Lordstown Motors Expresses Doubt as a ‘Going Concern’ as SEC Issues Subpoenas
LORDSTOWN, Ohio – Cash-strapped electric vehicle startup Lordstown Motors Corp. has expressed doubts as to whether it could continue in business for another year, according to an amended 2020 financial report filed late Tuesday.
Moreover, the company acknowledged it has received two subpoenas from the U.S. Securities and Exchange Commission for documents and information related to its merger with DiamondPeak Holdings Corp. and pre-orders of its vehicles, suggesting that the federal agency has launched a formal investigation into the company.
Lordstown Motors is in the process of retooling the former General Motors Lordstown plant to begin production of The Endurance, which it has promoted as the world’s first all-electric full-size commercial pickup.
“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 filing. “These conditions raise substantial doubt regarding our ability to continue as a going concern for a period of at least one year” from today — the date of the new consolidated statements.
According to the filing, the company said that it is evaluating various funding alternatives and “may seek to raise additional funds through the issuance of equity, mezzanine or debt securities, through arrangements with strategic partners or through obtaining credit from government or financial institutions.”
However, the company warned, “There can be no assurance that such financing would be available to us on favorable terms or at all.”
In a separate financial report detailing the company’s first quarter results also filed Tuesday, the company said that should sufficient funding not be secured, production of the Endurance would be scaled back or curtailed, and “our successful operation and growth would be impeded.”
In the meantime, Lordstown Motors said it has made adjustments to its production timeline.
“Expected Endurance production in 2021 will be limited and we will need additional funding for 2022 production and to establish higher volume, sustained capacity and generally to reach full scale commercial production as contemplated by our business plan,” the company said.
Shares of Lordstown Motors, which trades under the ticker symbol RIDE, nosedived more than 16% at the market’s close and fell another 11.5% in after hours trading. The stock had been trading as high as $15.72 in the afternoon, but by 4:30 p.m., share prices had tumbled to $9.92.
Two weeks ago, Lordstown Motors stated in an 8-K filing that it would slash 2021 production of the Endurance by half if funding was not secured.
According to the company’s restated financial report, the SEC subpoenas are for “documents and information, including relating to the merger between DiamondPeak and Legacy Lordstown and pre-orders of vehicles,” the company said.
The SEC’s enforcement manual states that in order for the agency to issue a subpoena, a staff member “must be named as an officer for purposes of an investigation in the commission’s formal order.” Once the commission has issued a formal order of investigation, the officers can issue the subpoena.
“The company is responding to the SEC’s requests and is cooperating with the inquiry,” Lordstown Motors said in its filing.
Lordstown Motors filed a restated 2020 annual financial report as a result of new SEC guidelines announced in April. Under the new guidelines, stock warrants issued at the time of the merger with DiamondPeak should be treated as debt and not equity. As a result, the company opted to restate its 2020 financials, assuming an additional $23.5 million charge for the year. Lordstown Motors posted a net loss of $124.1 million for 2020.
In March, Lordstown Motors CEO Steve Burns disclosed that the SEC had requested documents and that the company was cooperating with the inquiry. There was no mention of a subpoena, just a request for “voluntary” production of records, according to the company’s previous regulatory filings.
Lordstown Motors has been under SEC scrutiny since February 17, a full month before Burns disclosed the initial inquiry. Some of the documents relate to the merger with DiamondPeak, the special-purpose acquisition company, or SPAC, that took Lordstown Motors public in October under the symbol RIDE.
Others relate to the nature of Lordstown Motors pre-orders of the Endurance, set for limited production in late September.
In March, short-seller Hindenburg Research published a blistering report that alleges the EV startup had misled investors, concocted most of its 100,000 preorders and is likely to miss production targets of the Endurance.
May 24, 2021: Lordstown Motors Cuts 2021 Production in Half, Says It Needs More Capital
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