# Stark Novus Financial Inc.: Form 10-Q for the period ended Jun 30, 2023

- Company: [Stark Novus Financial Inc.](/companies/snfi.md) (CIK 1759546)
- Form: 10-Q
- Filed: 2023-08-14
- Accepted by EDGAR: Aug 14, 2023, 20:51 ET
- Period: 2023-06-30
- Accession: 0001558370-23-014898
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1759546/000155837023014898/ride-20230630x10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1759546/000155837023014898/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-04-01 to 2023-06-30 | $2.2m | us-gaap:RevenueFromContractWithCustomerIncludingAssessedTax |
| Revenue | 6 months, 2023-01-01 to 2023-06-30 | $2.3m | us-gaap:RevenueFromContractWithCustomerIncludingAssessedTax |
| Cost of revenue | 3 months, 2023-04-01 to 2023-06-30 | $60.7m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 6 months, 2023-01-01 to 2023-06-30 | $91.5m | us-gaap:CostOfGoodsAndServicesSold |
| Research and development | 3 months, 2023-04-01 to 2023-06-30 | $12.3m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 6 months, 2023-01-01 to 2023-06-30 | $26.7m | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2023-04-01 to 2023-06-30 | −$153.6m | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2023-01-01 to 2023-06-30 | −$327.8m | us-gaap:OperatingIncomeLoss |
| Net income | 3 months, 2023-04-01 to 2023-06-30 | −$154.5m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2023-01-01 to 2023-06-30 | −$326.2m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-04-01 to 2023-06-30 | −$9.69 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2023-01-01 to 2023-06-30 | −$20.47 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-04-01 to 2023-06-30 | −$9.69 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2023-01-01 to 2023-06-30 | −$20.39 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-04-01 to 2023-06-30 | 15,940,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2023-01-01 to 2023-06-30 | 15,936,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2023-01-01 to 2023-06-30 | −$75.7m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2023-01-01 to 2023-06-30 | $10.2m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2023-06-30 | $115.7m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-06-30 | $154.4m | us-gaap:AssetsCurrent |
| Total assets | at 2023-06-30 | $163.1m | us-gaap:Assets |
| Current liabilities | at 2023-06-30 | $16.9m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-06-30 | $102.6m | us-gaap:Liabilities |
| Shareholders' equity | at 2023-06-30 | $29.0m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 34,594 characters.

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 related 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” and Part I – Item 1A. Risk Factors in our Form 10-K and under Part II – Item 1A. Risk Factors below for a discussion of these risks and uncertainties, including without limitation, with respect to the Chapter 11 Cases, our ability to confirm and consummate the Plan and our liquidity, capital resources and financial condition.

Our strategy was designed to accelerate the launch of new commercial EVs. This included working on our own vehicle programs as well as partnering with third parties, and included our intended development program with Foxconn and its affiliates, as we sought to leverage our vehicle development experience, our proprietary and open-source and other non-proprietary technologies, our existing Endurance vehicle platform, and potential new vehicle platforms to drive commonality and scale, and more efficiently develop and launch EVs, to enhance capital efficiency and achieve profitability.

In the third quarter of 2022, we started commercial production of the Endurance with the first two vehicles completing assembly in September. We subsequently completed homologation and testing and received required certifications enabling us to record sales of the first three vehicles in the fourth quarter of 2022. Engineering readiness, quality and part availability governed the initial timing and speed of the Endurance launch. The rate of Endurance production remained very low as we addressed launch and supplier quality related issues until June 30, 2023 when management made the decision to cease production. During the second quarter of 2023, we delivered 33 Endurance trucks to customers as we continued to evaluate the merits of producing and selling vehicles to customers in order to seed the commercial fleet market, demonstrate the capabilities of the Endurance, and support our OEM partnership pursuits.

As a result of having insufficient capital to execute our business plan, we made trade-offs with respect to how we allocated our capital, including substantially limiting investments in tooling, other aspects of the Endurance and our operations, which resulted in higher costs for the Company and slowed or impaired future design efforts. As a further result, our ability to establish multi-year production volumes consistent with our suppliers’ expectations was limited. These factors, among others, resulted in a BOM cost for the Endurance that was, and would continue to be, significantly higher than the recent selling price. While we believe cost improvements over time could be achieved with a strategic partner to provide additional capital or other support to scale the Endurance, a positive gross margin would require investments and design enhancements to reduce the BOM cost.

In the fourth quarter of 2021, we began entering into the Foxconn Transactions (see Note 1 – Description of Organization and Business Operations) as part of a shift in our business strategy from a vertically integrated OEM designer, developer and manufacturer of EVs into a less capital-intensive OEM business focused on designing, developing, engineering, testing, industrializing, and launching vehicles in partnership with Foxconn. Since October of 2021, Foxconn provided $280 million of funding and invested approximately $103 million in our Class A common stock and Preferred Stock.

Pursuant to the Investment Agreement with Foxconn (see Note 6 – Capital Stock and Loss Per Share), Foxconn agreed to provide up to $117.3 million of additional funding pursuant to the Subsequent Common Closing and Subsequent Preferred Funding, subject to conditions, including satisfaction of certain EV Program budget and EV Program milestones as set forth in the Investment Agreement. Proceeds from the Subsequent Preferred Funding would only be used in connection with the EV Program or any substitute or replacement electric vehicle program as agreed to by Foxconn and the Company. Since April 21, 2023, Foxconn has disputed its obligations under the Investment Agreement to consummate the Subsequent Common Closing and to use necessary efforts to agree upon the EV Program budget and EV Program milestones to facilitate the Subsequent Preferred Funding and has asserted breaches by the Company of the Investment Agreement. The Company continues to believe that the breach allegations by Foxconn are without merit, and that Foxconn was obligated to complete the Subsequent Common Closing on or before May 8, 2023. As a result of Foxconn’s actions, the Company has been deprived of critical funding necessary for its operations and commenced the Foxconn Litigation on June 27, 2023.

Leading up to filing the Chapter 11 Cases, it became apparent that we would be unable to effectively implement and realize the anticipated benefits of the Foxconn Transactions as Foxconn continued to shift its approach to the nature of the partnership and the product, failed to meet funding commitments and refused to engage with the Company on various initiatives contemplated by the Foxconn Transactions that were essential to sustain ongoing operations. Due to the failure to identify a strategic partner for the Endurance, lack of expected funding and other support from Foxconn and extremely limited ability to raise sufficient capital in the current market environment, we determined it was in the best interests of the Company’s stakeholders to take aggressive actions to cut costs and preserve cash, file the Chapter 11 Cases and cease production of the Endurance and new program development. As part of these actions, two notices were provided to a substantial number of employees under the WARN Act in May 2023, for job eliminations to occur in July 2023. Therefore, this reduction in costs occurred after the end of the second quarter of 2023.

