8-K: Damon Inc. to Restate Financial Statements Due to $2.3 Million Accounting Error

Damon Inc. will restate its financial statements for the three and six months ended December 31, 2024, due to a $2.3 million understatement of transaction costs related to the Damon Motors Inc. business combination.

Summary

• Damon Inc. announced that it will restate its previously issued unaudited condensed consolidated financial statements for the three and six months ended December 31, 2024.
• The restatement is due to an accounting error that understated transaction costs related to the business combination with Damon Motors Inc. by $2.3 million.
• 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 will affect several line items in the financial statements, including accounts payable, accrued liabilities, current liabilities, total liabilities, accumulated deficit, total stockholders' deficit, transaction costs, operating expenses, income (loss) before taxes, net income (loss), and comprehensive income (loss).
• 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 has received $4.4 million from Streeterville Capital, LLC out of a total $10 million committed amount, resulting in an outstanding principal balance of $4,708,000.
• As of March 14, 2025, the outstanding principal balance has been reduced to $3,158,000, with an additional $53,258 in accrued interest.
• As of March 14, 2025, the company has 31,419,728 outstanding common shares.

Sentiment

Score: 3

Explanation: The sentiment is negative due to the financial restatement, accounting error, and material weaknesses in internal controls. While the company is taking corrective action, the restatement will negatively impact earnings per share and investor confidence.

Positives

• The restatement does not have an impact on the company's cash position or revenues for the affected period.
• The company is taking steps to correct the error by restating the affected financial statement line items.
• The company has received $4.4 million from Streeterville Capital, LLC, which has been used to repay some indebtedness.

Negatives

• The company's previously issued financial statements for the three and six months ended December 31, 2024, should no longer be relied upon.
• The company understated transaction costs by $2.3 million due to an accounting error.
• The company's disclosure controls and procedures were not effective due to the existence of material weaknesses.
• The restatement will decrease earnings per share for both the three and six months ended December 31, 2024.

Risks

• The restatement could negatively impact investor confidence in the company.
• The company's material weaknesses in internal control over financial reporting could lead to future errors.
• The company's reliance on Streeterville Capital, LLC for funding could be risky.

Future Outlook

The company will restate its financial statements by restating each of the affected financial statement line items for the Affected Period in an amendment to the Q2 Form 10-Q to be filed as soon as practicable.

Management Comments

• The audit committee of the board of directors concluded that the company's previously issued financial statements should no longer be relied upon.
• The company's management has previously concluded and disclosed that 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 (ICFR).
• The Audit Committee and management have discussed the matters disclosed in this Current Report on Form 8-K with the Company's independent registered public accounting firm.

Industry Context

Restatements of financial statements can erode investor confidence and raise concerns about a company's internal controls. Companies in high-growth sectors, like electric vehicles, are under increased scrutiny to maintain accurate financial reporting.

Comparison to Industry Standards

• Compared to companies like Tesla or Rivian, which have faced scrutiny over production targets and financial performance, Damon Inc.'s restatement highlights the challenges smaller companies face in establishing robust financial controls.
• Similar to Lordstown Motors, which faced issues with pre-orders and financial disclosures, Damon Inc. needs to address its internal control weaknesses to maintain credibility with investors.
• The $2.3 million error, while significant for Damon Inc., is relatively small compared to accounting scandals at larger corporations like Enron or WorldCom, but it still necessitates corrective action and improved oversight.

Stakeholder Impact

• Shareholders will be impacted by the restatement and the decrease in earnings per share.
• Employees may be affected by the company's efforts to improve internal controls.
• Creditors may be concerned about the company's financial stability.

Next Steps

• The company will file an amendment to the Q2 Form 10-Q to restate the affected financial statements.
• The company needs to address the material weaknesses in its internal control over financial reporting (ICFR).

Key Dates