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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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Commission File Number: 001-38821

Lordstown Motors Corp.

(Exact name of registrant as specified in its charter)

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Registrant’s telephone number, including area code: (234) 285-4001

Securities registered pursuant to Section 12(b) of the Act:

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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☒ 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 ☒ 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.

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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 ☒

As of November 9, 2021, 192,230,903May 3, 2022, 197,399,056 shares of the registrant’s Class A common stock were outstanding.

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LORDSTOWN MOTORS CORP.

INDEX

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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/A10-K for the year ended December 31, 2020,2021, as filed with the SEC on June 8, 2021(theFebruary 28, 2022 (the “Form 10-K/A”10-K”), and in subsequent reports that we file with the SEC, including this Form 10-Q for the quarter ended September 30, 2021,March 31, 2022, as well as the following:

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PART I

FINANCIAL INFORMATION

Item 1. Financial Statements

Balance Sheets

(in thousands except for share data)

(Unaudited)

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See Notes to Condensed Consolidated Financial Statements

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Lordstown Motors Corp.

Statements of Operations

(in thousands except for per share data)

(unaudited)

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All activity and balances related to common stock prior to the business combination have been restated based on the Exchange Ratio in the Merger Agreement.

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See Notes to Condensed Consolidated Financial Statements

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Lordstown Motors Corp.

Statements of Stockholder’sStockholders’ Equity/(Deficit)

(in thousands)

(unaudited)

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All activity and balances related to common stock and additional paid-in capital prior to the business combination have been restated based on the Exchange Ratio in the Merger Agreement.​

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See Notes to Condensed Consolidated Financial Statements

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Lordstown Motors Corp.

Statements of Cash Flows

(in thousands)

(unaudited)

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See Notes to Condensed Consolidated Financial Statements

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LORDSTOWN MOTORS CORP

NOTES TO INTERIM FINANCIAL STATEMENTS

Unaudited)(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 the “Company”“we”), is an electric vehicle (EV)(“EV”) innovator developing high-quality light duty commercial fleet vehicles, with the Endurance all electric pick-up truck as itsour first vehicle being launched in the Lordstown, Ohio facility. The Company isWe are in its initialthe final design and testing phase related to itsour production of the Endurance and hasbut have yet to bring a completed product to market.

On September 30,November 10, 2021, the Company, Lordstownwe entered into an Asset Purchase Agreement with Foxconn EV Corporation, a DelawareTechnology, Inc., an Ohio corporation and wholly-owned subsidiary of the Company (“Lordstown EV”) and an affiliate of Hon Hai Technology Group (“Foxconn”HHTG”; either HHTG or applicable affiliates of HHTG are referred to herein as “Foxconn”) entered into an Agreement in Principle (the “Agreement in Principle”“Asset Purchase Agreement” or “APA”). Pursuant to work jointly on electric vehicle programsthe APA, Foxconn will purchase the Lordstown facility for $230 million and a reimbursement payment for certain operating and expansion costs incurred by us from September 1, 2021 through the closing. We will continue to own our hub motor assembly line, as well as our battery module and pack line assets, certain intellectual property rights and other excluded assets. We will outsource all of the manufacturing of the Endurance to Foxconn with the sale of our Lordstown facility; Foxconn will also operate the assets we continue to own in the Company’s facility in Lordstown, Ohio. Other than with respect to exclusivity and certain customary provisions, the Agreement in Principle was non-binding and subject to the negotiation and execution of definitive agreements.

The Agreement in Principle provided, among other things, as follows:

The parties agreed to a binding 60-day mutual exclusivity period with respect to the transactions contemplated by the Agreement in Principle and a fee of $50 million to be paid by any party who materially breaches this provision.

As further described in Note 9, on September 30, 2021, the Company also enteredwould issue warrants to Foxconn that are exercisable until the third anniversary of the closing for 1.7 million shares of Class A common stock at an exercise price of $10.50 per share. Prior to and in expectation of entering into a subscription agreement pursuant to which the Company agreed to issue and sell, andAPA, Foxconn agreed to purchase, purchased 7.2 million shares of the Company’s Class A common stock (the “Subscription Agreement”) for approximately $50.0 million in total consideration. October 2021.