As part of the Chapter 11 Cases, we have initiated a process to seek a buyer for some or all of the Company’s assets. The Company can provide no assurance that any sale of assets (whether in whole or in part) will be consummated or what the proceeds or other terms of any such transaction may be. The Company also intends to use the Chapter 11 Cases to fully, finally and efficiently resolve its contingent and other liabilities and is pursuing the Foxconn Litigation before the Bankruptcy Court. However, the Company provides no assurance as to the timing or outcome of the resolution of these matters by the Bankruptcy Court or any other court in which these matters may be adjudicated, including as a result of the proceedings that will occur outside of the Bankruptcy Court prior to a final disposition by the Bankruptcy Court, including the Karma Action. In addition, the Bankruptcy Court has not established a deadline by which parties are required to file proofs of claim in the Chapter 11 Cases. The Company cannot provide any assurances regarding when such deadline will be, the amount or nature of the claims that may be filed by such deadline, or what the Company’s total estimated liabilities based on such claims will be. See Note 1 – Description of Organization and Business Operations – Description of Business – Voluntary Chapter 11 Petition.

Because the Chapter 11 Cases were filed just prior to the end of the second quarter, the Company had limited information available and substantial uncertainty regarding the impact of the Chapter 11 Cases. As a result, the Company’s results for the quarter ended June 30, 2023 do not fully reflect the significant increase in costs we are incurring and other accounting impact caused by the Chapter 11 Cases. As a result of the Company’s decision to cease production of the Endurance, we recorded an impairment charge of $23.7 million for the quarter ended June 30, 2023. Additional impairments could occur in future periods and may be significant. See – Note 2 – Summary of Significant Accounting Policies and Note 4 – Property, Plant and Equipment and Assets Held for Sale for additional information.

See Part I – Item 1A. Risk Factors of our Form 10-K and Part II – Item 1A. Risk Factors below for further discussion of the risks associated with the Chapter 11 Cases, our ability to confirm and consummate the Plan, our liquidity, capital resources and financial condition, and the use of estimates and resulting uncertainty in establishing our presented financial results, among other risks.

### Results of Operations for the three months ended June 30, 2023 and 2022

*(in thousands)*

| ​ ​ ​ ​ | ​ ​ ​ Three months ended June 30, 2023 | ​ ​ | ​ ​ Three months ended June 30, 2022 |
| --- | --- | --- | --- |
| Net sales | $2,151 | ​ | $— |
| Cost of sales: | ​ 60,739 | ​ | ​ — |
| Operating expenses: | ​ ​ | ​ | ​ ​ |
| Selling, general and administrative expenses | ​ 57,688 | ​ | ​ 29,941 |
| Research and development expenses1 | ​ 12,303 | ​ | ​ 10,510 |
| Impairment of property plant & equipment and intangibles | ​ 25,041 | ​ | ​ — |
| Total operating expenses | $95,032 | ​ | $40,451 |
| Loss from operations | ​ (153,620) | ​ | ​ 40,451 |
| Other income (expense) | ​ | ​ | ​ |
| (Loss) gain on sale of assets | ​ (2,609) | ​ | 101,736 |
| Other income | ​ 93 | ​ | ​ 1,991 |
| Investment and interest income | ​ 1,645 | ​ | ​ 383 |
| Loss before income taxes | $(154,491) | ​ | $63,659 |
| Income tax expense | ​ — | ​ | ​ — |
| Net loss | $(154,491) | ​ | $63,659 |

1 Research and development expenses for the three months ended June 30, 2022 are net of $18.4 million in operating expense reimbursements and $1.8 million in other adjustments in connection with the APA (see Note 1 — Description of Organization and Business Operations).

### Revenue and Cost of Sales

Production of the Endurance ended on June 30, 2023. A total of 33 vehicles were sold in the three months ended June 30, 2023.

Cost of sales totaled $60.7 million for the second quarter of 2023. Costs associated with producing the Endurance totaled $4.0 million, including direct materials net of an adjustment to inventory to reflect its NRV, product warranty accruals and other costs related to selling and delivering the vehicles. The Company recorded $46.6 million in manufacturing depreciation for the three months ended June 30, 2023. Additionally, for the three months ended June 30, 2023, the Company recorded a $6.0 million charge to reduce the carrying value of inventory to NRV. See Note 2 — Summary of Significant Accounting Policies and Note 4 — Property, Plant and Equipment regarding depreciation and inventory charges. Finally, the Company recorded an additional $4.1 million reserve for potential claims from suppliers regarding costs incurred for materials.

### Selling, General and Administrative Expense

Selling, general and administration expenses (“SG&A”) of $57.7 million during the three months ended June 30, 2023 consisted primarily of $7.3 million in personnel and professional fees, $40.3 million in litigation accruals, $6.8 million in legal costs and $1.5 million in insurance premiums. Compared to the second quarter of 2022, SG&A was $27.7 million higher primarily due to a $41.2 million increase in litigation accruals and other legal expenses, offset by decreases of $6.9 million due to the charge to reflect NRV being recorded in SG&A prior to Endurance start of production, $2.7 million in personnel and professional fees and $1.6 million in insurance premiums.

### Research and Development Expense

Research and development (“R&D”) expenses were $12.3 million during the three months ended June 30, 2023, consisting of $9.0 million in personnel costs, $1.3 million for outside engineering and consulting services and $2.0 million in prototype components, testing and development supplies. For the period ended June 30, 2022, the Company’s R&D costs were $10.5 million, including $13.8 million in personnel costs, $6.1 million in outside engineering and consulting services, and $10.8 million in prototype components and other testing and development supplies. The Company’s R&D costs in the three months ended June 30, 2022 included $10.7 million associated with operating the Lordstown facility. R&D in 2022 was reduced by $18.4 million related to a reimbursement of costs associated with operating the Lordstown facility for periods back to September 1, 2021, by Foxconn, and $1.8 million due to adjustments related to the Foxconn APA.

### Impairment of property, plant, and equipment and other intangibles

As of June 30, 2023, property, plant, and equipment was reviewed for potential impairment for recoverability. In prior periods, fair value of the Company’s property, plant, and equipment was derived from the Company’s enterprise value at the time of impairment as the Company believed it represented the most appropriate fair value of the asset group in accordance with accounting guidance. In light of the Chapter 11 Cases, the Company valued its property, plant and equipment based on its estimate of residual and salvage values, resulting in an impairment charge of $23.7 million, for the three months ended June 30, 2023. No such impairment charges were incurred for the same period of 2022. See Note 4 — Property, Plant, and Equipment and Assets Held For Sale for additional details regarding our impairment. Additionally, during the three months ended June 30, 2023, the Company recognized an impairment of $1.4 million related to prepaid inventory purchases.

