 |
|
Form of
Note, Guaranty and Security Agreement, among Lordstown EV
Corporation, Lordstown EV Sales LLC, Lordstown Motors Corp. and
Foxconn EV Technology, Inc. (incorporated by reference to the
Company’s Current Report on Form 8-K filed with the SEC on
May 11, 2022) |
10.4 |
|
Amended
and Restated Employment Agreement, dated July 12, 2022,
between Lordstown Motors Corp. and Edward T. Hightower, amending
Employment Agreement, dated November 9, 2021 (incorporated by
reference to the Company’s Current Report on Form 8-K filed
with the SEC on July 12, 2022) |
10.5 |
|
Transition
and Consulting Agreement, dated July 11, 2022, between
Lordstown Motors Corp. and Jane Ritson-Parsons (incorporated by
reference to the Company’s Current Report on Form 8-K filed
with the SEC on July 12, 2022) |
10.6* |
|
Employment
Agreement, dated July 7, 2022, between Lordstown Motors Corp.
and Donna L. Bell |
10.7* |
|
Amended
and Restated Employment Agreement, dated August 3, 2022,
between Lordstown Motors Corp. and Daniel Ninivaggi |
31.1* |
|
Certification
of Principal Executive Officer pursuant to
Rule 13a-14(a) or Rule 15d-14(a) |
31.2* |
|
Certification
of Principal Financial Officer pursuant to
Rule 13a-14(a) or Rule 15d-14(a) |
32.1* |
|
Certification
pursuant to 18 U.S.C. 1350 |
32.2* |
|
Certification
pursuant to 18 U.S.C. 1350 |
101.INS* |
|
Inline
XBRL Instance Document – the instance document does not appear in
the Interactive Data File because its XBRL tags are embedded within
the Inline XBRL document |
101.SCH* |
|
Inline
XBRL Taxonomy Extension Schema Document |
101.CAL* |
|
Inline
XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF* |
|
Inline
XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB* |
|
Inline
XBRL Taxonomy Extension Label Linkbase Document |
101.PRE* |
|
Inline
XBRL Taxonomy Extension Presentation Linkbase Document |
Exhibit 104* |
|
Cover
Page Interactive Data File – The cover page interactive
data file does not appear in the Interactive Data File because its
XBRL tags are embedded within the Inline XBRL document |
* Filed
herewith
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
|
LORDSTOWN
MOTORS CORP. |
|
|
|
|
Date: August 4,
2022 |
/s/
Edward T. Hightower |
|
Edward T. Hightower |
|
Chief Executive Officer and
President |
|
(Principal Executive Officer) |
|
|
Date: August 4,
2022 |
/s/
Adam Kroll |
|
Adam Kroll |
|
Chief Financial Officer |
|
(Principal Financial and Accounting
Officer) |
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