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Lordstown Motors dodges Nasdaq delisting by reverse stock split

Financially ailing commercial electric pickup truck maker Lordstown Motors is trading one share of stock for 15 existing shares. The reverse split should get its share price above $1 and reduce the chance it will be delisted from the Nasdaq.

But longer-term questions around the startup’s viability remain. Foxconn, the Taiwanese electronic components maker, is balking at an agreement to buy 10% of Lordstown shares for $47.3 million because it claims Lordstown violated a covenant in the deal when its shares fell below $1 each.

Foxconn may or may not see the reverse split and the resulting higher share price as bringing Lordstown back in compliance with the agreement.

“The company believes that there was no failure of any closing condition,” Lordstown said in a news release Tuesday. “The company remains ready, willing and able to close.

“While the company remains willing to negotiate with Foxconn in an effort to resolve its disputes, no agreement currently exists and the company cannot predict whether such an agreement will be reached in the future.”

Lordstown shares traded at 29 cents intraday Tuesday. Multiplying existing shares by 15 should result in a price on Wednesday of about $4.35. Lordstown’s board of directors approved the reverse split on Monday.

Foxconn saved Lordstown from probable extinction 

Lordstown has been able to hold on financially because it sold the plant to Foxconn for $170 million a year ago and agreed to let Foxconn become the contract assembler of the Endurance commercial electric pickup truck. Lordstown production employees became Foxconn employees.

Slow commercial production resumed after quality issues led to two safety recalls of early units. Production resumed in April. The company has completed 56 Endurance vehicles and delivered 18 to customers, a dozen since resuming builds. 

The slow ramp has allowed Lordstown to preserve cash. It burned through $11 million in April. That left approximately $165 million as of April 30.

Reverse stock splits have no bearing on a company’s finances

The reverse stock split is a tactic that inflates a stock price because fewer shares exist. It has no material bearing on the company’s finances, but the resulting higher price can improve liquidity by attracting more investors. Nasdaq listing rules allow delisting of a stock if its share price trades below $1 for 30 consecutive trading days.

Autonomous trucking software startup Embark Trucks executed a 1:20 reverse split in August. Its shares continue to trade on the Nasdaq, but the company laid off 70% of its employees in March.

Another autonomous trucking software startup, TuSimple, faces delisting at the end of May because it is in violation of Nasdaq listing rules for failing to file required financial reports on time. TuSimple shares fell as low as 76 cents on May 10 but have recovered to trade at about $2 intraday Tuesday.

Delisted stocks typically trade over the counter as so-called Pink Sheets, which have far less liquidity than major exchanges.

Lordstown founder continues to cash out his stake

The startup founded by Steve Burns in 2019 with the cash-free purchase of the former General Motors assembly complex in northeast Ohio filed a “notice of going concern” with the Securities and Exchange Commission two years ago. Burns, who resigned as CEO in June 2021 amid allegations of inflating orders, once held 26% of the company’s shares. 

Burns has sold about $63 million of Lordstown stock since his lockup expired in October 2021. Even with the sale of 4.35 million shares this month, he still owns 5.2% of the outstanding shares, according to an SEC filing Friday.

Transportation startups starting to look desperate

Is Lordstown Motors giving up on Endurance electric pickup?

Lordstown Motors closes plant sale to Taiwan’s Foxconn

Click for more FreightWaves articles by Alan Adler.

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