### Gain (Loss) on Sale of Assets

For the three months ended June 30, 2023, the Company recognized a loss of $2.6 million on the sale of manufacturing equipment, compared to a $101.7 million gain which was primarily attributable to the gain on the sale of the Lordstown facility to Foxconn for the same period of 2022. See Note 1 — Description of Organization and Business Operations for additional details regarding the Foxconn Transactions.

### Results of Operations for the three and six months ended June 30, 2023 and 2022

*(in thousands)*

| ​ ​ ​ ​ | ​ ​ ​ Six months ended June 30, 2023 | ​ ​ | ​ ​ Six months ended June 30, 2022 |
| --- | ---: | --- | ---: |
| Net sales | $2,340 | ​ | $— |
| Cost of sales | ​ 91,550 | ​ | ​ — |
| Operating Expenses | ​ ​ | ​ | ​ ​ |
| Selling, general and administrative expenses | 72,375 | ​ | 55,960 |
| Research and development expenses 1 | 26,728 | ​ | 72,374 |
| Impairment of property plant & equipment and intangibles | ​ 139,481 | ​ | ​ (101,736) |
| Total operating expenses | $238,583 | ​ | $26,598 |
| Loss from operations | (327,794) | ​ | (26,598) |
| (Loss) gain on sale of assets | ​ (2,609) | ​ | ​ 101,736 |
| Other income | 158 | ​ | 499 |
| Interest income | 4,036 | ​ | 125 |
| Loss before income taxes | $(326,210) | ​ | $(25,974) |
| Income tax expense | — | ​ | — |
| Net loss | $(326,210) | ​ | $(25,974) |

1 Research and development expenses for the six months ended June 30, 2022 are net of $18.4 million in operating expense reimbursements and $1.8 million in other adjustments in connection with the APA (see Note 1 — Description of Organization and Business Operations).

### Revenue and Cost of Sales

Production of the Endurance ended on June 30, 2023. A total of 36 vehicles were sold in the first six months of 2023.

Cost of sales totaled $91.6 million for the first half of 2023, consisting of $7.6 million in costs associated with producing the Endurance, including direct materials net of an adjustment to inventory to reflect its NRV, product warranty accruals and other costs related to selling and delivering the vehicles. The Company recorded $54.3 million in manufacturing depreciation, a $25.8 million charge to reduce the carrying value of inventory to NRV, and a $4.1 million reserve for potential claims from suppliers regarding costs incurred or otherwise that may be owed during the six months ended June 30, 2023. See Note 2 — Summary of Significant Accounting Policies and Note 4 — Property, Plant and Equipment and Assets Held for Sale regarding depreciation and inventory charges.

### Selling, General and Administrative Expense

Selling, general and administration expenses (“SG&A”) of $72.4 million during the six months ended June 30, 2023 consisted primarily of $40.3 million in litigation accruals, $15.6 million in personnel and professional fees, $9.8 million in legal fees and $2.9 million in insurance premiums. Compared to the first half of 2022, SG&A was $16.4 million higher, due primarily to a $40.3 million increase in litigation accruals, offset by decreases of $9.3 million due to the charge to reflect NRV being recorded in SG&A in the first six months of 2022, prior to Endurance start of production, $3.8 million in personnel and professional fees, $3.3 million in insurance premiums and $2.4 million in legal fees.

### Research and Development Expense

Research and development (“R&D”) expenses consisted of the costs associated with the ongoing development and engineering work related to the Endurance and future programs, totaling $26.7 million during the six months ended June 30, 2023. The costs in the first half of 2023 included $18.7 million in personnel costs, $3.5 million for outside engineering and consulting services and $4.5 million in prototype components, other testing and development supplies. For the six months ended June 30, 2022, the Company’s R&D costs were $72.4 million, including $31.1 million in personnel costs, $16.1 million in outside engineering and consulting services, and $27.1 million in prototype components and other testing. The Company’s R&D costs for the six months ended June 30, 2022 included $32.7 million associated with operating the Lordstown facility. R&D in 2022 was reduced by $18.4 million related to a reimbursement of costs associated with operating the Lordstown facility for periods back to September 1, 2021, by Foxconn, and $1.8 million due to adjustments related to the Foxconn APA..

### Impairment of property, plant, and equipment and other intangibles

As of June 30, 2023, property, plant, and equipment was reviewed for potential impairment for recoverability. In prior periods, fair value of the Company’s property, plant, and equipment was derived from the Company’s enterprise value at the time of impairment as the Company believed it represented the most appropriate fair value of the asset group in accordance with accounting guidance. In light of the Chapter 11 Cases, the Company valued its property, plant and equipment based on its estimate of residual and salvage values, resulting in an impairment charges of $133.5 million, for the six months ended June 30, 2023. No such impairment charges were incurred for the same period of 2022. See Note 4 — Property, Plant, and Equipment and Assets Held For Sale for additional details regarding our impairment. Additionally, during the six months ended June 30, 2023, the Company recognized an impairment of $6.0 million related to prepaid inventory purchases.

### Gain (Loss) on Sale of Assets

For the six months ended June 30, 2023, the Company recognized a loss of $2.6 million on the sale of manufacturing equipment, compared to a $101.7 million gain which was primarily attributable to the gain on the sale of the Lordstown facility to Foxconn for the same period of 2022. See Note 1 — Description of Organization and Business Operations for additional details regarding the Foxconn Transactions.

### Liquidity and Capital Resources

As a result of the Company’s recurring losses from operations, accumulated deficit, cessation of production of the Endurance and lack of any meaningful revenue stream, as well as the risks and uncertainties related to (i) the Company’s ability to successfully complete the Chapter 11 Cases, including our ability to sell all, substantially all or some of our assets, to successfully resolve litigation and other claims that may be filed against us, and to develop, negotiate, confirm and consummate a Plan, after which we do not expect to conduct ongoing business, (ii) the effects of disruption from the Chapter 11 Cases, including challenges with respect to retaining employees, (iii) the costs of the Chapter 11 Cases and (iv) the costs of defending the Company in substantial litigation and claims, along with the risk of future litigation or claims that we have and may continue to experience, substantial doubt exists regarding our ability to continue as a going concern for a period of at least one year from the date of issuance of the consolidated financial statements included in this report.

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.

We had cash, cash equivalents and short-term investments of approximately $137.7 million and an accumulated deficit of $1,153.4 million at June 30, 2023 and a net loss of $154.5 million for the three months ended June 30, 2023.

As discussed under Note 6 – Capital Stock and Loss Per Share, on November 7, 2022, the Company entered into the Sales Agreement for the ATM Offering with Jefferies, pursuant to which the Company may offer and sell up to approximately 50.2 million shares of its Class A common stock from time to time through Jefferies. As a result of our delisting from Nasdaq, we do not anticipate any transactions under the ATM Offering in the future.

