New SEC Guidance Prompts Lordstown Motors to Restate Financials
LORDSTOWN, Ohio – Lordstown Motors Corp. said late Tuesday that it plans to restate its 2020 financial statements to comply with new guidelines from the U.S. Securities and Exchange Commission.
The restated figures would reclassify stock warrants issued at the time of the company’s merger with DiamondPeak Holdings Corp. as liabilities instead of equity, the company said in a regulatory filing.
“The company has discussed this approach with its independent registered public accounting firm, KPMG LLP, and is working diligently to finalize the valuation of the warrants and intends to file the Form 10-K/A as soon as practicable,” Lordstown Motors said in its filing.
DiamondPeak, a special purpose acquisition company, or SPAC, merged with electric-vehicle manufacturer Lordstown Motors on Oct. 23, 2020. The EV company began trading publicly for the first time on Oct. 26 under the ticker symbol RIDE.
Warrants are stocks that are generally issued to early investors in a company. This is particularly inviting for SPACs, often called “blank check” companies, which are companies without revenue that are listed publicly as they seek a merger with a private entity. Once the merger is complete, the shares of the newly acquired company are now traded on a public exchange.
Early stage companies see benefits through SPACs since the process shortcuts their road to a public offering, and bypasses marketing and administrative work normally associated with a traditional IPO.
Historically, SPACs have listed warrants as equity or assets, but the SEC last month issued stricter guidelines that said these warrants should be classified as liabilities.
Electric truck manufacturer Nikola, which went public through a SPAC last year, recently said it would restate its financial reports for 2020, adding between $7 million and $8 million in liabilities to its balance sheets.
As of December 31, 2020, Lordstown Motors had 13,380,680 warrants outstanding, the company reported. As a result of exercises for cash proceeds to the company of approximately $82.0 million and redemption of certain warrants during the first quarter, as of March 31, 2021, 3,955,907 warrants were outstanding, the company said.
The company also determined that its controls and procedures as of Dec. 31, 2020 were “not effective” and that “a material weakness existed.”
Lordstown Motors on March 18 reported a full-year net loss of $100.55 million and $630 million in cash on hand. The company is in the process of retrofitting General Motors’ former Lordstown Assembly complex to produce the Endurance, which the company describes as the world’s first all-electric pickup.
The company expects to begin production of the vehicle by the end of September.
However, problems have beset Lordstown Motors over the last two months, as the company wrestles with plummeting stock value and a series of investor lawsuits in the wake of a short-seller report that alleged the company faked pre-orders of the new pickup.
Moreover, the SEC has initiated an inquiry into the company and has requested documents related to the SPAC merger and the company’s pre-orders. Lordstown Motors said it is complying with the request.
Shares of Lordstown Motors dropped to a 52-week low of $6.69 on Tuesday before rebounding to $7.76 per share at the market’s close.
Lordstown Motors’ stock has dropped more than 75% in value since reaching a 52-week high of $31.80 in February.
Copyright 2021 The Business Journal, Youngstown, Ohio.