Foxconn has made down payments of the purchase price totaling $200 million through April 15, 2022, of which $50 million was received during the quarter ended March 31, 2022. If the APA transactions do not close on or prior to May 14, 2022, and we are unable to secure an extension from Foxconn, we are obligated to repay the down payments to Foxconn on May 14, 2022 (the “Repayment Deadline”) subject to any defenses and/or other claims that the Company may have. We have granted Foxconn a first priority security interest in substantially all of our assets to secure the repayment obligation.

The closing of the Subscriptiontransactions contemplated by the Asset Purchase Agreement occurredis subject to satisfaction of certain covenants and closing conditions, including, but not limited to (a) the parties entering into a contract manufacturing agreement (the “Contract Manufacturing Agreement”), pursuant to which Foxconn would manufacture the Endurance at the Lordstown facility, and a lease (“Lordstown Facility Lease”), under which we would lease up to 30,000 square feet of space located at the Lordstown, Ohio facility from Foxconn for our Ohio-based employees, (b) the Company maintaining a minimum cash balance of $30 million until the closing of the transaction, (c) a commitment by the parties to use commercially reasonable efforts to enter into a joint venture agreement whereby, among other items, the parties would allocate engineering resources to jointly design, engineer, develop, validate, industrialize and launch vehicle programs for the commercial vehicle market in North America and internationally, including the granting of certain rights for the parties to commercialize such programs, and (d) a commitment by the parties to use commercially reasonable efforts to enter into a licensing agreement pursuant to which we would license to Foxconn our intellectual property relating to the Endurance frame, rolling chassis and other technologies, subject to reasonable royalties or licensing fees and other terms mutually agreed to by the parties (collectively, the “Foxconn Transactions”).

On April 9, 2022,the parties received a communication that the U.S. government’s Committee on October 12, 2021.Foreign Investment in the United States (“CFIUS”) had completed its review of the transaction contemplated by the APA and determined there are no national security concerns with the transaction.

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See Note 9 – Subsequent Events for a descriptionThere can be no assurance that the closing of the Asset Purchasetransactions contemplated by the APA will occur prior to the Repayment Deadline, or at all. The Company will be materially adversely affected if the Foxconn Transactions do not close. If the APA does not close, the Company will not have sufficient available cash to repay Foxconn’s down payments. As a result, Foxconn may exercise its rights under the APA, including, but not limited to foreclosing on its liens on some or substantially all of the Company’s assets, subject to any defenses and/or other claims that we may have. Under such circumstances, the Company would not likely be able to continue as a going concern or realize any value from its assets.

The parties are continuing to negotiate the terms of the Contract Manufacturing Agreement entered intoand are actively discussing the establishment of a joint product development or similar agreement with Foxconn. There can be no assurance that definitive agreements will be achieved on a timely basis, or at all. Under the joint product development or similar agreement, we would seek to use the Mobility-in-Harmony (“MIH”) platform to develop a portfolio of electric vehicles targeting commercial fleet customers, built at the Lordstown, Ohio plant. If an agreement is reached, we anticipate that Foxconn would also supply certain vehicle components and subsystems for newly developed vehicles, 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. We believe that any joint product development or similar agreement with Foxconn EV Technology, Inc.,would also need to incorporate an Ohio corporationappropriate funding structure that enables the initial development work for future MIH-based vehicles to begin.

No assurance can be made that the Foxconn Transactions, including any additional funding arrangements or other agreements will ultimately be consummated, or that they will provide the anticipated benefits. Even if the Foxconn Transactions are consummated in accordance with the current terms, we will need additional funding to execute our 2022 business plan and affiliateachieve scaled production of Foxconn (“Foxconn Ohio”)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.

We continue to explore all financing alternatives as our operations are anticipated to require significant capital investment for the foreseeable future. However, as we seek additional sources of financing, there can be no assurance that such financing would be available to us on November 10, 2021 (the “Asset Purchase Agreement”).favorable terms or at all.

Business Combination and Basis of Presentation

The unaudited accompanying condensed consolidated interim financial statements of Lordstown have been preparedare presented in accordanceconformity with U.S.accounting principles generally accepted accounting principlesin 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/A.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. The unaudited condensed

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consolidated interim financial statements include the accounts and operations of the Company and itsour wholly owned subsidiaries. All intercompany accounts and transactions are eliminated upon consolidation.