Pursuant to the Investment Agreement with Foxconn, described above and in Note 6 – Capital Stock and Loss Per Share, Foxconn agreed to provide up to $117.3 million of additional funding, subject to conditions, including establishment of the EV Program budget and EV Program milestones and satisfaction of the EV Program milestones as set forth in the Investment Agreement. Proceeds from the Preferred Stock would only be used in connection with the EV Program or any substitute or replacement electric vehicle program as agreed to by Foxconn and the Company. Foxconn did not proceed with the Subsequent Common Closing or any Subsequent Preferred Funding and the Company has commenced the Foxconn Litigation, seeking relief for fraudulent and tortious conduct as well as breaches of the Investment Agreement, the parties’ joint venture agreement, the APA, and the CMA that the Company believes were committed by Foxconn. As a result of Foxconn’s actions, the Company has been deprived of critical funding necessary for its operations. See Note 1 – Description of Organization and Business Operations – Foxconn Transactions and Note 7 – Commitments and Contingencies.

Due to the failure to identify a strategic partner for the Endurance, lack of expected funding and other support from Foxconn (as discussed in more detail above and elsewhere in this report) and extremely limited ability to raise sufficient capital in the current market environment, we determined it was in the best interests of the Company’s stakeholders to take aggressive actions to cut costs and preserve cash, file the Chapter 11 Cases and cease production of the Endurance and new product development. On June 27, 2023, we voluntarily initiated the Chapter 11 Cases in the Bankruptcy Court. Since filing the Chapter 11 petitions, we have operated our business as debtors-in-possession in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. After we filed our Chapter 11 petitions, the Bankruptcy Court granted certain relief enabling us to conduct our business activities in the ordinary course, including, among other things and subject to the terms and conditions of such orders, authorizing us to pay employee wages and benefits, to pay taxes, to maintain our insurance policies, to honor certain of our customer obligations, to continue to operate our cash management system in the ordinary course, to pay the prepetition claims of certain of our vendors and to establish certain procedures to protect any potential value of the Company’s NOLs.

Our liquidity and ability to continue as a going concern is dependent upon, among other things: (i) our ability to develop, confirm and consummate a Plan or other alternative liquidating transaction, (ii) the resolution of contingent and other claims, liabilities, the Karma Action and the Foxconn Litigation (see Note 7 – Commitments and Contingencies), (iii) the outcome of the Company’s efforts to sell all or a portion of its assets, and (iv) the cost, duration and outcome of the Chapter 11 Cases.

We have incurred significant professional fees and other costs in connection with preparation for the Chapter 11 Cases and have and expect to continue to incur significant professional fees and costs throughout our Chapter 11 Cases. In addition, we are subject to significant contingent liabilities, the full scope of which is uncertain at this time (see Note 7 – Commitments and Contingencies and Note 9 – Subsequent Events). Further, the Bankruptcy Court has not established a deadline by which parties are required to file proofs of claim in the Chapter 11 Cases and we cannot provide any assurances regarding when such deadline will be, the amount or nature of the claims that may be filed by such deadline, or what the Company’s total estimated liabilities based on such claims will be.

The Company intends to use the tools of Chapter 11 to fully, finally, and efficiently resolve its contingent and other liabilities and to pursue the Foxconn Litigation before the Bankruptcy Court. However, the Company provides no assurance as to the timing or outcome of the resolution of these matters by the Bankruptcy Court or any other court in which these matters may be adjudicated, including as a result of the proceedings that will occur outside of the Bankruptcy Court prior to a final disposition by the Bankruptcy Court, including the Karma Action.

As part of the Chapter 11 Cases, on August 8, 2023, the Bankruptcy Court approved procedures for the Debtors to conduct a comprehensive marketing and sale process for all, substantially all or some of their assets in order to maximize the value of those assets. The Debtors’ investment banker, Jefferies LLC, has reached out to a wide range of potential buyers. The Debtors have received a number of non-binding indications of interest. The procedures approved by the Bankruptcy Court provide that August 24, 2023 is the deadline by which the Company may select and file with the Bankruptcy Court one or more stalking horses with respect to their assets. The deadline to submit bids is September 8, 2023 and the auction, if any, is scheduled for September 19, 2023. Each of these dates is subject to change and the sale process may be cancelled in accordance with the procedures approved by the Bankrupt Court. The Company can provide no assurance that any sale of assets (whether in whole or in part) will be consummated or what the proceeds or other terms of any such transaction may be. Further, the description of our assets included in this report or in any filing we make with the Bankruptcy Court may not accurately reflect the values thereof during the pendency of or following the Chapter 11 Cases or the value of our assets in an organized sale process in light of the uncertainty of the estimates and assumptions used in the applicable reporting principles, and such values may be higher or lower as a result.

On July 20, 2023, certain Foxconn entities filed the Foxconn Motion to Dismiss. See Note 1 — Description Of Organization And Business Operations. The movants allege that the Debtors filed the Chapter 11 Cases in bad faith, that the Debtors do not have a reasonable likelihood of rehabilitation, and that dismissal or conversion would benefit the Debtors’ creditors. The Debtors believes that there are strong defenses to the movants’ assertions and intend to vigorously oppose the motion. However, no assurances can be given regarding the outcome of the motion.

On July 31, 2023, the Bankruptcy Court granted Karma relief from the automatic stay imposed by the commencement of the Chapter 11 Cases and to allow the multi-week trial in the Karma Action scheduled in September 2023 to continue. The Company is continuing to vigorously defend against Karma’s claims and continues to believe that there are strong defenses to the claims and damages demanded. However, the outcome of the Karma Action is subject to uncertainties inherent in the litigation process and no assurances can be given regarding the outcome of the trial or the impact of the Karma Action on the Company, including its ability to sell assets that Karma claims were misappropriated by the Company or that incorporate trade secrets or property that Karma claims were misappropriated by the Company. See Note 7 – Commitments and Contingencies and Note 9 – Subsequent Events.

If confirmation by the Bankruptcy Court of a Plan does not occur, or if the Bankruptcy Court otherwise finds that it would be in the best interest of holders of claims and interests or upon the showing of cause, the Bankruptcy Court may convert the Chapter 11 Cases to cases under Chapter 7 of the Bankruptcy Code. In such event, a Chapter 7 trustee would be appointed or elected to liquidate the Company’s assets for distribution in accordance with the priorities established by the Bankruptcy Code. See Note 1 – Description of Organization and Business Operations – Description of Business – Voluntary Chapter 11 Petition.

As a result of these circumstances, there is substantial doubt regarding our ability to continue as a going concern and the value available to our various stakeholders, including our creditors and stockholders, is uncertain and trading prices for our securities may bear little or no relationship to the actual recovery, if any, by holders of our securities in the Chapter 11 Cases, if any.

