Lordstown (RIDE), the American electric vehicle (EV) startup, is embroiled in a contentious dispute with Foxconn over their investment agreement. In response, Lordstown announced its intention to pursue legal action against Foxconn, as stated in a filing with the Securities and Exchange Commission (SEC) on Friday.
The troubles for Lordstown began when it experienced a setback after the initial production of its Endurance models at its Ohio plant in November. The company had to halt production in February and issue a voluntary recall, further exacerbating the situation.
The situation worsened when Lordstown received a delisting notice from the Nasdaq stock exchange due to a significant decline in its stock price. Falling below the minimum threshold of $1 for 30 consecutive days put Lordstown at risk of being removed from the exchange.
In an attempt to salvage the situation, Foxconn, which has provided crucial funding to keep the EV maker afloat, sent a letter to Lordstown claiming that the company had breached their previous investment agreement.
Lordstown swiftly responded by dismissing Foxconn’s allegations as baseless and emphasizing that, according to the terms of the agreement, Foxconn is not authorized to terminate the contract following the initial closing.
The EV startup expressed concerns that if Foxconn fails to fulfill its obligations, it would be deprived of vital funding, potentially leading to the need to file for bankruptcy protection under the Bankruptcy Code.
In an effort to boost its share price and meet the Nasdaq’s requirements, Lordstown announced a reverse stock split of 1 for 15.
In its most recent 8K filing, Lordstown revealed its intention to pursue legal action against Foxconn, citing the latter’s breach of the investment agreement and consistent bad faith behavior, which Lordstown claims have caused significant and irreparable harm to the company. Should a resolution not be reached promptly, Lordstown is prepared to enforce its rights through litigation.
Lordstown acknowledged that the events surrounding the dispute have cast doubt on the company’s ability to continue as a going concern. The company also stated that obtaining additional financing in the current market is extremely challenging. Furthermore, Lordstown highlighted the substantial capital required to bring the Endurance pickup to market.
In the absence of a resolution with Foxconn or alternative funding sources, Lordstown may be forced to curtail or cease operations and seek bankruptcy protection.