The Company has also reclassified the presentation of certain prior-year amounts to conform to the current presentation.

On October 23, 2020 (the “Closing Date”), Diamond PeakDiamondPeak Holdings Corp. (“DiamondPeak”) consummated the transactions contemplated by the agreement and plan of merger (the “Merger Agreement”), dated August 1, 2020, among DiamondPeak, Lordstown EV Corporation (formerly known as Lordstown Motors Corp.), a Delaware corporation (“Legacy LMC”), and DPL Merger Sub Corp., a Delaware corporation and a wholly-owned subsidiary of the Company (“Merger Sub”), pursuant to which Merger Sub merged with and into Legacy LMC with Legacy LMC surviving the merger (the “Merger” and, together with the other transactions contemplated by the Business Combination Agreement, the “Business Combination”). On the Closing Date, and in connection with the closing of the Business Combination (the “Closing”), DiamondPeak changed its name to Lordstown Motors Corp (the “Company”) and Legacy LMC became a wholly owned subsidiary of the Company.

Upon the terms and subject to the conditions set forth in the Merger Agreement, at the effective time of the Merger (the “Effective Time”), each issued and outstanding share of common stock, par value $0.0001 per share, of Legacy LMC (“Legacy LMC Common Stock”) was converted into 55.8817 shares (the “Exchange Ratio”) of Class A common stock, par value $0.0001 per share, of the Company (“Class A common stock”), resulting in an aggregate of 75,918,06375.9 million shares of Class A common stock issued to Legacy LMC stockholders. At the Effective Time, each outstanding option to purchase Legacy LMC Common Stock (“Legacy LMC Options”), whether vested or unvested, was automatically converted into an option to purchase a number of shares of Class A common stock equal to the product of (x) the number of shares of Legacy LMC Common Stock subject to such Legacy LMC Option and (y) the Exchange Ratio, at an exercise price per share equal to (A) the exercise price per share of Legacy LMC Common Stock of such Legacy LMC Option immediately prior to the Effective Time divided by (B) the Exchange Ratio.

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consolidated assets, liabilities and results of operations prior to the Reverse Recapitalization are those of Legacy LMC. The shares and corresponding capital amounts and earnings per share available for common stockholders, prior to the Business Combination, have been retroactively restated as shares reflecting the exchange ratio established in the Business Combination.

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As part of the Business Combination, we recorded $644.6 million in equity for the recapitalization, net of transaction costs and $100.9 million in liabilities related to the Public and Private Warrants described in Note 3. The Company received cash proceeds of $701.5 million as a result of the Business Combination which was net of the settlement of the $20.8 million related party note payable and $23.2 million in property purchased through equity both as described in Note 4. Additionally, a $5 million Convertible Note and the $5.9 million amount in Due to related party as described in Note 7 were also settled in conjunction with the Business Combination.

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Liquidity and Going Concern

The accompanying unaudited condensed consolidated interim financial statements of the Company have been prepared assuming the Company will continue as a going concern and in accordance with generally accepted accounting principles in the United States of America. 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

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unable to secure an extension from Foxconn, the Company will be required to repay the down payments made by Foxconn, subject to any defenses and/or other claims that the Company may have. We will not have sufficient cash available to do so.

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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 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.

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In an effort to alleviate these conditions, management continues to seek and asevaluate opportunities to raise additional funds through the issuance of equity or debt securities, asset sales, through arrangements with strategic partners or through obtaining financing from government or financial institutions. We have engaged a financial advisor to advise the Company on additional financing alternatives.