See Risk Factors under Part I – Item 1A. of our Form 10-K and Part II – Item 1A. Risk Factors below for further discussion of the risks associated with our limited capital resources 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 June 30, 2023 | ​ | ​ ​ Six months ended June 30, 2022 |
| --- | --- | ---: | --- | ---: |
| Net Cash used in operating activities | ​ | $(75,692) | ​ | $(121,427) |
| Net Cash provided by (used in) investing activities | ​ | $70,066 | ​ | $(15,990) |
| Net Cash provided by financing activities | ​ | $— | ​ | $129,087 |

### Net Cash Used by Operating Activities

For the six months ended June 30, 2023 compared to 2022, net cash used in operating activities decreased by $45.7 million. The net loss increased $300.2 million from the first six months of 2022 to the first six months of 2023, principally due to the $101.7 million gain on the sale of the Lordstown plant in recognized in 2022 and impairment charges of $139.5 million and depreciation charges of $54.2 million recognized in the first six months of 2023.

### Net Cash Provided by (Used in) Investing Activities

For the six months ended June 30, 2023 compared to 2022, cash used in investing activities increased $86.1 million primarily due to $112.2 million in maturities of short-term investments, partially offset by an increase in purchases of short-term investments of $32.1 million. Compared to the six months ended June 30, 2023, the decrease in purchases of capital assets of $29.9 million for the first six months of 2023 was offset by an increase in proceeds from the sale of capital assets of $37.3 million for the same period in 2022.

### Net Cash Provided by Financing Activities

For the six months ended June 30, 2023 compared to 2022, cash flows from financing activities decreased $129.1 million. There were no financing transactions during the six months ended June 30, 2023. For the first six months of 2022, we received a $100.0 million down payment related to the sale of the Lordstown facility to Foxconn and $13.7 million in proceeds from the Equity Purchase Agreement with YA.

### Off-Balance Sheet Arrangements

We have no obligations, assets or liabilities, which would be considered off-balance sheet arrangements as of June 30, 2023. 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 — Summary of Significant Accounting Policies 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.

## Market risk

As filed, 351 characters.

On June 30, 2023, we had cash, cash equivalents and short-term investments of approximately $137.7 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.

## Controls and procedures

As filed, 2,398 characters.

#### 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 effective as of June 30, 2023.

#### 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, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 33,708 characters.

There are no material changes from the risk factors set forth in Part I, “Item 1A. Risk Factors” in our Form 10-K, except as set forth below. In addition to the risk factors 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 and other filings, which could materially affect our business, financial condition or future operating results.

***We have filed litigation against Foxconn with the Bankruptcy Court seeking substantial damages for fraudulent and tortious conduct and contractual breaches the Company believes were committed by Foxconn, but no assurances can be provided that our claims against Foxconn will be successful or that we will recover any damages as a result thereof.***

On June 27, 2023, we filed the Foxconn Litigation against Foxconn in the Bankruptcy Court seeking relief for contractual breaches and fraudulent and tortious actions that the Company believes were committed by Foxconn, which have caused substantial harm to our operations and prospects and significant damages.

The Foxconn Litigation involves allegations of fraudulent conduct by Foxconn, which induced the Company to enter into a series of agreements, including the Agreement in Principle, the APA, the CMA, the joint venture agreement, and the Investment Agreement. We are vigorously pursuing the Foxconn Litigation claims and seeking substantial damages from Foxconn. However, no assurances can be provided that our claims against Foxconn will be successful or that we will recover any damages as a result thereof.

***There is substantial doubt regarding our ability to continue as a going concern and our liquidity requirements during the pendency of the Chapter 11 Cases and the adequacy of our capital resources are difficult to predict at this time.***

We have concluded that there is substantial doubt regarding our ability to continue as a going concern. We face uncertainty regarding the adequacy of our liquidity and capital resources to be used during the Chapter 11 Cases and to settle known, unknown and contingent liabilities in connection therewith. Through the Chapter 11 Cases, we are seeking to sell substantially all of our assets. We can give no assurances as to the outcome of that sale process.

We have incurred significant professional fees and other costs in connection with our contingent liabilities and preparation for the Chapter 11 Cases and expect to continue to incur significant professional fees and costs throughout our Chapter 11 Cases. In addition, we face uncertainty with respect to ongoing and potential future litigation and claims, as well as regulatory actions and government investigations and inquiries, for which we will continue to incur significant legal costs and may be subject to significant uninsured losses although we are seeking to resolve these contingencies through the Chapter 11 Cases. Due to cessation of production of the Endurance, we lack any meaningful revenue stream, our ability to obtain additional financing is highly unlikely and we do not expect continued operations following the completion of the Chapter 11 Cases. There can be no assurances that cash on hand and our current capital resources will be sufficient to allow us to satisfy our obligations related to the Chapter 11 Cases or the pending litigation, claims and investigations and may negatively impact our ability to make any distribution and, if so, the amount of such distribution, to our stockholders.

***Trading in our Class A common stock during the pendency of the Chapter 11 Cases is highly speculative and poses substantial risks.***

It is too early to determine if our Plan will allow for distributions or other residual value with respect to our Class A common stock. It is very possible that our Class A common stock will be canceled and extinguished upon the approval of the Bankruptcy Court and the holders thereof would not be entitled to receive, and would not receive or retain, any property or interest in property on account of such equity interests. In the event of a cancellation of our Class A common stock, amounts invested by such holders in our outstanding Class A common stock will not be recoverable. Consequently, our currently outstanding Class A common stock would have no value. Any trading in our Class A common stock during the pendency of the Chapter 11 Cases is highly speculative and poses substantial risks to purchasers of our Class A common stock. Trading prices for our securities may bear little or no relationship to the actual recovery, if any, by holders of our securities in bankruptcy proceedings.

During the Chapter 11 Cases, the value that will be available to our various stakeholders, including our creditors and stockholders, is uncertain and our ability to generate value for stakeholders, if any, will be subject to the risks and uncertainties associated with bankruptcy proceedings, including, among others: our ability to execute, confirm and consummate a plan of reorganization or liquidation, or to negotiate and consummate a sale or other transaction with a third party; the potentially high costs of bankruptcy proceedings and related fees; the sufficiency of the Company’s cash on hand and ability to obtain sufficient financing, if needed, to allow us to continue our limited operations during the bankruptcy proceedings, confirm a plan of reorganization or sell some or all of our assets during the bankruptcy proceedings in orderly fashion, and our ability to comply with terms and conditions of any such financing; our ability to continue our operations in the ordinary course; our ability to maintain our relationships with our suppliers, vendors, customers and other third parties; our ability to obtain, maintain or renew agreements that are critical to our operations on reasonably acceptable terms and conditions; our ability to attract, motivate and retain key employees; the ability of third parties to use certain limited safe harbor provisions of the Bankruptcy Code to terminate contracts without first seeking Bankruptcy Court approval; the ability of third parties to force us to into Chapter 7 proceedings, rather than Chapter 11 proceedings; and the actions and decisions of our stakeholders and other third parties who have interests in our bankruptcy proceedings that may be inconsistent with our operational and strategic plans.

