Xos, Inc. Form 8-K Summary
Business context and reporting period
Xos, Inc. filed this Form 8-K on March 8, 2023 under Item 4.02. The filing concerns previously issued unaudited condensed consolidated financial statements for the quarters ended March 31, June 30, and September 30, 2022.
Financial impacts and key metrics
The filing does not provide updated revenue, net income, cash flow, margin, or overall debt and liquidity metrics. Management stated that the identified corrections are not expected to affect reported cash balances or liquidity.
| Item | Reported impact |
|---|---|
| Inventory-count errors | Inventory overstated and cost of goods sold understated by approximately $2.8 million for each applicable cumulative period through March 31, June 30, and September 30, 2022. |
| Inventory receipts and prepaid inventory | Additional balance-sheet line-item errors affected inventories, prepaid expenses and other current assets, accounts payable, and other current liabilities. |
| Cost of goods sold | Additional adjustments of approximately $0.2 million for the three months ended June 30, 2022, and $0.1 million for the three months ended September 30, 2022. |
| Convertible debentures | At September 30, 2022, convertible debt, net was overstated by $7.1 million and derivative liabilities were understated by $3.8 million due to an embedded derivative accounting error. |
| September 30, 2022 statement of operations | Change in fair value of derivative instruments was understated by $4.0 million and other expense, net was understated by approximately $0.7 million. |
Material changes versus the prior comparable period
The Audit Committee concluded that the previously issued financial statements for all three 2022 quarters should no longer be relied upon and must be restated. The filing attributes the principal errors to inventory management and accounting, including physical inventory counts, duplicate inventory receipts, and prepaid inventories.
The Company also plans to correct an error involving the bifurcation and fair-value accounting of an embedded derivative in convertible debentures issued on August 11 and September 21, 2022. Management determined that this error was not material to the previously issued September 30, 2022 financial statements.
Outlook, risks, contingencies, and unusual items
- The Company intends to file amended Forms 10-Q/A for each affected quarter as soon as practicable.
- Management identified a material weakness in internal control over financial reporting related to ineffective inventory-management controls.
- Disclosure controls and procedures were concluded to be ineffective as of March 31, June 30, and September 30, 2022.
- The matters were discussed with Grant Thornton LLP, the current independent registered public accounting firm, and Withum Smith+Brown, PC, the predecessor firm.
- The filing contains forward-looking statements regarding the restatement and liquidity. Actual results may differ because of risks and uncertainties described in the Company’s SEC filings.
Investor verification checklist
- Verify the amended Forms 10-Q/A and the final restated balances for each affected quarter.
- Assess the effect of the inventory corrections on cost of goods sold, gross margin, operating loss, and retained earnings.
- Review the corrected accounting for the convertible debentures, derivative liabilities, and related fair-value gains or losses.
- Confirm whether reported cash balances and liquidity remain unchanged after the restatement.
- Review management’s remediation plan and any subsequent auditor or internal-control disclosures addressing the material weakness.