Analyst Summary
- The audit committee concluded that the company’s previously issued unaudited condensed consolidated financial statements for the three and six months ended December 31, 2024, should no longer be relied upon and will be restated.
- The restatement is due to an understatement of transaction costs incurred in connection with the business combination with Damon Motors Inc. by $2,300,000.
- The understated cost relates to the omission of previously settled fees owed to a former financial advisor that became due upon closing of the transaction.
- The restatement does not impact the company’s cash position or revenues for the affected period.
- Basic earnings per share for the three months ended December 31, 2024, decreased from $2.56 to $2.37, and diluted earnings per share decreased from $2.51 to $2.33.
- Basic earnings per share for the six months ended December 31, 2024, decreased from $3.19 to $2.92, and diluted earnings per share decreased from $3.12 to $2.84.
- The company’s disclosure controls and procedures were not effective due to the existence of material weaknesses, including in the company’s internal control over financial reporting.
- The company has received an aggregate of $4,400,000 from Streeterville Capital, LLC, resulting in an outstanding principal balance of $4,708,000.
- A total of $460,000 has been used to repay the indebtedness under the secured promissory note issued to Streeterville in June 2024.
- As of March 14, 2025, the outstanding principal balance has been reduced to $3,158,000, with an additional $53,258 in accrued interest.
- The company has 31,419,728 outstanding common shares as of March 14, 2025.
Potential Implications
Company Performance
- The restatement of financial statements could temporarily negatively impact investor confidence.
- The company’s management is addressing material weaknesses in internal control over financial reporting, which could improve the reliability of future financial reporting.
- Continued funding from Streeterville Capital provides the company with necessary capital, but also increases the number of outstanding shares.
Stock Price
- The restatement announcement could negatively impact the stock price in the short term.
- The issuance of additional shares to Streeterville Capital could dilute existing shareholders and potentially decrease the stock price.
- Successful remediation of internal control weaknesses and improved financial reporting could positively impact the stock price in the long term.