***We are subject to the risks and uncertainties associated with the Chapter 11 Cases.***

Since filing the Chapter 11 Cases, we have operated our business as debtors-in-possession under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of Chapter 11 of the Bankruptcy Code. As a consequence of filing the Chapter 11 Cases, we will be subject to the risks and uncertainties associated with bankruptcy. These risks include, but are not limited to, the following:

- our ability to successfully develop, prosecute, confirm and consummate a Plan with respect to the Chapter 11 Cases;
- our ability to obtain the Bankruptcy Court’s approval with respect to motions or other requests made to the Bankruptcy Court in the Chapter 11 Cases, including maintaining strategic control as debtors-in-possession;
- our ability to successfully resolve our outstanding contingent liabilities through the Chapter 11 Cases, which is highly uncertain;
- the possibility that actions and decisions of our creditors and other third parties with interests in the Chapter 11 Cases may be inconsistent with our plans;
- the high costs of bankruptcy proceedings and related fees, particularly if delays in the Chapter 11 Cases increase fees and costs;
- our ability to motivate and retain key employees, and the costs associated therewith, throughout the Chapter 11 Cases, and the impact of the loss of employees on our prospects for realizing any value from the sale of our assets;
- shortly after filing the Chapter 11 Cases we ceased production of the Endurance and new program development and, accordingly, this may adversely impact our ability to sell our assets and we have no meaningful ongoing revenue streams;
- our ability to sell all, substantially all, or some of our assets or to otherwise realize any value with respect to our assets;
- the ability of third parties to assert claims against the Company, which may be substantial or terminate the Company’s rights with respect to contracts, leases, agreements, or other assets;
- our ability to maintain our relationships with our suppliers, vendors, customers and other third parties, including those suppliers providing services that are integral to maintaining our financial, information technology and other systems used to operate our business;
- our suppliers’ and vendors’ likely unwillingness or ability to fulfill any obligations they may have under supply terms or agreements for ongoing support, including their warranty obligations to us, as a result of the Chapter 11 Cases or other disputes, that could cause us to incur costs or liabilities, damage our reputation with our customers or potential acquirers of our assets;
- our ability to maintain adequate financial, information technology and management processes, controls and procedures, particularly in light of the reduction in personnel due to the lack of support from Foxconn and the Chapter 11 Cases and risk of further attrition; and
- the ability of third parties to seek and obtain court approval to terminate or shorten the exclusivity period for us to propose and confirm a Plan, to appoint a Chapter 11 trustee, or to convert the Chapter 11 Cases to Chapter 7 cases.

Because of the risks and uncertainties associated with a voluntary filing for relief under Chapter 11 of the Bankruptcy Code and the related proceedings, we cannot accurately predict or quantify the ultimate impact that events that occur during the Chapter 11 Cases may have on ultimate recovery for stakeholders, including creditors and stockholders.

***As a result of the Chapter 11 Cases, our historical financial information will not be indicative of our future performance.***

Due to the failure to identify a strategic partner for the Endurance, lack of expected funding and other support from Foxconn and extremely limited ability to raise sufficient capital in the current market environment, we determined it was in the best interests of the Company’s stakeholders to take aggressive actions to cut costs and preserve cash, file the Chapter 11 Cases and cease production of the Endurance and new program development. Therefore, the nature of our current business activities is materially different than those prior to June 30, 2023. Furthermore, during the Chapter 11 Cases, we expect our financial results to continue to be volatile as restructuring activities and expenses, contract terminations and rejections, new claims that may be significant, and claims assessments significantly impact our consolidated financial statements. As a result, our historical financial performance, including information presented as of June 30, 2023, is likely not indicative of our financial performance after the date of the filing of the Chapter 11 Cases.

In particular, the amount and composition of our assets and liabilities could be significantly different as a result of the Chapter 11 Cases, and the description of our operations, assets, liabilities, contingencies, liquidity and capital resources included in our periodic reports or in any filing we make with the Bankruptcy Court may not accurately reflect our such matters during the pendency of or following the Chapter 11 Cases or the value of our assets in an organized sale process in light of the uncertainty of the estimates and assumptions used in the applicable reporting principles, and such values may be higher or lower as a result. The periodic financial information reported to the Bankruptcy Court is not presented in accordance with GAAP and may differ materially from information that has been or may in the future be provided as of quarter end in our periodic reports and may reflect estimates based on assumptions that may change significantly during the course of the Chapter 11 Cases or due to other contingencies, and, as applicable, is subject to all of the disclaimers presented therewith.

Further, if confirmation by the Bankruptcy Court of a Plan does not occur, or if the Bankruptcy Court otherwise finds that it would be in the best interest of holders of claims and interests or upon the showing of cause, the Bankruptcy Court may convert the Chapter 11 Cases to cases under Chapter 7 of the Bankruptcy Code. In such event, a Chapter 7 trustee would be appointed or elected to liquidate the Company’s assets for distribution in accordance with the priorities established by the Bankruptcy Code. The condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty.

***We have significant contingent liabilities, the full scope of our liabilities is uncertain, and we may also be subject to claims that will not be discharged in the Chapter 11 Cases, which could have a material adverse effect on our financial condition and results of operations.***

The Company is subject to significant contingent liabilities, including, but not limited to, potential indemnification obligations to current and former directors and officers named in the actions described herein. See Note 7 – Commitments and Contingencies and Note 9 – Subsequent Events. The full scope of the Company’s contingent liabilities is uncertain at this time. In addition, the Bankruptcy Court has not established a deadline by which parties are required to file proofs of claim in the Company’s Chapter 11 Cases. The Company cannot provide any assurances regarding when such deadline will be, the amount or nature of the claims that may be filed by such deadline, or what the Company’s total estimated liabilities based on such claims will be. The Bankruptcy Code provides that the confirmation of a Chapter 11 plan discharges a debtor from substantially all debts arising prior to consummation of such plan. With few exceptions, all claims that arose prior to the consummation of a Chapter 11 plan (i) would be subject to compromise and/or treatment under such plan and/or (ii) would be discharged in accordance with the Bankruptcy Code and the terms of such plan. However, the outcome and timing of any claims not ultimately discharged is uncertain, and it is possible material costs, penalties, fines, sanctions, or injunctive relief could result from such a matter. As a result, an adverse ruling with respect to potential matters could have a material impact on our financial condition, results of operations, liquidity and cash flows and recoveries for creditors and stakeholders.

