Lordstown Motors Files Amended Stock Issue

Updated June 15 | Editor’s note: This story originally published June 11 contained a misleading headline and content that suggested the stock offering was new when it was not. We apologize for the error.
LORDSTOWN, Ohio – Electric-vehicle manufacturer Lordstown Motors Corp. has filed an amended prospectus to comply with new guidelines adopted by the U.S. Securities and Exchange Commission.

The prospectus includes previously announced share offerings that issue more than 2.3 million shares of Class A Common stock and warrants in order to raise cash to fund its operations. The offering also includes 176,579,376 shares of outstanding Class A common stock warrants as of March 31.

The restated filing was submitted June 10 and includes new disclosures and risk factors, such as a “going concern” notice questioning whether the company will be able to remain in business without additional capital.

According to the prospectus, Lordstown Motors expects to receive up to an aggregate of $43 million, from which the net proceeds would be used for “general corporate purposes,” according to SEC documents.

Jon Arnold, president of J. Arnold Wealth Management Co., Canfield, said that companies generally pursue three avenues to raise capital: traditional loans, a bond raise, or through the issue of common and preferred stock. “They’ve chosen the common stock route.”

Issuing common stock is advantageous for companies such as Lordstown Motors because it allows them access to ready cash, Arnold said. “The bad news is that they’re diluting the stock price for existing shareholders. The more common shares you offer, the less ownership you have in your own company,” he said. “In this case, they’re exchanging ownership for cash.”

According to regulatory filings, CEO Stephen Burns owns 26.25% of Lordstown Motors’ Class A common stock – the largest single shareholder in the company.

Arnold suspects that Lordstown Motors, which trades on NASDAQ under the symbol RIDE, is banking on augmenting its stock issue with funding opportunities such as the federal government’s Advanced Technology Vehicle Manufacturing Loan program. “They’re hoping by issuing common stock and the federal loan program, they might have enough cash to stay in business,” he said. “And that’s a big ‘might.’”

Earlier reports suggested that the federal loan program could bring in as much as $200 million for the struggling startup.

The company disclosed in a regulatory filing June 8 that it might not have enough cash to continue in business through next year.

“The company believes its current level of cash and cash equivalents are not sufficient to fund commercial scale production and the launch of sale of such vehicles,” Lordstown Motors stated in its amended 10-K filing Tuesday. “These conditions raise substantial doubt regarding our ability to continue as a going concern for a period of at least one year”

Shares of Lordstown Motors plummeted 16% in the aftermath of the report on Tuesday and continued to fall in after hours trading. After stabilizing Wednesday, shares of RIDE slipped 5.6% to $10.60 at the market’s close on Thursday and was trending slightly downward during extended trading.

The company is in the process of building what it promotes as the world’s first all-electric, full-size pickup for the commercial market, the Endurance. In November 2019, Lordstown Motors acquired General Motors’ former Lordstown complex, where the Detroit automaker produced the Chevrolet Cruze until GM ceased operations there in March 2019.

GM loaned Lordstown Motors $50 million to help the EV startup purchase and begin retooling the plant. In October, that loan and a $25 million cash infusion by GM was converted into equity when Lordstown merged with DiamondPeak Holdings Corp., a special-purpose acquisition company, or SPAC.

DiamondPeak took Lordstown Motors public on Oct. 26, and GM holds a 4.5% stake in the company.

In April, the SEC announced those companies that have gone public through SPACS reclassify how they declare stock warrants at the time of the merger. Under the new guidelines, those warrants should be considered as debt and not equity.

In a statement published yesterday by Reuters, Lordstown Motors said that it had “adequate capital to continue operations, meet supplier obligations and begin limited production” of the Endurance. The company also said it was in discussions with “multiple parties” to secure additional financing.

According to its restated 2020 financials, Lordstown Motors reported it had $582 million in cash at the end of March, down from $629 million at the end of 2020.

Image: Lordstown Motors Corp.

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