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As further described in Note 8, on7, on July 23, 2021, the Company entered into an equity purchase agreement (the “Equitythe Equity Purchase Agreement”)Agreement with YA II PN, LTD. (“YA”), pursuant to which YA has committed to purchase up to $400 million of ourits Class A common stock, at ourthe Company’s direction from time to time, subject to the satisfaction of certain conditions.conditions (the “Equity Purchase Agreement”). During the quarteryear ended September 30,December 31, 2021, wethe Company’s issued 3.99.6 million shares to YA and received $20$49.4 million, cash. We also issued 2.8 million shares to YA in exchange for $15 million cash in October 2021. net of equity issuance costs. The actual amount that we raisethe Company raises under this facilityagreement will depend on market conditions and other financing alternatives that we arethe Company is exploring, as well as limitations in the agreement

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agreement. In connection with Subscription Agreement described in Note 9,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 7.2is $7.48 or higher) (“the Exchange Cap”), less the 9.6 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 an affiliatebe 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 Foxconn for approximately $50.0March 31, 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 $350 million, in total consideration on October 12, 2021.

Management continueshowever, the actual availability under the Equity Purchase Agreement is limited due to seekthe conditions described above. NaN shares were sold to raise additional funds throughYA under the issuance of equity, mezzanine or debt securities, through arrangements with strategic partners or through obtaining credit from government or financial institutions. The Company has engaged an advisor to adviseEquity Purchase Agreement during the Company on additional financing alternativesquarter ended March 31, 2022..

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In addition,On November 10, 2021, the Company and Lordstown EV entered into the Asset Purchase Agreement withAPA, pursuant to which Foxconn Ohio to leverage the value of our facility and technologies, with the goal of becoming acapital light engineering, design and development company focused on developing multiple all-electric vehicle programs, primarily for the North American commercial vehicle market.

As discussed further in Note 9, the Asset Purchase Agreement provides that Foxconn Ohio will purchase the Lordstown facility excluding the Company’s hub motor assembly line, battery module and packing line assets, certain intellectual property rights and other excluded assets, for $230 million and a reimbursement payment for certain operating and expansion costs incurred duringby the period leading up toCompany from September 1, 2021 through the closing (see Note 1). The Company will continue to own the hub motor assembly line, as well as the battery module and pack line assets, certain intellectual property rights and other excluded assets. The APA is subject to several conditions and has not been consummated as of the transactionsdate of the filing of this report. No assurance can be made that it will ultimately be consummated on the terms contemplated, by the Asset Purchase Agreement. PursuantRepayment Deadline or at all.

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Foxconn has made down payments of the purchase price totaling $200 million through April 15, 2022. The balance of the purchase price, along with reimbursement of certain operating and expansion costs would be paid at closing. The Company is required to maintain minimum cash balances of $30 million through closing.

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If the APA transactions do not close on or prior to the Asset Purchase Agreement,Repayment Deadline, and we are unable to secure an extension from Foxconn, Ohio will paywe are obligated to repay the down payments to Foxconn on the Repayment Deadline, subject to any defenses and/or other claims that the Company may have. The Company has granted Foxconn a down payment equalfirst priority security interest in substantially all of its assets to $100 million no later than November 18, 2021 and thereafter will make additional down payments insecure the amount of $50 million on February 1, 2022 and $50 million no later than April 15, 2022, in each case subject to certain conditions. In exchange for the downrepayment

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payments, we will be grantingobligation. We are continuing to work with Foxconn Ohio a first priority security interest in substantially all of Lordstown EV’s assets, along with committing to maintain minimum cash balances of $100 million through January 1, 2022, $50 million through March 1, 2022 and $30 million thereafter.

Ifclose the Asset Purchase Agreement is terminated or if the transaction does not closetransactions prior to the later of (i) April 30, 2022 and (ii), if CFIUS clearance is still pending on April 30, 2022, 10 days after the transaction is cleared by the U.S. government’s Committee on Foreign Investment in the United States (“CFIUS”), the Company is obligated to repay the down payments to Foxconn Ohio plus accrued interest, and such potential repayment obligation is secured by a first priority security interest in substantially all of Lordstown EV’s assets. In connection with the closing, the parties would enter into (i) a contract manufacturing agreement whereby Foxconn Ohio or its affiliate would manufacture the Endurance at the Lordstown, Ohio facility for the Company (the “CMA”) and (ii) a long-term lease agreement whereby Foxconn Ohio would lease to Lordstown EV up to 30,000 square feet of space located at the Lordstown, Ohio facility for its Ohio-based employees (the “Lease”). In connection with the closing, the CompanyRepayment Deadline, but there are no assurances that this will issue warrants to Foxconn that are exercisable until the third anniversary of the closing for 1.7 million shares of Class A common stock at an exercise price of $10.50 per share.occur.