***In the event we are not able to obtain confirmation of a Plan, it may be necessary to pursue bankruptcy protection under Chapter 7 of the Bankruptcy Code for all or a part of our business.***

If confirmation by the Bankruptcy Court of a Plan under Chapter 11 does not occur, or if the Bankruptcy Court otherwise finds that it would be in the best interest of holders of claims and interests or upon the showing of cause, the Bankruptcy Court may convert our Chapter 11 Cases to cases under Chapter 7 of the Bankruptcy Code. In such event, a Chapter 7 trustee would be appointed or elected to liquidate our assets for distribution in accordance with the priorities established by the Bankruptcy Code. Although the value, if any, that would be available to any of our various stakeholders (including creditors and stockholders) would be uncertain in any bankruptcy proceeding, we believe that liquidation under Chapter 7 would result in significantly smaller distributions being made to our stakeholders than those we might obtain under Chapter 11 primarily because of the likelihood that the assets would have to be sold or otherwise disposed of in a distressed fashion over a short period of time rather than in a controlled manner and as a going concern.

### The Bankruptcy Court may grant Foxconn’s motion to dismiss or convert the Chapter 11 Cases to cases under Chapter 7 of the Bankruptcy Code

As described in Note 7 – Commitments and Contingencies, on July 20, 2023, certain Foxconn entities filed a motion to dismiss the Chapter 11 Cases or to convert the cases under Chapter 7 of the Bankruptcy Code. Although we believe that there are strong defenses to the movants’ assertions and intend to vigorously oppose the motion, we cannot make any assurances on the outcome and the Bankruptcy Court may grant Foxconn’s motion and dismiss the Chapter 11 Cases or convert the Chapter 11 Cases to cases under Chapter 7 of the Bankruptcy Code. The dismissal of the Chapter 11 Cases or conversion to Chapter 7 cases could materially and adversely impact the Company and recoveries to creditors and other stakeholders.

***Prosecution of the Chapter 11 Cases has consumed and will continue to consume a substantial portion of the time and attention of our management, which may have an adverse effect on our business and results of operations, and we have faced increased levels of employee attrition.***

While the Chapter 11 Cases continue, our management will be required to spend a significant amount of time and effort focusing on the cases. This diversion of attention may materially adversely affect the conduct of our business, and, as a result, our financial condition and results of operations, particularly if the Chapter 11 Cases are protracted.

***We depend on a few highly skilled key employees to navigate the Chapter 11 Cases and contribute to the future value of our assets, and if we are unable to retain, manage, and appropriately compensate them, the outcome of the Chapter 11 Cases and ability to realize value from our assets and litigation claims could be adversely affected.***

Our ability to consummate a successful Plan and realize the value of our assets is based on continued service of our senior management team and other key employees, and on our ability to continue to motivate and appropriately compensate key employees. Some of our employees are, and others may be, subject to claims and risks of litigation for which indemnification may be uncertain. We may not be able to retain the services of our key employees, who work for us on an at-will basis, in the future. We have experienced significant voluntary resignations among our employees following the lack of support from Foxconn and the Chapter 11 Cases. The attrition we have already experienced, and may continue to experience, causes us to rely on fewer employees, increases the number of key employees as a share of the total personnel we employ, and in some cases these employees are less experienced which puts at greater risk our ability to execute our plans and strategies. Attrition has, and may also cause, us to engage third parties to perform the work. Such third parties are likely to be more costly and less efficient than if we were to be able to use our own employees. If our key employees fail to work together effectively and to execute our plans and strategies, the Chapter 11 Cases, including our efforts to sell assets and resolve and pursue litigation and other claims, could be prolonged or adversely affected.

***We face risks and uncertainties related to ongoing and potential future litigation and claims, as well as regulatory actions and government investigations and inquiries, for which we will continue to incur significant legal costs and may be subject to significant uninsured losses and we are seeking to resolve these contingencies through the Chapter 11 Cases.***

We are currently subject to extensive litigation, including securities class action litigation, shareholder derivative suits, a stockholder class action, an SEC investigation, and litigation involving alleged trade secret misappropriation, unfair competition and other related claims, among other disputes. We may in the future be subject to, or become a party to, additional litigation, claims, regulatory actions, and government investigations and inquiries, as we may be subject to claims by customers, suppliers, vendors, contractors, competitors, government agencies, stockholders or other parties regarding our products, development, accidents, advertising, securities, contract and corporate matter disputes, intellectual property infringement matters and employee claims against us based on, among other things, discrimination, harassment, wrongful termination, disability or violation of wage and labor laws. These proceedings and incidents include claims for which we have no or limited insurance coverage. The Company has potential indemnification obligations with respect to the current and former directors named in the above-referenced actions, which obligations may not be covered by the Company’s applicable directors and officers insurance.

These claims have diverted and may in the future divert our financial and management resources that would otherwise be used to benefit our operations, increase our insurance costs and cause reputational harm. We have already incurred, and expect to continue to incur, significant legal expenses in defending against these claims. Further, the ongoing expense of lawsuits, investigations and any substantial settlement payment by us or damage award enforceable against us could have a material adverse effect on the Company’s consolidated results of operations, financial condition or cash flows and adversely affect our ability to formulate and execute a successful Plan under Chapter 11, sell our assets and make any distribution and, if so, the amount of such distribution, to our stockholders.

While we currently carry commercial general liability, commercial automobile liability, product liability, excess liability, workers’ compensation, cyber security and directors’ and officers’ insurance policies, coverage amounts are limited. In some cases, we may not maintain any insurance coverage at all. Additionally, the policies that we do have may include significant deductibles and exclusions, and we cannot be certain that our insurance coverage will be applicable to or sufficient to cover all current and future claims against us.

Our insurers have asserted a denial of coverage under the main tower of our director and officer insurance program with respect to numerous ongoing matters, including 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, 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. We are analyzing the insurer’s position, and intend 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. The insurers in our Side A D&O insurance program, providing coverage for individual directors and officers in derivative actions and certain other situations, have issued a reservation of rights letter which, while not denying coverage, has cast doubt on the availability of coverage for at least some individuals and/or claims.

In addition, as a result of the Chapter 11 Cases, we have been and may be subject to additional litigation or other claims related to the Foxconn dispute and bankruptcy, dissolution and liquidation. The resolution of outstanding claims will be subject to the bankruptcy process.

The filing of the Chapter 11 Cases established an automatic stay of proceedings against the Company. However, the Bankruptcy Court granted Karma relief from the automatic stay to allow the Karma Action to proceed with the jury trial against the Company scheduled in September 2023. Karma is seeking permanent injunctive relief and monetary damages in excess of $900 million based on a variety of claims and theories asserting very substantial losses by Karma and/or improper benefit to the Company that significantly exceed our accrual with respect to the matter and ability to pay. We are continuing to vigorously defend against Karma’s claims and continue to believe that there are strong defenses to the claims and damages demanded. However, the outcome of the Karma Action is subject to uncertainties inherent in the litigation process and no assurances can be given regarding the outcome of the trial or the impact of the Karma Action on the Company, including its ability to sell assets that Karma claims were misappropriated by the Company or that incorporate trade secrets or property that Karma claims were misappropriated by the Company. At this time, the Company cannot predict the results of the ongoing proceedings or the interim and ultimate determinations regarding the claims to be made by the Bankruptcy Court. Future resolution of these matters could result in changes in management’s estimates of losses, which could be material to our consolidated financial statements.

As of June 30, 2023, we have an aggregate provision for potential settlements of litigation of $75.0 million. This provision is based on current information, legal advice and the potential impact of the outcome of one or more claims on related matters and may be increased in the future based on new developments. This accrual does not reflect a full range of possible outcomes for these proceedings or the full amount of any damages alleged, which are significantly higher. Any such additional losses may be significant; however, we cannot presently estimate a possible loss contingency or range of reasonably possible loss contingencies beyond current accruals. Estimating probable losses requires the analysis of multiple forecasted factors that often depend on judgments and potential actions by third parties. Legal fees and costs of litigation or an adverse judgment or settlement in any one or more of our ongoing litigation matters that are not insured or that is in excess of insurance coverage could significantly exceed our current accrual and ability to pay. This would have a material adverse effect on our financial position and results of operations.

***We may not be able to consummate a sale of all, substantially all or some of our assets, or generate significant proceeds from any such sale.***

On August 8, 2023, the Bankruptcy Court approved our procedures for conducting a comprehensive marketing and sale process for all, substantially all or some of our assets. Given general economic and market conditions, and the uncertainty regarding our ability to sell assets that Karma claims were misappropriated by us or that incorporate trade secrets or property that Karma claims were misappropriated by us, we can provide no assurance that we will be able to successfully complete any such dispositions, the timing or proceeds and other terms of any such transactions. Further, the accounting principles and estimates applied to value our assets for financial reporting purposes resulting in significant impairments and reserves may not bear any relationship to their actual market value, which may be higher or lower.

The failure to consummate a sale of all, substantially all or some of our assets or to generate sufficient proceeds, may have a material impact on the ultimate recovery for stakeholders, including creditors. As mentioned above, it is uncertain whether holders of our equity securities will recover any portion of their investments.

### The amount of claims allowed could significantly exceed our estimates.

The Bankruptcy Court has not established a bar date for all creditors to file their proof of claim or interest. There can be no assurance regarding the amount of claims allowed to participate in distributions under a Plan or that such claims will not be significantly greater than may be anticipated which, could in turn result in the value of distributions to stakeholders being delayed, reduced, or eliminated entirely. Inevitably, some assumptions will not materialize, and unanticipated events and circumstances may affect the ultimate results and total amount of claims against us.

***Our Class A common stock has been delisted from Nasdaq and experiences the risks of trading in an over-the-counter market.***

On June 28, 2023, we received notification from Nasdaq that our Class A common stock is no longer suitable for listing on Nasdaq. Trading of our Class A common stock was suspended at the opening of business on July 7, 2023 and a Form 25 was filed with the SEC on July 27, 2023 to delist the Class A common stock from Nasdaq. The delisting became effective August 6, 2023. We will remain subject to SEC reporting obligations.

As a result of the suspension and expected delisting, our Class A common stock began trading on the OTC Pink Marketplace under the symbol “RIDEQ” on July 7, 2023, and such market is currently the only trading market for our Class A common stock. We can provide no assurance that our Class A common stock will continue to trade on this market, whether broker-dealers will continue to provide public quotes of our Class A common stock on this market, whether the trading volume of our Class A common stock will be sufficient to provide for an efficient trading market or whether quotes for our Class A common stock will continue on this market in the future, which could result in significantly lower trading volumes and reduced liquidity for investors seeking to buy or sell our Class A common stock. Furthermore, because of the limited market and generally low volume of trading in our Class A common stock, the price of our Class A common stock is likely to be volatile and more likely to be affected by broad market fluctuations, general market conditions, changes in the markets’ perception of our securities, and announcements made by us or third parties with interests in the Chapter 11 Cases.

***Operating in bankruptcy for a long period of time would harm our business, and would otherwise harm or eliminate recoveries to creditors and stockholders.***

A long period of operations in the Chapter 11 Cases under Bankruptcy Court protection would likely have a material adverse effect on our business, financial condition, liquidity and ability to generate significant proceeds from any asset sales. So long as the Chapter 11 Cases continue, senior management will be required to spend a significant amount of time and effort dealing with the Chapter 11 Cases. A prolonged period of operating under Bankruptcy Court protection may make it more difficult to retain management and other key personnel necessary to the success of our remaining business and the sale of all, substantially all, or some of the Company’s assets. Attrition has, and may also cause, us to engage third parties to perform the work. Such third parties are likely to be more costly and less efficient than if we were to be able to use our own employees.

So long as the Chapter 11 Cases continue, we will be required to incur substantial costs for professional fees and other expenses associated with the administration of the Chapter 11 Cases, including potentially the cost of litigation. In general, litigation can be expensive and time consuming to bring or defend against. Such litigation could result in settlements or damages that could significantly and adversely affect our financial results. It is also possible that certain parties will commence litigation with respect to the treatment of their claims under a plan. It is not possible to predict the potential litigation that we may become party to, nor the final resolution of such litigation. The impact of any such litigation on our business and financial stability, however, could be material.

Moreover, shortly after filing the Chapter 11 Cases, we ceased production of the Endurance and new program development and accordingly have no ongoing source of meaningful revenue. Any delays in our Chapter 11 Cases could increase the costs and risks associated with the bankruptcy process, and diminish the value, if any, that is available to our various stakeholders (including creditors and stockholders). Also, we need the prior approval of the Bankruptcy Court for transactions outside the ordinary course of business during the course of bankruptcy proceedings, which may limit our ability to respond timely to certain events or take advantage of certain opportunities. Because of the risks and uncertainties associated with bankruptcy proceedings, we cannot accurately predict or quantify the ultimate impact of events that could occur during any such proceedings. There can be no assurances that we will be able to sell some or all of our assets in orderly fashion, that we will otherwise realize any significant value for our assets, or that our creditors or stockholders (including holders of our Class A common stock) will receive any recovery from the Chapter 11 Cases or any other bankruptcy proceedings.

Filed Aug 14, 2023.
Source: SEC EDGAR, the filing index for accession 0001558370-23-014898. Last ingested by Listed: Oct 24, 2026, 15:15 ET. No prices; not investment advice.