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The transactions withIn addition to providing the Company near term funding, the Foxconn are expected toTransactions should provide the Company with near-term liquidity from the valuebenefits of the facility and technologies, reduce the overall capital investment needed by the Company to reach commercial production, accelerate our ability to achieve scaled manufacturing, speed up future vehicle development and launch, provide more cost-effective access to certain raw material,materials, components and other inputs, and reducereduced overhead costs associated with the Lordstown facility borne by the Company. The Company is also exploring other potential agreements with Foxconn that would establish a joint product development program for future MIH-based vehicles and an appropriate funding structure. No assurance can be made that the joint product development agreement, an appropriate funding structure or other potential agreements would ultimately be entered or consummated on the terms contemplated, or at all.

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Even if the Foxconn transaction isTransactions are consummated in accordance with the current terms and on the anticipated timeline, we will need additional funding to continueexecute our development efforts2022 business plan and maintainachieve 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 current plans for our production timeline.

​bill of materials cost and fund future engineering and corporate expenditures.

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. OurThe Company’s 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 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 usthe Company and our business and industry, as well as our pending transaction with Foxconn.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 ourthe 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, our operations could be severely curtailed or cease entirely. The Company will be materially adversely affected if the Foxconn Transactions do not close, because the Company does not have sufficient available cash to repay Foxconn’s down payments. As a result, Foxconn may exercise its rights under the APA, including, but not limited to foreclosing on its liens on some or substantially all of the Company’s assets. Under such circumstances, the Company would not likely be able to continue as a going concern or realize any value from its assets.

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NOTE 2 —SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ReclassificationsUse of Estimates in Financial Statement Preparation

The Company reclassified $2.3 millionpreparation of gain on salefinancial statements in accordance with GAAP requires the use of fixedestimates and assumptions that affect the reported amounts of assets to other incomeand 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 nine months ended September 30, 2020 in order to consistently present its condensed consolidated financial statements. The reclassification did not impact net loss.

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Immaterial Correction of Error

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The Company’s previously issued financial statements have been revised to reclassify certain expenses that were inappropriately presented within the consolidated statement of operations. This resulted in the reclassification of $2.7 million of research and development expenses to selling and administrative expenses for the nine months ended September 30, 2020. The error did not impact net loss.

The Company, in consultation with the Audit Committee of the Board of Directors, evaluated the effect of these adjustments on the Company’s consolidated financial statements under ASC 250, Accounting Changes

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The Company maintains its cash in investment accounts as well as bank deposit accounts which, at times, exceed federally insured limits. ManagementWe have not experienced significant losses in such accounts and management believes it is not exposed to significant credit risk.

Property, plant and equipment

Property and equipment are stated at cost less accumulated depreciation. Depreciation is 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 the statement of 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.

Intangible assets other than goodwill

Intangible assets included patents, copyrights, trade secrets, know-how, software, and all other intellectual property and proprietary rights connected with the electric pickup truck and other electric vehicle technology owned by Workhorse and contributed in exchange for equity in the Company.

During the quarter ended September 30, 2021, we continued to refine the design of the Endurance and consider technologies we would use in future vehicles.  Given the lack of Workhorse technology used in the Endurance and new management’s strategic direction of the Company, inclusive of the transactions contemplated with Foxconn as detailed in Note 9, we deemed it appropriate to change the useful life of the technology we acquired from Workhorse to zero months. As such, we recorded accelerated amortization of $11.1 million during the quarter ended September 30, 2021.

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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 operationsoperations.  The Company accounts for BGL Warrants as Other income/(expense).equity as these warrants qualify as share-based compensation under ASC Topic 718.

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Income taxes

Income taxes are recorded in accordance with ASC Topic 740, Income Taxes (ASC 740)(“ASC Topic 740”). Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basesbasis 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 FASBFinancial Accounting Standards Board (“FASB”) issued ASU 2016-02, Leases, and has subsequently issued several supplemental and/or clarifying ASUs (collectively, ASC 842)“ASC 842”) to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing