Prospectus Supplement No. 2
(to Prospectus dated November 10, 2022)
Filed Pursuant to Rule 424(b)(3)
Registration No. 333-258993

 

 

201,218,630 Shares of Class A Common Stock

Up to 284,070,555 Shares of Class A Common Stock

Issuable Upon Exercise of the Warrants and Conversion of the SPA Notes

Up to 276,131 Private Warrants

 

This prospectus supplement updates and supplements the prospectus dated November 10, 2022 (the “Prospectus”), which forms a part of our Registration Statement on Form S-1, as amended (Registration No. 333-258993). This prospectus supplement is being filed to update and supplement the information in the Prospectus with the information contained in our Quarterly Report on Form 10-Q, filed with the Securities and Exchange Commission on November 21, 2022 (the “Quarterly Report on Form 10-Q”). Accordingly, we have attached the Quarterly Report on Form 10-Q to this prospectus supplement.

 

The Prospectus and this prospectus supplement relate to the issuance by us of an aggregate of up to 24,353,356 shares of our common stock, $0.0001 par value per share (“Common Stock”), which consists of (i) 27,733,421 shares of the Class A common stock, par value $0.0001 per share, of Faraday Future Intelligent Electric Inc. (“FFIE” and such Class A common stock, the “Class A Common Stock”) originally purchased in the PIPE Financing (as defined in the Prospectus) by certain of the selling securityholders named in the Prospectus (the “Selling Securityholders”) at a purchase price of $10.00 per share, (ii) 213,366 Founder Shares (as defined in the Prospectus) by certain of the Selling Securityholders previously acquired by our predecessor’s sponsor at an effective purchase price of $0.0043 per share, (iii) 170,131 shares of Class A Common Stock issued to designees of EarlyBirdCapital, Inc. as underwriters’ compensation in connection with the initial public offering of Property Solutions Acquisition Corp. (“PSAC”) at an effective purchase price of $0.0041 per share, (iv) 586,000 shares of Class A Common Stock issued on July 22, 2022 as consideration for consulting and advisory services pursuant to an omnibus transaction services fee agreement and acknowledgement, as amended, with Riverside Management Group in connection with the Business Combination (as defined in the Prospectus), (v) 86,395,848 shares of Class A Common Stock originally issued to Season Smart Limited (“Season Smart”) and Founding Future Creditors Trust as consideration in connection with the Business Combination at a per share value of $10.00 per share, (vi) 64,000,588 shares of Class A Common Stock underlying the shares of FFIE’s Class B common stock, par value $0.0001 per share originally issued to FF Top Holding LLC (“FF Top”) as consideration in connection with the Business Combination at a per share value of $10.00 per share, (vii) 21,263,758 Earnout Shares not currently beneficially owned that Season Smart, FF Top and certain FF executives have the contingent right to receive pursuant to the Merger Agreement, (viii) 150,322 shares of Class A Common Stock issued to certain FF executives in satisfaction of deferred compensation owed by FF to such FF executives prior to the closing of the Business Combination, (ix) 484,856 shares of Class A Common Stock issued to certain FF executives upon such FF executives’ exercise of options, and (x) the resale of 54,252 shares of Class A Common Stock issued to Chui Tin Mok upon closing of the Business Combination in satisfaction of his related party note payable. This prospectus also relates to the offer and sale from time to time by the Selling Securityholders of up to 276,131 warrants (the “Private Warrants”), all of which were included in the private units purchased by our predecessor’s sponsor and EarlyBirdCapital, Inc. in connection with the initial public offering of PSAC at a price of $10.00 per unit.

 

The Prospectus and this prospectus supplement also relate to the offer and sale from time to time by the Selling Securityholders of (i) up to an aggregate of 284,070,555 shares of Class A Common Stock which consists of (i) 276,131 shares of Class A Common Stock that are issuable upon the exercise of the Private Warrants, (ii) 23,375,988 shares of Class A Common Stock that are issuable upon the exercise of the 23,375,988 warrants (the “Public Warrants”) originally issued in the initial public offering of PSAC, (iii) 28,431,635 shares of Class A Common Stock issuable upon exercise of certain warrants issued in a private placement to certain institutional investors pursuant to a Second Amended and Restated Note Purchase Agreement, dated as of October 9, 2020 (as amended from time to time, the “NPA,” and such warrants, the “ATW NPA Warrants”), and (iv) 168,429,666 shares of Class A Common Stock issuable upon conversion of certain convertible notes and 63,557,135 shares of Class A Common Stock issuable upon exercise of certain warrants, in each case issued in a private placement to certain institutional investors pursuant to Securities Purchase Agreement, dated as of August 14, 2022, as amended on September 23, 2022 (the “SPA”), pursuant to the Joinder and Amendment Agreement to the SPA (the “Joinder”), dated as of September 25, 2022, pursuant to the Limited Consent and Third Amendment to the SPA (the “Third Amendment”), dated as of October 24, 2022, and pursuant to the Limited Consent and Amendment to the SPA (the “Fourth Amendment”), dated as of November 8, 2022 (such notes under the SPA and Joinder, the “SPA Notes”).

 

This prospectus supplement should be read in conjunction with the Prospectus. This prospectus supplement updates and supplements the information in the Prospectus. If there is any inconsistency between the information in the Prospectus and this prospectus supplement, you should rely on the information in this prospectus supplement.

 

Our shares of Class A Common Stock and our Public Warrants are listed on The Nasdaq Stock Market (“Nasdaq”), under the symbols “FFIE” and “FFIEW.” On November 18, 2022, the closing price of our Class A Common Stock was $0.365 per share and the closing price of our Public Warrants was $0.08 per Public Warrant.

 

See the section entitled “Risk Factors” beginning on page 13 of the Prospectus and under similar headings in any further amendments or supplements to the Prospectus to read about factors you should consider before buying our securities.

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if the Prospectus or this prospectus supplement is truthful or complete. Any representation to the contrary is a criminal offense.

 

The date of this prospectus supplement is November 21, 2022.

 

 

 

 

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2022

 

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ________________ to ________________

 

Commission File Number: 001-39395

Faraday Future Intelligent Electric Inc.

 

(Exact name of registrant as specified in its charter)

 

Delaware   84-4720320
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer
Identification No.)

 

18455 S. Figueroa Street,
Gardena, CA
  90248
(Address of Principal Executive Offices)   (Zip Code)

 

(424) 276-7616

Registrant’s telephone number, including area code

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
Class A common stock, par value $0.0001 per share   FFIE   The Nasdaq Stock Market LLC
Redeemable warrants, exercisable for shares of Class A common stock at an exercise price of $11.50 per share   FFIEW   The Nasdaq Stock Market LLC

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer Accelerated filer
Non-accelerated filer Smaller reporting company
    Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ☐  No ☒

 

The registrant had outstanding 386,256,244 shares of Class A common stock and 64,000,588 shares of Class B common stock as of November 17, 2022.

 

 

 

 

 

 

Table of Contents

 

INDEX TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

    Pages
FARADAY FUTURE INTELLIGENT ELECTRIC INC.  
Part I Financial Information  
Item 1. Condensed Consolidated Financial Statements (Unaudited)  
  Condensed Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021 3
  Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three and Nine Months Ended September 30, 2022 and 2021 4
  Condensed Consolidated Statements of Commitment to Issue Class A Common Stock and Stockholders’ Equity (Deficit) for the Three and Nine Months Ended September 30, 2022 and 2021 5
  Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2022 and 2021 9
  Notes to the Condensed Consolidated Financial Statements 11
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 17
Item 3. Quantitative and Qualitative Disclosures About Market Risk 38
Item 4. Controls and Procedures 38
     
Part II Other Information  
Item 1. Legal Proceedings 42
Item 1A. Risk Factors 42
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 55
Item 3. Defaults Upon Senior Securities 55
Item 4. Mine Safety Disclosures 55
Item 5. Other Information 55
Item 6. Exhibits 56
Signatures 58

 

i

 

 

Part I - Financial Information

 

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

Faraday Future Intelligent Electric Inc.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share data)

(Unaudited)

   September 30,
2022
    December 31,
2021
 
         
Assets        
Current assets        
Cash  $31,766   $505,091 
Restricted cash   2,162    25,386 
Deposits   44,530    63,370 
Other current assets   23,759    13,410 
Total current assets   102,217    607,257 
Property and equipment, net   411,657    293,135 
Right of use assets   20,202     
Other non-current assets   6,608    7,040 
Total assets  $540,684   $907,432 
Liabilities and stockholders’ equity          
Current liabilities          
Accounts payable   65,239    37,773 
Accrued payroll and benefits   31,124    21,752 
Accrued expenses and other current liabilities   46,104    68,760 
Related party accrued interest   12,760    11,231 
Accrued interest   541    8,263 
Operating lease liabilities, current portion   2,487     
Finance lease liabilities, current portion   1,807     
Related party notes payable   12,253    13,655 
Notes payable, current portion   5,008    132,372 
Total current liabilities   177,323    293,806 
Operating lease liabilities, less current portion   18,640     
Finance lease liabilities, less current portion   6,917    7,570 
Other liabilities, less current portion   3,531    3,720 
Notes payable, less current portion   46,950    34,682 
Total liabilities   253,361    339,778 
Commitments and contingencies (Note 11)          
Stockholders’ equity          
Class A Common Stock, $0.0001 par value; 750,000,000 shares authorized; 345,794,368 and 168,693,323 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively   31    17 
Class B Common Stock, $0.0001 par value; 75,000,000 shares authorized; 64,000,588 and no shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively   6     
Additional paid-in capital   3,603,368    3,482,226 
Accumulated other comprehensive gain (loss)   6,603    (6,945)
Accumulated deficit   (3,322,685)   (2,907,644)
Total stockholders’ equity   287,323    567,654 
Total liabilities and stockholders’ equity  $540,684   $907,432 

 

The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.

 

1

 

 

Faraday Future Intelligent Electric Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(in thousands, except share and per share data)

(Unaudited)

 

   Three Months Ended
September 30,
   Nine Months Ended
September 30,
 
   2022   2021   2022   2021 
                 
Operating expenses                
Research and development  $48,062   $79,757   $260,221   $94,506 
Sales and marketing   3,888    6,832    16,272    11,099 
General and administrative   28,655    36,725    89,173    64,148 
Loss on disposal of property and equipment       62,342    1,407    62,987 
Total operating expenses   80,605    185,656    367,073    232,740 
                     
Loss from operations   (80,605)   (185,656)   (367,073)   (232,740)
Change in fair value measurements   (6,966)   (22,747)   (622)   (60,394)
Interest expense   (663)   (296)   (5,537)   (26,550)
Related party interest expense   (996)   (1,597)   (2,931)   (15,765)
Other (expense) income, net   (6,457)   1,117    (14,307)   (718)
Loss on extinguishment or settlement of related party notes payable, notes payable and vendor payables in trust, net   (7,690)   (94,727)   (7,690)   (96,036)
Loss before income taxes   (103,377)   (303,906)   (398,160)   (432,203)
Income tax provision           (9)   (3)
Net loss  $(103,377)  $(303,906)  $(398,169)  $(432,206)
                     
Per share information:                    
Net loss per Common Stock – Class A and Class B – basic and diluted  $(0.30)  $(1.06)  $(1.20)  $(2.12)
Weighted average Common shares outstanding – Class A and Class B – basic and diluted   346,575,508    287,951,929    330,878,677    203,686,758 
                     
Total comprehensive loss:                    
Net loss  $(103,377)  $(303,906)  $(398,169)  $(432,206)
Change in foreign currency translation adjustment   9,864    189    13,548    (487)
Total comprehensive loss  $(93,513)  $(303,717)  $(384,621)  $(432,693)

 

The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.

 

2

 

 

Faraday Future Intelligent Electric Inc.

Condensed Consolidated Statements of Commitment to Issue Class A Common Stock and Stockholders’ Equity (Deficit)

(in thousands, except share and per share data)

(Unaudited)

 

   Commitment to Issue   Common Stock   Additional   Accumulated
Other
       Total
Stockholders’
 
   Class A Common Stock   Class A   Class B   Paid-in   Comprehensive   Accumulated   Equity 
   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Gain (Loss)   Deficit   (Deficit) 
Balance as of June 30, 2022      $32,900    238,543,475   $24    64,000,588   $6   $3,491,041   $(3,261)  $(3,219,308)  $268,502 
Issuance of shares pursuant to the commitment to issue Class A and Class B Common Stock                 —    20,264,715                                                 
Transfer of private warrants to unaffiliated parties                           186            186 
Amendment of ATW NPA Warrants (Note 12)                           1,238            1,238 
Issuance pursuant to commitment to issue registered shares       (32,900)   2,387,500                32,900            32,900 
Conversion of notes payable into class A common stock           64,843,850    6            67,212            67,218 
Stock-based compensation                           3,319            3,319 
Exercise of stock options           3,137,272                7,181            7,181 
Repurchase of common stock           (96,759)               (767)           (767)
Receipt of class A common stock in consideration of exercises of options           (311,878)               (669)           (669)
Exercise of warrants           17,026,193    1            1,727            1,728 
Foreign currency translation adjustment                               9,864        9,864 
Net loss                                   (103,377)   (103,377)
Balance as of September 30, 2022      $       —    345,794,368   $     31    64,000,588   $        6   $3,603,368   $6,603   $(3,322,685)  $287,323 

 

The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.

 

3

 

 

Faraday Future Intelligent Electric Inc.

Condensed Consolidated Statements of Commitment to Issue Class A Common Stock and Stockholders’ Equity (Deficit)

(in thousands, except share and per share data)

(Unaudited)

 

   Commitment to Issue   Common Stock   Additional   Accumulated
Other
       Total
Stockholders’
 
   Class A Common Stock   Class A   Class B   Paid-in   Comprehensive   Accumulated   Equity 
   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Gain (Loss)   Deficit   (Deficit) 
Balance as of December 31, 2021     $   168,693,323   $17         $3,482,226   $(6,945)  $(2,907,644)  $567,654 
Reclassification of obligation to issue registered shares of Class A Common Stock upon adoption of ASU 2020-06       32,900                            (20,265)   (20,265)
Transfer of private warrants to unaffiliated parties                           186            186 
Amended Exercise price of ATW NPA warrants (Note 12)                           1,238            1,238 
Reclassification of deferred gain upon adoption of ASC 842                                   3,393    3,393 
Issuance of shares pursuant to the commitment to issue Class A and Class B Common Stock           89,152,131    7    64,000,588    6    (13)            
Issuance pursuant to commitment to issue registered shares       (32,900)   2,387,500                32,900            32,900 
Conversion of notes payable into class A common stock           64,843,850    6            67,212            67,218 
Stock-based compensation                           9,793            9,793 
Exercise of stock options           4,100,008                9,535            9,535 
Repurchase of common stock           (96,759)               (767)           (767)
Receipt of class A common stock in consideration of exercises of options           (311,878)               (669)           (669)
Exercise of warrants           17,026,193    1            1,727            1,728 
Foreign currency translation adjustment                               13,548        13,548 
Net loss        —         —         —         —             —            (398,169)   (398,169)
Balance as of September 30, 2022      $    345,794,368   $31    64,000,588   $6   $3,603,368   $6,603   $(3,322,685)  $287,323 

 

The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.

 

4

 

 

Faraday Future Intelligent Electric Inc.

Condensed Consolidated Statements of Commitment to Issue Class A Common Stock and Stockholders’ Equity (Deficit)

(in thousands, except share and per share data)

(Unaudited)

 

   Common Stock   Additional   Accumulated
Other
       Total
Stockholders’
 
   Class A   Class B   Paid-in   Comprehensive   Accumulated   Equity 
   Shares(1)   Amount   Shares(1)   Amount   Capital   Gain (Loss)   Deficit   (Deficit) 
Balance as of June 30, 2021, as recast   107,659,654   $10    64,000,588   $6   $1,973,314   $(6,650)  $(2,519,439)  $(552,759)
Conversion of related party notes payable into Class A Common Stock (see Note 9)   11,566,196    1            160,436            160,437 
Conversion of notes payable into Class A Common Stock (see Note 10)   7,688,153    1            98,374            98,375 
Issuance of Class A Common Stock in the Business Combination, net of transaction costs (see Note 3)   27,798,411    3            170,111            170,114 
Conversion of assumed PSAC convertible and promissory notes payable into Class A Common Stock (see Note 9)   80,000                790            790 
Conversion of liabilities into Class A Common Stock in the Business Combination (see Note 3)   20,666,825    2            285,335            285,337 
Conversion of liabilities into the commitment to issue Class A Common Stock in the Business Combination (see Note 3)                   52,338            52,338 
Legacy FF Ordinary Stock exchanged in the Business Combination for a commitment to issue Class A and Class B Common Stock   (117,839,510)   (12)   (64,000,588)   (6)   18             
Issuance of Class A Common Stock in the PIPE Financing, net of transaction costs (see Note 3)   76,140,000    8            692,397            692,405 
Settlement of lawsuit with issuance of vested stock options (see Note 12)                   8,459            8,459 
Settlement of accrued rent with issuance of vested stock options                   951            951 
Vesting of restricted stock award for employee bonus                   14,620            14,620 
Stock-based compensation                   5,053            5,053 
Exercise of stock options   1,078,495                2,740            2,740 
Settlement of receivables through receipt of Class A Common Stock   (43,096)               (105)           (105)
Issuance of warrants                   10,483            10,483 
Foreign currency translation adjustment                       189        189 
Net loss                           (303,906)   (303,906)
Balance as of September 30, 2021   134,795,128   $13       $   $3,475,314   $(6,461)  $(2,823,345)  $645,521 

 

(1)

The shares of the Company’s common stock prior to the Business Combination (as defined in Note 1) have been retrospectively recast to reflect the change in the capital structure as a result of the Business Combination as described in Note 3.

 

The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.

 

5

 

 

Faraday Future Intelligent Electric Inc.

Condensed Consolidated Statements of Commitment to Issue Class A Common Stock and Stockholders’ Equity (Deficit)

(in thousands, except share and per share data)

(Unaudited)

 

   Common Stock   Additional   Accumulated
Other
       Total
Stockholders’
 
   Class A   Class B   Paid-in   Comprehensive   Accumulated   Equity 
   Shares(1)   Amount   Shares(1)   Amount   Capital   Gain (Loss)   Deficit   (Deficit) 
Balance as of December 31, 2020, as recast   93,099,596   $9    64,000,588   $6   $1,817,760   $(5,974)  $(2,391,139)  $(579,338)
Conversion of The9 Conditional Obligation   423,053                2,863            2,863 
Conversion of related party notes payable into Class A Common Stock (see Note 9)   22,454,776    2            294,794            294,796 
                                         
Conversion of notes payable into Class A Common Stock (see Note 10)   7,688,153    1            98,374            98,375 
Issuance of Class A Common Stock in the Business Combination, net of transaction costs (see Note 3)   27,798,411    3            170,111            170,114 
Conversion of assumed PSAC convertible and promissory notes payable into Class A Common Stock (see Note 9)   80,000                790            790 
Conversion of liabilities into Class A Common Stock in the Business Combination (see Note 3)   20,666,825    2            285,335            285,337 
Conversion of liabilities into the commitment to issue Class A Common Stock in the Business Combination (see Note 3)                   52,338            52,338 
Legacy FF Ordinary Stock exchanged in the Business Combination for a commitment to issue Class A and Class B Common Stock   (117,839,510)   (12)   (64,000,588)   (6)   18             
Issuance of Class A Common Stock in the PIPE Financing, net of transaction costs (see Note 3)   76,140,000    8            692,397            692,405 
Settlement of lawsuit with issuance of vested stock options (see Note 12)                   8,459            8,459 
Settlement of accrued rent with issuance of vested stock options                   951            951 
Vesting of restricted stock award for employee bonus                   14,620            14,620 
Stock-based compensation                   8,521            8,521 
Exercise of stock options   4,326,920                10,492            10,492 
Settlement of receivables through receipt of Class A Common Stock   (43,096)               (105)           (105)
Issuance of warrants                   17,596            17,596 
Foreign currency translation adjustment                       (487)       (487)
Net loss                           (432,206)   (432,206)
Balance as of September 30, 2021   134,795,128   $13       $   $3,475,314   $(6,461)  $(2,823,345)  $645,521 

 

(1)The shares of the Company’s common stock prior to the Business Combination (as defined in Note 1) have been retrospectively recast to reflect the change in the capital structure as a result of the Business Combination as described in Note 3.

 

The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.

 

6

 

 

Faraday Future Intelligent Electric Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)

 

   Nine Months Ended
September 30,
 
   2022   2021 
Cash flows from operating activities        
Net loss  $(398,169)  $(432,206)
Adjustments to reconcile net loss to net cash used in operating activities          
Depreciation and amortization expense   15,323    4,268 
Stock-based compensation   9,793    8,521 
Vesting of restricted stock awards for employee bonus       14,620 
Loss on disposal of property and equipment   1,407    62,987 
Change in fair value measurement of related party notes payable and notes payable   622    60,394 
Loss (gain) on foreign exchange   2,484    (1,823)
Loss on write-off of vendor deposits, net and (gain) on write-off of accounts payable   2,992    (4,191)
Non-cash interest expense   8,468    36,478 
Loss on extinguishment or settlement of related party notes payable, notes payable and vendor payables in trust, net   7,690    96,036 
Gain on forgiveness of vendor payables in trust       (1,731)
Reserve for unrecoverable value added taxes       6,404 
Other   324     
Changes in operating assets and liabilities:          
Deposits   13,364    (35,796)
Other current and non-current assets   (16,011)   (18,446)
Accounts payable   27,467    (40,434)
Accrued payroll and benefits   9,372    (6,889)
Accrued expenses and other current liabilities   (24,628)   12,763 
Operating lease liabilities   (2,886)    
Accrued interest expense   (12,721)    
Transfers between vendor payables in trust and accounts payable       1,167 
Net cash used in operating activities  $(355,109)  $(237,878)
Cash flows from investing activities          
Payments for property and equipment  $(112,099)  $(37,264)
Net cash used in investing activities  $(112,099)  $(37,264)
Cash flows from financing activities          
Proceeds from issuance of Class A Common Stock in the Business Combination  $   $229,583 
Proceeds from issuance of Class A Common Stock pursuant to the PIPE Financing       761,400 
Transaction costs paid in connection with the Business Combination       (23,148)
Transaction costs paid in connection with the PIPE Financing       (61,130)
Proceeds from related party notes payable       200 
Proceeds from notes payable, net of original issuance discount   40,050    172,031 
Proceeds from exercise of warrants   1,728     
Payments of notes payable   (87,258)    
Payments of related party notes payable       (38,217)
Payments of notes payable, including liquidation premium       (48,210)
Payments of notes payable issuance costs   (2,813)   (3,355)
Payments of vendor payables in trust       (27,722)
Payments of finance lease obligations   (1,410)   (2,691)
Repurchase of common stock   (767)    
Transfers between vendor payables in trust and accounts payable       (1,167)
Proceeds from exercise of stock options   9,535    10,492 
Payments of stock issuance costs       (1,071)
Net cash (used in) provided by financing activities   (40,935)   966,995 
Effect of exchange rate changes on cash and restricted cash   11,594    (2,536)
Net (decrease) increase in cash and restricted cash   (496,549)   689,317 
Cash and restricted cash, beginning of period   530,477    1,827 
Cash and restricted cash, end of period   33,928    691,144 

 

7

 

 

Faraday Future Intelligent Electric Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)

 

The following table provides a reconciliation of cash and restricted cash reported within the unaudited Condensed Consolidated Balance Sheets that aggregate to the total of the same such amounts shown in the unaudited Condensed Consolidated Statements of Cash Flows:

 

   Nine Months
Ended
September 30,
2022
   Nine Months
Ended
September 30,
2021
 
Cash  $505,091   $1,124 
Restricted cash   25,386    703 
Total cash and restricted cash, beginning of period  $530,477   $1,827 
           
Cash  $31,766   $666,061 
Restricted cash   2,162    25,083 
Total cash and restricted cash, end of period  $33,928   $691,144 
           
Supplemental disclosure of noncash investing and financing activities          
Conversion of related party notes payable and related party accrued interest into Class A Common Stock       294,796 
Conversion of notes payable and accrued interest into Class A Common Stock       98,375 
Conversion of assumed convertible and promissory notes payable into Class A Common Stock and Private Warrants       1,080 
Recognition of operating right of use assets and lease liabilities upon adoption of ASC 842 and for new leases entered into in 2022   11,906     
Additions of property and equipment included in accounts payable and accrued expenses   12,056     
Issuance of Warrants       17,596 
Issuance pursuant to commitment to issue registered shares   32,900     
Receipt of class A common stock in consideration of exercises of options   669     
Transfer of private warrants to unaffiliated parties   186     
Conversion of convertible note to equity   67,218     
Acquisitions of property and equipment included in accounts payable       270 
Conversion of The9 Conditional Obligation to equity       2,863 
Settlement of vendor payables in trust for a commitment to issue Class A Common Stock       96,186 
Settlement of accounts payable for a commitment to issue Class A Common Stock       2,879 
           
Supplemental disclosure of noncash investing and financing activities related to the Business Combination          
Exchange of Legacy FF redeemable preference stock for a commitment to issue Class A Common Stock  $   $859,182 
Exchange of Legacy FF convertible preferred stock for a commitment to issue Class B Common Stock       697,611 
Settlement of notes payable and accrued interest for a commitment to issue Class A Common Stock       68,541 
Settlement of related party notes payable and related party accrued interest for a commitment to issue Class A Common Stock       69,218 
Settlement of vendor payables in trust for a commitment to issue Class A Common Stock       96,186 
Settlement of accounts payable for a commitment to issue Class A Common Stock       2,879 
Reclassification of deferred transaction costs paid in prior periods against the proceeds received in the Business Combination       7,865 
           
Supplemental disclosure of cash flow information          
Cash paid for interest  $12,721   $5,837 

 

The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.

 

8

 

 

Faraday Future Intelligent Electric Inc.

Notes to Condensed Consolidated Financial Statements

(in thousands, except share and per share data)

(Unaudited)

 

1. Nature of Business and Organization and Basis of Presentation

 

Nature of Business and Organization

 

Faraday Future Intelligent Electric Inc. (“Company” or “FF”), a holding company incorporated in the State of Delaware on February 11, 2020, conducts its operations through the subsidiaries of FF Intelligent Mobility Global Holdings Ltd. (“Legacy FF”), founded in 2014 and headquartered in Los Angeles, California.

 

On July 21, 2021 (“Closing”), the Company consummated a business combination pursuant to an Agreement and Plan of Merger dated January 27, 2021, by and among Property Solutions Acquisition Corp (“PSAC”). and Legacy FF (the “Business Combination”), pursuant to which the Company received gross proceeds of $229,583 from the PSAC trust account. Upon the consummation of the Business Combination, PSAC changed its name from “Property Solutions Acquisition Corp.” to “Faraday Future Intelligent Electric Inc.” Concurrently with the Closing of the Business Combination, the Company entered into separate agreements with a number of investors (“PIPE Investors”) pursuant to which, on the Closing, the PIPE Investors purchased, and the Company issued, an aggregate of 76,140,000 shares of Class A Common Stock, for a purchase price of $10 per share with an aggregate purchase price of $761,400 (“PIPE Financing”). Shares sold and issued in the PIPE Financing included registration rights.

 

The Company operates in a single operating segment and designs and engineers next-generation, intelligent, electric vehicles. The Company expects to manufacture vehicles at its ieFactory California production facility in Hanford, California and has additional engineering, sales, and operations capabilities in China. The Company has created innovations in technology, products, and a user-centered business model that are being incorporated into its planned electric vehicle platform.

 

Principles of Consolidation and Basis of Presentation

 

The Company consolidates the financial statements of all entities in which it has a controlling financial interest, including the accounts of any Variable Interest Entity (“VIE”) in which the Company has a controlling financial interest and for which it is the primary beneficiary. All intercompany transactions and balances have been eliminated upon consolidation.

 

The unaudited Condensed Consolidated Financial Statements have been prepared in conformity with generally accepted accounting principles in the United States (“GAAP”) for interim financial information and are unaudited.

 

These unaudited Condensed Consolidated Financial Statements do not include all disclosures that are normally included in annual audited financial statements prepared in accordance with GAAP and should be read in conjunction with the Company’s audited Consolidated Financial Statements for the year ended December 31, 2021, included in the Company’s Form 10-K filed with Securities and Exchange Commission (“SEC”) on May 13, 2022 (“Form 10-K”). Accordingly, the Condensed Consolidated Balance Sheet as of December 31, 2021, has been derived from the Company’s annual audited Consolidated Financial Statements but does not contain all of the footnote disclosures from the annual financial statements.

 

In the opinion of the Company, the unaudited Condensed Consolidated Financial Statements contain all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of its financial position, its results of operations, and cash flows for the periods presented. The accounting policies used in the preparation of these unaudited Condensed Consolidated Financial Statements are the same as those disclosed in the audited Consolidated Financial Statements for the year ended December 31, 2021, included in the Form 10-K, except as described below.

 

Reclassification

 

The Company reclassified certain amounts in the unaudited Condensed Consolidated Financial Statements to conform to the current period's presentation.

 

Use of Estimates

 

The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions, which affect the reported amounts in the financial statements. Estimates are based on historical experience, where applicable, and other assumptions which management believes are reasonable under the circumstances. On an ongoing basis, management evaluates its estimates, including those related to the: (i) realization of tax assets and estimates of tax liabilities; (ii) valuation of equity securities; (iii) recognition and disclosure of contingent liabilities, including litigation reserves; (iv) fair value of related party notes payable, notes payable and warrants liabilities; (v) estimated useful lives and impairment of long-lived assets; (vi) fair value of options granted to employees and non-employees; (vii) fair value of warrants, and (viii) incremental borrowing rate used to measure operating lease liabilities. Such estimates often require the selection of appropriate valuation methodologies and financial models and may involve significant judgment in evaluating ranges of assumptions and financial inputs. Actual results may differ from those estimates.

 

9

 

 

Faraday Future Intelligent Electric Inc.

Notes to Condensed Consolidated Financial Statements

(in thousands, except share and per share data)

(Unaudited)

 

As of the date the Company’s unaudited Condensed Consolidated Financial Statements were issued, the Company is not aware of any specific event or circumstance that would require it to update its estimates or judgments or to revise the carrying value of its assets or liabilities. However, these estimates and judgments may change as new events occur and additional information is obtained, which may result in changes being recognized in the Company’s unaudited Condensed Consolidated Financial Statements in future periods. While the Company considered the effects of COVID-19 on its estimates and assumptions, due to the level of uncertainty regarding the economic and operational impacts of COVID-19 on the Company’s business, there may be other judgments and assumptions that the Company has not considered. Such judgments and assumptions could result in a material impact on the Company’s financial statements in future periods. Actual results could differ from these estimates and any such differences may have a material impact on the Company’s unaudited Condensed Consolidated Financial Statements.

 

Income Tax

 

The Company recorded an income tax provision of $0 and $9 for the three and nine months ended September 30, 2022, and $0 and $3 for the three and nine months ended September 30, 2021, respectively, on the unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss. The difference in the Company’s effective tax rate from the federal statutory rate of 21% is due to the ratio of domestic and international loss before taxes. The Company records a full valuation allowance to reflect limited benefits for income taxes in jurisdictions that historically reported losses and a provision for income taxes in jurisdictions that are profitable. The income tax provision for each period was the combined calculated tax expenses/benefits for various jurisdictions.

 

The Company is subject to taxation and files income tax returns with the U.S. federal government, California and China. The Company’s income tax returns are open to examination by the relevant tax authorities until the expiration of the applicable statute of limitations, which is generally three years after the filing of the tax return. As of September 30, 2022, the Company is not under any tax audits on its income tax returns. All of the Company’s prior year tax returns, from 2016 through 2021, are open under Chinese tax law.

The Company did not accrue any interest or penalties related to the Company's unrecognized tax benefits as of September 30, 2022, as the uncertain tax benefits only reduced the net operating losses. The Company does not expect the uncertain tax benefits to have material impact on its unaudited Condensed Consolidated Financial Statements within the next twelve months.

 

Recently Adopted Accounting Pronouncements

 

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842) (“ASC 842”), which outlines a comprehensive lease accounting model that supersedes the previous lease guidance. The guidance requires lessees to recognize lease liabilities and corresponding right-of-use (“ROU”) assets for all leases with lease terms greater than 12 months. It also changes the definition of a lease and expands the disclosure requirements of lease arrangements. In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842) - Targeted Improvements, which provides the option of an additional transition method that allows entities to initially apply the new lease guidance at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The Company adopted the standard on January 1, 2022 using the modified retrospective basis and recorded operating lease ROU assets of $11,191 and operating lease liabilities of $11,191 on that date. As part of this adoption, the Company reclassified the deferred gain related to a previous sale and leaseback of $3,393 to accumulated deficit. The Company elected to apply the package of practical expedients permitted under the transition guidance within ASC 842 which does not require reassessment of initial direct costs, reassessment of the classification of leases as operating or financing, or reassessment of the definition of a lease (see Note 10, Leases). Finance lease liabilities and related property and equipment assets did not change as a result of the adoption of this standard.

 

10

 

 

Faraday Future Intelligent Electric Inc.

Notes to Condensed Consolidated Financial Statements

(in thousands, except share and per share data)

(Unaudited)

 

In August 2020, the FASB issued ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”). ASU 2020-06 simplifies the accounting for convertible instruments by removing certain separation models in ASC 470- 20, Debt — Debt with Conversion and Other Options, for convertible instruments. ASU 2020-06 updates the guidance on certain embedded conversion features that are not required to be accounted for as derivatives under Topic 815, Derivatives and Hedging, or that do not result in substantial premiums accounted for as paid-in capital, such that those features are no longer required to be separated from the host contract. The convertible debt instruments will be accounted for as a single liability measured at amortized cost. Further, ASU 2020-06 made amendments to the earnings per share guidance in Topic 260 for convertible instruments, the most significant impact of which is requiring the use of the if-converted method for the diluted EPS calculation, and no longer allowing the net share settlement method. ASU 2020-06 also made revisions to Topic 815-40, which provides guidance on how an entity must determine whether a contract qualifies for a scope exception from derivative accounting. The amendments to Topic 815-40 change the scope of contracts that are recognized as assets or liabilities. ASU 2020-06 is effective for interim and annual periods beginning after December 15, 2023, with early adoption permitted. Adoption of ASU 2020-06 can either be on a modified retrospective or full retrospective basis. The Company adopted the standard on January 1, 2022 on a modified retrospective basis and reclassified the Obligation to issue registered shares of Class A Common Stock of $12,635 from Accrued expenses and other current liabilities and reclassified $20,265 from Accumulated deficit to Commitment to issue Class A Common Stock on the unaudited Condensed Consolidated Balance Sheets.

 

In May 2021, the FASB issued ASU 2021-04, Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (“ASU 2021-04”). ASU 2021-04 clarifies and reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange. ASU 2021-04 made amendments to the earnings per share guidance in Topic 260 for an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options. Further, ASU 2021-04 made amendments to the Debt — Modifications and Extinguishments guidance in Topic 470-50. ASU 2021-04 also added references to revised guidance within Topic 505 and 718. Additionally, ASU 2021-04 made additions to Topic 815-40 related to the issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options. ASU 2021-04 is effective for interim and annual periods beginning after December 15, 2021, with early adoption permitted. Adoption of the amendments should be applied prospectively to modifications or exchanges occurring on or after the effective date of the amendments. The Company adopted ASU 2021-04 as of January 1, 2022, which had an immaterial effect on the unaudited Condensed Consolidated Financial Statements.

 

2. Liquidity and Capital Resources

 

The Company has evaluated whether there are certain conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the unaudited Condensed Consolidated Financial Statements are issued. Based on its recurring losses from operations since inception and continued cash outflows from operating activities (all as described below), the Company has concluded that there is substantial doubt about its ability to continue as a going concern for a period of one year from the date that these unaudited Condensed Consolidated Financial Statements were issued.

 

The timing of first deliveries of FF 91 vehicles is uncertain and is not expected to occur in 2022 and remains subject to various conditions, many of which are outside of FF’s control, including the timing, size, and availability of additional financing as well as the implementation and effectiveness of FF’s headcount reductions and other expense reduction and payment delay measures. It is also subject to suppliers meeting their commitments on program deliverables including parts, and timely and successful certification testing. FF is seeking to raise additional capital from various fundraising efforts currently underway to supplement its cash on hand of $31,766 as of September 30, 2022. The Company has taken steps to preserve its cash position, including reducing spending, extending payment cycles and other similar measures.

 

11

 

 

Faraday Future Intelligent Electric Inc.

Notes to Condensed Consolidated Financial Statements

(in thousands, except share and per share data)

(Unaudited)

 

As part of its funding efforts, on November 11, 2022, the Company entered into a Standby Equity Purchase Agreement (“SEPA”) with YA II PN, Ltd. (“Yorkville”), an affiliate of Yorkville Advisors Global, LP, which provides the Company the sole right, but not the obligation, to direct Yorkville from time to time to purchase up to $200,000 (“Commitment Amount”) of the Company’s shares of Class A Common Stock during the commitment period ending November 11, 2025, at a 3% discount of the VWAP (as defined below) of the shares during the three preceding days of each issuance. The Company has the option to increase the Commitment Amount to up to $350,000 during the commitment period. The Company agreed to issue 789,016 shares of Class A Common Stock in satisfaction of the commitment fee agreed upon in the SEPA. As of the date the unaudited Condensed Consolidated Financial Statement were issued, the Company did not direct Yorkville to buy any shares of Class A Common Stock. The Company shall use commercially reasonable efforts to prepare and file with the SEC a registration statement for the resale by Yorkville of the shares of Class A Common Stock to be issued under the SEPA (including the 789,016 commitment shares). The Company shall not have the ability to draw funds until the effectiveness of such registration statement and the satisfaction of certain other conditions.

 

Any purchase would be subject to certain limitations, including that Yorkville shall not purchase any shares that would result in it and its affiliates beneficially owning more than 9.99% of the then outstanding voting power or number of shares of Class A Common Stock or any shares that would exceed 19.99% of all shares of Class A Common Stock and Class B common stock of the Company outstanding on the date of the SEPA, unless Company shareholder approval was obtained allowing for issuances in excess of such amount (the “Exchange Cap”). The Exchange Cap will not apply under certain circumstances, including where the average price of all shares of Class A Common Stock equals or exceeds $0.62 per share.

 

Further, and as more fully described in Note 9, Notes Payable, the Company has unfunded commitments from Purchasers, in the amount of $40,000 in connection with the SPA, as such terms are defined in Note 9, Notes Payable, $20,000 of which is expected to be funded by the end of 2022, subject to the satisfaction of certain conditions, and the remaining $20,000 of which is expected to be received following the launch of the FF 91 and completion of certain other conditions. The Company also has the right to force the conversion of the warrants underlying the Warrant Reserve, as such term is defined in Note 12, Stockholders' Equity, for a total exercise price of $20,000 in cash, upon the completion of certain milestones and conditions.

 

Despite the access to liquidity resulting from the SEPA when, and if, it shall become effective, the Warrant Reserve and the unfunded commitments from the SPA, the Company projects that it may require additional funds during the remainder of 2022 and will require additional funds beyond 2022 in order to continue operations and support the ramp-up of production of the FF 91 to generate revenues to put the Company on a path to cash flow break-even. Incremental capital needs beyond 2022 to fund development of the Company’s remaining product portfolio will be highly dependent on the market success and profitability of the FF 91 and the Company’s ability to accurately estimate and control costs.

 

Since its formation, the Company has devoted substantial effort and capital resources to strategic planning, engineering, design, and development of its electric vehicle platform, development of initial electric vehicle models, and capital raising. Since inception, the Company has incurred cumulative losses from operations, negative cash flows from operating activities, and has an accumulated deficit of $3,322,685 as of September 30, 2022. After the closing of the Business Combination and the PIPE Financing on July 21, 2021, the Company received gross proceeds aggregating $990,983 which it used to settle certain liabilities and the remainder of which management has used to finance the ongoing operations of the business.

 

The Company has funded its operations and capital needs primarily through the net proceeds received from capital contributions, the issuance of related party notes payable and notes payable (see Note 8, Related Party Notes Payable and Note 9, Notes Payable), the sale of Preferred and Common Stock (see Note 12, Stockholders' Equity) and the net proceeds received from the Business Combination and the PIPE Financing (see Note 3, Business Combination).

 

The Company’s ongoing liquidity needs will depend on the extent to which the Company’s actual costs vary from the Company’s estimates and the Company’s ability to control these costs, as well as the Company’s ability to raise additional funds. The timely achievement of the Company’s operating plan as well as its ability to maintain an adequate level of liquidity are subject to various risks associated with the Company’s ability to continue to successfully close additional sources of funding, control and effectively manage its costs, as well as factors outside of the Company’s control, including those related to global supply chain disruptions, the rising prices of materials, potential impact of the COVID-19 pandemic, and general macroeconomic conditions. The Company’s forecasts and projections of working capital reflect significant judgment and estimates for which there are inherent risks and uncertainties. The Company expects to continue to generate significant operating losses for the foreseeable future. The plans are dependent on the Company being able to continue to raise significant amounts of capital through the issuance of additional notes payable and equity securities.

 

12

 

 

Faraday Future Intelligent Electric Inc.

Notes to Condensed Consolidated Financial Statements

(in thousands, except share and per share data)

(Unaudited)

 

There can be no assurance that the Company will be successful in achieving its strategic plans, that the Company’s future funding raises will be sufficient to support its ongoing operations, or that any additional financing will be available in a timely manner or on acceptable terms, if at all. If events or circumstances occur such that the Company does not meet its strategic plans, the Company will be required to reduce discretionary spending, alter or scale back vehicle development programs, be unable to develop new or enhanced production methods, or be unable to fund capital expenditures. Any such events would have a material adverse effect on the Company’s financial position, results of operations, cash flows, and ability to achieve its intended business objectives.

 

As of September 30, 2022, the Company was in default on a related party note payable with a principal amount of $8,451. In January 2022, the Company defaulted on the Optional Notes (see Note 9, Notes Payable). The holders of the Optional Notes have waived the default.

 

The unaudited Condensed Consolidated Financial Statements do not include any adjustments that might result from the outcome of this uncertainty. Accordingly, the unaudited Condensed Consolidated Financial Statements have been prepared on a basis that assumes the Company will continue as a going concern and which contemplates the realization of assets and satisfaction of liabilities and commitments in the ordinary course of business.

 

3. Business Combination

 

On July 21, 2021, the Company consummated the Business Combination. Pursuant to the terms of the Merger Agreement, Merger Sub merged with and into Legacy FF, with Legacy FF surviving the merger as a wholly-owned subsidiary of the Company. Upon the consummation of the Business Combination, the registrant changed its name from Property Solutions Acquisition Corp. to Faraday Future Intelligent Electric Inc.

 

Commitment to Issue Class A and Class B Common Stock

 

As part of the closing of the Business Combination, former stockholders and noteholders of Legacy FF are required to submit a signed Company share letter of transmittal or converting debt letter of transmittal along with a lockup agreement to the Company’s transfer agent in order for shares of the Company to be issued in their name in exchange for their shares in, notes from, vendor trust or other supplier agreements with, Legacy FF. Until the holder of the right to receive shares of the Company’s Class A Common Stock is issued shares, that holder does not have any of the rights of a stockholder. During the three and nine month ended September 30, 2022, the Company issued 20,264,715 and 89,152,131 shares of Class A Common Stock, respectively, and 64,000,588 shares of Class B Common Stock in full satisfaction of its commitment to issue Class A and Class B Common Stock..

 

The Company determined that the commitment to issue shares of Class A and Class B Common Stock is indexed to the Company’s own equity, within the meaning in ASC 815-10-15-74 and met the scope exception to not be subject to derivative accounting under ASC 815-40-25. As such, the Company classified the commitment to issue shares of Class A and Class B Common Stock in equity.

 

For purposes of presentation of shares outstanding in the Company’s financial statements, the unaudited Condensed Consolidated Balance Sheets and unaudited Condensed Consolidated Statements of Commitment to Issue Class A Common Stock and Stockholders’ Equity (Deficit) present legally issued and outstanding shares.

 

For purposes of presentation of basic and diluted net loss per share in the unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss, the Company includes shares to be issued in the denominator in accordance with ASC 710-10-54-4 and ASC 260-10-45-48 as if they had been issued on the date of the merger, as such shares are non-contingent and are issuable for no consideration.

 

13

 

 

Faraday Future Intelligent Electric Inc.

Notes to Condensed Consolidated Financial Statements

(in thousands, except share and per share data)

(Unaudited)

4. Deposits and Other Current Assets

 

Deposits and other current assets consist of the following:

 

Deposits:  September 30,
2022
   December 31,
2021
 
Deposits for research and development, prototype and production parts, and other  $39,142   $54,990 
Deposits for “Future Work”   5,388    8,380 
Total deposits  $44,530   $63,370 
           
Other current assets:          
Prepaid expenses  $19,300   $11,119 
Other current assets   4,459    2,291 
Total other current assets  $23,759   $13,410 

 

During the three and nine months ended September 30, 2022, the Company made deposits for research and development (“R&D”), prototype and production parts with its vendors, which support the Company’s ongoing R&D efforts and operations. The Company expenses deposits as the services are provided and prototype parts are received.

 

Amortization expense related to the Palantir hosting arrangement and other prepaid software subscriptions totaled $3,204 and $1,466 for the three months ended September 30, 2022 and 2021, and $8,866 and $1,739 for the nine months ended September 30, 2022 and 2021, respectively.

 

During the three months ended September 30, 2022, the Company entered into an insurance policy for its directors and officers (“D&O Policy”), which required it to make a prepayment in the amount of $21,732, of which $4,265 was amortized to General and administrative expenses in the unaudited Condensed Consolidated Statement of Operations and Comprehensive Loss for three and nine months ended September 30, 2022.

 

5. Property and Equipment, Net

 

Property and equipment, net, consists of the following:

 

   September 30,
2022
   December 31,
2021
 
Buildings  $14,180   $14,180 
Computer hardware   3,112    3,051 
Tooling, machinery, and equipment   8,916    8,868 
Vehicles   337    337 
Computer software   4,027    1,032 
Leasehold improvements   383    297 
Construction in process   391,880    275,048 
Less: Accumulated depreciation   (11,178)   (9,678)
Total property and equipment, net  $411,657   $293,135 

 

Depreciation expense related to property and equipment totaled $799 and $659 for the three months ended September 30, 2022 and 2021, respectively, and $2,271 and $2,529 for the nine months ended September 30, 2022 and 2021, respectively.

 

14

 

 

Faraday Future Intelligent Electric Inc.

Notes to Condensed Consolidated Financial Statements

(in thousands, except share and per share data)

(Unaudited)

 

6. Accrued Expenses and Other Current Liabilities

 

Accrued expenses and other current liabilities consist of the following:

 

   September 30,
2022
   December 31,
2021
 
Accrued legal contingencies  $14,606   $16,881 
Engineering, design and testing services received not invoiced   7,637    6,620 
Deposits from customers   3,708    4,354 
Accrued legal contingencies due to affiliates   6,551    6,673 
Obligation to issue registered shares of Class A Common Stock (1)       12,635 
Bridge Warrants (2)   4,686     
Other current liabilities   8,916    21,597 
Total accrued expenses and other current liabilities  $46,104   $68,760 

 

(1)The obligation to issue registered shares of Class A Common Stock was reclassified to Commitment to issue Class A Common Stock upon the adoption of ASU 2020-06 on January 1, 2022, and subsequently to Additional paid-in capital (“APIC”) upon the issuance of Class A Common Stock on July 21, 2022 (see Note 7, Fair Value of Financial Instruments).

 

(2)Issuance of Liability-classified Warrants

 

On various funding dates and as part of the SPA (as defined and further discussed in Note 9, Notes Payable), the Company issued 6,043,623 warrants (“Bridge Warrants”) to purchase the Company’s Class A Common Stock at a rate of 1:1, with an exercise price of $5 per share, subject to customary anti-dilution protection and other adjustments, and are exercisable for seven years on a cash or cashless basis. The Company may repurchase the Warrants for $0.01 per Warrant share if and to the extent the volume weighted average prices of the Company’s Class A Common Stock during 20 of out 30 trading days prior to the repurchase is greater than $15 per share, subject to certain additional conditions.

 

The Company determined that the Bridge Warrants represent a liability that should be measured at fair value at each issuance date and reporting period, with changes recorded in Changes in fair value measurements in the unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss, as the Bridge Warrants contained provisions that allow the holders to redeem them in cash at any time upon the occurrence of a Fundamental Transaction, as defined in the warrants agreements, among other events, as a sale or transfer of the majority of its assets, merger with or acquisition by a third party. Accordingly, the Company recorded the Bridge Warrants in Accrued expense and other current liabilities in the Company’s unaudited Condensed Consolidated Balance Sheet upon their issuance based on the relative fair values of the Bridge Notes and Bridge Warrants with portions of the proceeds, net of original issue discount and allocated transaction costs, so allocated to the warrants in the amount of $6,971.

 

On September 30, 2022, the Company determined the value of the warrants to be $4,686 and recorded the difference as gain in the amount of $2,285 in the Changes in fair value measurements in the unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2022.

 

15

 

 

Faraday Future Intelligent Electric Inc.

Notes to Condensed Consolidated Financial Statements

(in thousands, except share and per share data)

(Unaudited)

 

7. Fair Value of Financial Instruments

 

Fair Value Measurements

 

The Company applies the provisions of ASC 820, Fair Value Measurement, which defines a single authoritative definition of fair value, sets out a framework for measuring fair value and expands on required disclosures about fair value measurements. The provisions of ASC 820 relate to financial assets and liabilities as well as other assets and liabilities carried at fair value on a recurring and nonrecurring basis. The standard clarifies that fair value is an exit price representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the standard establishes a three-tier value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

 

Level 1 Valuations for assets and liabilities traded in active exchange markets, or interest in open-end mutual funds that allow a company to sell its ownership interest back at net asset value on a daily basis. Valuations are obtained from readily available pricing sources for market transactions involving identical assets, liabilities, or funds.

 

Level 2 Valuations for assets and liabilities traded in less active dealer, or broker markets, such as quoted prices for similar assets or liabilities or quoted prices in markets that are not active. Level 2 instruments typically include U.S. Government and agency debt securities and corporate obligations. Valuations are usually obtained through market data of the investment itself as well as market transactions involving comparable assets, liabilities or funds.

 

Level 3Valuations for assets and liabilities that are derived from other valuation methodologies, such as option pricing models, discounted cash flow models or similar techniques, and not based on market exchange, dealer, or broker-traded transactions. Level 3 valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets or liabilities.

 

Fair value estimates are made at a specific point in time based on relevant market information and information about the financial or nonfinancial asset or liability.

 

The Company has elected to apply the fair value option to certain notes payable with conversion features as discussed in Note 9, Notes Payable. Fair value measurements associated with the warrant liabilities, and notes payable represent Level 3 valuations under the fair value hierarchy.

 

Notes Payable

 

The Company has elected to measure certain notes payable at fair value. Specifically, the Optional Notes and the June 2021 Notes (as defined below), issued pursuant to the Note Purchase Agreement (“NPA”), and the Bridge Notes (as defined below), issued pursuant to the SPA (as defined below), as amended as they contain embedded liquidation premiums with conversion rights that represent embedded derivatives (see Note 9, Notes Payable). The Company used a binomial lattice model to value the notes payable which is widely used for valuing convertible notes. The significant assumptions used in the binomial lattice model include the risk-free rate, annual dividend yield, expected life, and volatility of the Company’s stock.

 

The fair value adjustments related to notes payables were recorded in Change in Fair Value Measurements on the unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss.

 

Commitment to Issue Class A Common Stock

 

Upon the closing of the Business Combination, the Company assumed an obligation of PSAC to deliver 2,387,500 registered shares of Class A Common Stock to an entity that provided consulting and advisory services in connection with the Business Combination to PSAC for no consideration.

 

Prior to the adoption of ASU 2020-06, the agreement with the service provider specified that the shares to be delivered are required to be registered, which is considered to be outside of the control of the Company, and therefore this obligation failed to qualify for equity treatment under ASC 815-40-25-10, and net cash settlement was assumed.

 

As a result, in conjunction with recording the assets and liabilities of PSAC on the closing of the Business Combination, the Company recorded a liability of $32,900 for the Obligation to issue registered shares of Class A Common Stock in the Consolidated Balance Sheets during the year ended December 31, 2021. As of December 31, 2021, the fair value of the liability was $12,635 resulting in a gain of $20,265 recorded in the Change in Fair value measurements in the Consolidated Statements of Operations and Comprehensive Loss for the year ended December 31, 2021.

 

On January 1, 2022, upon the adoption of ASU 2020-06, the requirement to consider whether settlement is required to be in registered shares is no longer required to be considered in an entity’s evaluation of net cash settlement, however ASC 480-10-S99-3a was not amended in a similar fashion and therefore the Company, as part of the adjustments due to the adoption of ASU 2020-06, reclassified the Obligation to issue registered shares of Class A Common Stock from liabilities to the Commitment to issue Class A Common Stock within temporary equity.

 

16

 

 

Faraday Future Intelligent Electric Inc.

Notes to Condensed Consolidated Financial Statements

(in thousands, except share and per share data)

(Unaudited)

On July 21, 2022, the Company amended its agreement with the service provider and delivered 2,387,500 unregistered shares of Class A Common Stock in satisfaction of its obligation. Upon its settlement, the carrying amount of the commitment equaled its initial carrying amount, therefore the Company classified the entire commitment to issue Class A Common Stock to APIC in the amount of $32,900.

 

Transfer of Private Warrants to Unaffiliated Third Parties

 

On August 9, 2022, PSAC Sponsor transferred 398,420 Private Warrants to unaffiliated third-party purchasers on the open market. Upon such transfer, the transferred warrants became subject to identical terms to the Public Warrants underlying the units offered in the initial public offering of PSAC. Therefore, upon their transfer the Company classified the warrants to APIC at their fair value of $186.

 

Issuance of Liability-classified Warrants

 

The Company used a Monte Carlo simulation model to measure the fair value of the warrants, where the significant assumptions used the volatility rate, the forecasted term of the Bridge Warrants and the projected stock price of the Company’s Class A Common Stock over such term.

Recurring Fair Value Measurements

 

Financial assets and financial liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The following tables present financial assets and liabilities remeasured on a recurring basis by level within the fair value hierarchy:

 

   September 30, 2022 
   Level 1   Level 2   Level 3 
Liabilities:            
Notes payable  $     —   $     —   $46,950 
Private Warrants           130 
Bridge Warrants           4,686 

 

   December 31, 2021 
   Level 1   Level 2   Level 3 
Liabilities:            
Notes payable  $     —   $       —   $161,282 
Private Warrants           642 
Obligation to issue registered shares of Class A Common Stock           12,635 

 

The carrying amounts of the Company’s financial assets and liabilities, including cash, restricted cash, deposits, and accounts payable approximate fair value because of their short-term nature or contractually defined value.

 

17

 

 

Faraday Future Intelligent Electric Inc.

Notes to Condensed Consolidated Financial Statements

(in thousands, except share and per share data)

(Unaudited)

 

The following table summarizes the activity of Level 3 fair value measurements:

 

   Bridge
Warrants
   Notes
Payable at
Fair Value
   Private
Warrants
   Obligation
to Issue
Registered
Shares
 
Balance as of December 31, 2021  $   $161,282   $642   $12,635 
Additions   6,971    44,500         
Changes in fair value measurements   (2,285)   (4,549)   (326)    
Payments of notes payable, including Payment Premium       (87,065)        
Conversions of notes to common stock       (67,218)        
Reclassification of Private Warrants to Public Warrants           (186)    
Reclassification of obligation to issue registered shares upon adoption of ASC 2020-06                (12,635)
Balance as of September 30, 2022  $4,686   $46,950   $130   $ 

 

8. Related Party Notes Payable

 

The Company has been significantly funded by notes payable from related parties. These related parties include employees as well as affiliates of employees, affiliates, and other companies controlled or previously controlled by the Company’s founder and Chief Product and User Ecosystem Officer.

 

Related party notes payable consists of the following as of September 30, 2022:

 

Note Name  Contractual Maturity
Date
  Contractual
Interest
Rates
   Balance
as of
September 30,
2022
   Interest
Expense for
the Three
Months Ended
September 30,
2022
   Interest
Expense for
the Nine
Months Ended
September 30,
2022
 
Related party notes – China(1)  Due on Demand   18%  $8,451   $996   $2,931 
Related party notes – China various other  Due on Demand   —%    3,802         
           $12,253   $996   $2,931 

 

(1)Asof September 30, 2022, the Company was in default on a related party note with a principal value of $8,451.

 

The estimated fair value of the related party notes payable, which are not carried at fair value, using inputs from Level 3 under the fair value hierarchy, was $12,726 and $13,337 as of September 30, 2022 and December 31, 2021, respectively.

 

Related party notes payable consists of the following as of December 31, 2021:

 

   December 31, 2021
Note Name  Contractual Maturity
Date
  Contractual
Interest
Rates
   Unpaid
Balance
   Net
Carrying
Value at
12/31/21
 
Related party notes - China  Due on Demand   18%  $9,411   $9,411 
Related party notes - China various other  Due on Demand   0%   4,244    4,244 
Total related party notes payable          $13,655   $13,655 

 

18

 

 

Faraday Future Intelligent Electric Inc.

Notes to Condensed Consolidated Financial Statements

(in thousands, except share and per share data)

(Unaudited)

 

9. Notes Payable

 

The Company has entered into notes payable agreements with third parties, which consists of the following as of September 30, 2022:

 

   September 30, 2022        
Note Name  Contractual
Maturity Date
  Contractual
Interest
Rates
   Unpaid
Principal
Balance
   Fair Value
Measurement
Adjustments
   Original
issue
discount and
proceeds
allocated to
warrants
   Net
Carrying Value
   Interest
Expense
for the
Three Months
Ended
September 30,
2022
   Interest
Expense
for the
Nine Months
Ended
September 30,
2022
 
June 2021 Notes (3)  October 31, 2026   0%  $4,012   $612   $(955)  $3,669   $   $ 
Optional Notes (3)  October 31, 2026   15%   2,687    737    (912)   2,512    28    2,572 
Bridge Notes (4)  August 14, 2026   10%   44,500    7,690    (11,421)   40,769    418    418 
Notes payable – China various other  Due on Demand   0%   4,902            4,902         
Auto loans  October 26, 2026   7%   106            106         
           $56,207   $9,039   $(13,288)  $51,958   $446   $2,990 

 

The Company settled certain notes payable during the nine months ended September 30, 2022 as follows:

 

   Nine months ended September 30, 2022
Note Name  Contractual
Maturity Date
  Contractual
Interest
Rates
   Net
carrying
value at
12/31/2021
   Fair Value
Measurement
Adjustments
   Payment
Premium
   Cash
Payment
   Conversion into
Class A
Common
Stock
 
March 1, 2021 Notes (1)  March 1, 2022   14%  $56,695   $(1,695)  $   $(55,000)  $ 
August 26, 2021 Notes (1)  March 1, 2022   14%   30,924    (924)   2,065    (32,065)    
June 2021 Notes (3)  October 31, 2026   0%   35,071    917            (35,988)
Optional Notes (3)  October 31, 2026   15%   31,934    (704)           (31,230)
PPP Loan (2)  April 17, 2022   1%   193            (193)    
           $154,817   $(2,406)  $2,065   $(87,258)  $(67,218)

 

(1)On March 1, 2021, the Company amended the NPA to permit the issuance of additional notes payable with principal amounts up to $85,000. On the same day, the Company entered into notes payable agreements with Ares for an aggregate principal of $55,000. The notes payable were collateralized by a first lien on virtually all tangible and intangible assets of the Company, bore interest at 14% per annum and matured on March 1, 2022. On February 25, 2022, the Company repaid the $55,000 principal amount of the March 1, 2021 Notes with accrued interest of $7,721.

 

On August 26, 2021, the Company exercised its option under the March 1, 2021 notes payable agreement with Ares to draw an additional principal amount of $30,000 which matured on March 1, 2022. As the August 26, 2021 Notes mature in less than one year, according to the terms of the amended NPA, the Company expected to repay them with payment premium of 14% (“Payment Premium”). On February 25, 2022, the Company repaid the $30,000 principal amount of the August 26, 2021 Notes, with accrued interest of $2,135 and Payment Premium of $2,065.

 

19

 

 

Faraday Future Intelligent Electric Inc.

Notes to Condensed Consolidated Financial Statements

(in thousands, except share and per share data)

(Unaudited)

 

The settlement of the March 1, 2021 Notes and August 26, 2021 Notes are summarized below:

 

   September 30,
2022
   December 31,
2021
 
March 1, 2021 Notes        
Outstanding principal  $   $55,000 
Accrued interest       6,455 
Interest expense for the nine months ended September 30, 2022   1,266     
Principal payments   55,000     
Interest payments   7,721     

 

   September 30,
2022
   December 31,
2021
 
August 26, 2021 Notes        
Outstanding principal  $   $30,000 
Accrued interest       1,473 
Interest expense for the nine months ended September 30, 2022   662     
Principal payments   30,000     
Interest payments   2,135     
Payment Premium payments   2,065     

 

(2)In April 2022, the Company paid the remaining principal and accrued interest in an aggregate amount of $193.

 

(3)On July 26, 2022, the Company entered into an agreement (the “ATW July Amendment”) with entities affiliated with ATW Partners LLC (collectively, the “Investors”), to extend the maturity date, adjust the conversion price and otherwise amend the terms (as described further below) of the Optional Notes and the June 2021 Notes (together, “ATW NPA Notes”).

 

Pursuant to the ATW July Amendment:

 

(a)the maturity date of each of the ATW NPA Notes was extended to October 31, 2026. This extension does not, however, defer the accrual of interest to the new maturity date. Interest shall accrue on the Notes at 10% per annum following February 10, 2023;

 

(b)the conversion price of each of the ATW NPA Notes was adjusted to equal the lesser of (x) $10, (y) 95% of the per share daily volume weighted average prices (“VWAP”) of the Company’s Class A Common Stock during the 30 trading days immediately prior to the applicable conversion date and (z) the lowest effective price per share of Class A Common Stock (or equivalents) issued or issuable by the Company in any financing of debt or equity after July 26, 2022, subject to possible adjustment as set forth therein (the “Set Price”). However, from July 26, 2022 to December 30, 2022, the conversion price of each of the ATW NPA Notes is equal to the lesser of (i) the Set Price, and (ii) 92% of the lowest of the VWAP during the seven (7) trading days immediately prior to the applicable conversion date;

 

(c)a “forced conversion” feature was added to each of the ATW NPA Notes that allows the Company, on or after December 31, 2022, to cause the conversion of all or part of, in the aggregate among all of the ATW NPA Notes, up to $35,000 principal amount of the ATW NPA Notes less any principal amount of the ATW NPA Notes voluntarily converted by the holder thereof after July 26, 2022, subject to certain conditions as set forth in the ATW July Amendment;

 

(d)the date by which the Investors must exercise their option to purchase additional June 2021 Notes of up to $40,000 from the Company under the terms of the NPA was extended to July 20, 2023; and

 

(e)within 45 days of the date on which at least $50,000 in senior secured convertible term loans have been funded to the Company by the Investors or their affiliates under the “Tranche A Loans” facility (the “Tranche A Facility”) (which funding by the Investors or their affiliates is conditioned upon the Company obtaining binding commitments for at least $100,000 in additional financing) (the “Collateral Trigger Date”), subject to agreement by the Company and the Investors on the terms of such Tranche A Facility, the Amendment provides that the Company and the Investors will enter into a security agreement to secure the obligations under the Notes with a junior lien on substantially all of the assets that secure the Tranche A Facility (the “Lien Security Agreement”).

 

20

 

 

Faraday Future Intelligent Electric Inc.

Notes to Condensed Consolidated Financial Statements

(in thousands, except share and per share data)

(Unaudited)

 

The ATW July Amendment was accounted for as a troubled debt restructuring under ASC 470-60, Troubled Debt Restructuring, because the Company was experiencing financial difficulty and the conversion mechanism results in the effective borrowing rate decreasing after the restructuring which was determined to be a concession. Since the future undiscounted cash flows of the restructured notes payable exceed the net carrying value of the original note payable due to the maturity date extension, the modification was accounted for prospectively with no gain or loss recorded in the unaudited Consolidated Statements of Operations and Comprehensive Loss.

 

Interest expense on the ATW NPA Notes is computed using the contractual interest rate. The Company concluded that the conversion feature does not require bifurcation based on the derivative accounting scope exception in ASC 815 for certain contracts involving an entity’s own equity.

 

Between August 16, 2022 and September 14, 2022, the Investors converted $67,218 of principal at conversion prices ranging from $0.84 to $2.29 per share into 64,843,850 shares of Class A Common Stock.

 

The Tranche A Facility was funded on October 10, 2022 (as further described below with regards to the Fourth Bridge Notes), which was considered the Collateral Triggered Date. On the same day and on October 19, 2022, the remaining ATW NPA Notes in the aggregate amount of $6,699 were exchanged for 11,496,868 shares of Class A Common Stock of the Company (see Note 15, Subsequent Events) and, therefore, the requirement to enter into the Lien Security Agreement was terminated.

 

(4)On August 14, 2022, the Company entered into a Securities Purchase Agreement (“SPA”) with certain entities affiliated with ATW Partners LLC and RAAJJ Trading LLC (and together with Senyun, as defined below, the “Purchasers”) to issue and sell the Company’s senior secured convertible notes (the “Bridge Notes”) in three tranches aggregating to $52,000 in principal (as increased on September 23, 2022 to $57,000, which increase was subsequently terminated upon the Initial Senyun Funding Date, as defined below) and maturing on August 14, 2026 (subsequently extended to October 27, 2028). The Bridge Notes are subject to an original issue discount of 10%, and are convertible, along with any interest accrued, into shares of Class A Common Stock at a conversion price equal to $2.69 (or $2.2865 for the initial tranche) (“Conversion Price”), subject to a full ratchet anti-dilution protection. When calculating the shares issuable upon conversion, the converted amount shall be decreased by 50% of the original issue discount pertaining to such amount. As of September 30, 2022, the Purchasers funded $44,500, less total original discounts of $4,450 and transaction costs of $2,813, equating to net proceeds of $37,237.

 

The Bridge Notes bear interest of 10% per annum payable quarterly and on each conversion and on the maturity date in cash or in shares of Class A Common Stock. Unless earlier paid, the Bridge Notes entitle the Purchasers, at each conversion date, to an interest make-whole (“Make-Whole Amount”), in a combination of cash or Class A Common Stock at the Company’s discretion, in the amount of the interest that would have been payable if such converted amount was held to maturity based on an interest rate of 15% per annum. The conversion price of interest is the lesser of (a) the Conversion Price or (b) 90% of the lowest VWAP for the five consecutive trading days.

 

As part of the SPA, the Company issued to the Purchasers 6,043,623 warrants with ratchet clauses triggering an increase to 42,342,839 warrants (“Bridge Warrants”), with an exercise price of $5.00 per share, subject to full ratchet anti-dilution protection and other adjustments, exercisable for seven years from the date of issuance (see Note 12, Stockholders’ Equity). The Company may repurchase the Bridge Warrants for $0.01 per share if and to the extent the VWAP of the Company’s Class A Common Stock during 20 of out 30 trading days prior to the repurchase is greater than $15 per share, subject to certain additional conditions.

 

Total commitments under the SPA shall not exceed $300,000, however each Purchaser has the option within 12 months from November 12, 2022 (the “Form S-1 Effective Date”) to purchase additional senior secured convertible notes under similar terms for a total potential commitments of up to $600,000 (“Tranche B Notes”).

 

On September 23, 2022, the SPA was amended (the “SPA Amendment”), pursuant to which the Purchasers agreed to accelerate their funding obligations, with $7,500 aggregate principal amount (the “Third Bridge Notes”) being funded and issued on the same day, and the remaining $7,500 aggregate principal amount (the “Fourth Bridge Notes”) being funded and issued on October 10, 2022. The Third Bridge Notes and Fourth Bridge Notes are convertible into shares of Class A Common Stock at a conversion price of $1.05 per share, mature on October 27, 2028, and are otherwise subject to the same terms and conditions in the SPA as applicable to the Bridge Notes described therein.

 

21

 

 

Faraday Future Intelligent Electric Inc.

Notes to Condensed Consolidated Financial Statements

(in thousands, except share and per share data)

(Unaudited)

 

The Bridge Notes are secured by the grant of a second lien upon substantially all of the personal and real property of the Company and its subsidiaries, as well as guarantee by substantially all of the Company’s domestic subsidiaries.

 

Additionally, the SPA Amendment modified the conversion price of $25,000 of principal of the Bridge Notes, which were funded on August 14, 2022, to $1.05 per share. The Company evaluated the SPA Amendment in accordance with ASC 470-50, Debt, and determined that it constitutes an extinguishment because the change in the conversion price is substantial. According, the Company recognized a loss in Loss on extinguishment or settlement of related party notes payable, notes payable and vendor payables in trust, net in the unaudited Condensed Consolidated Statements of Operations and Comprehensive for the three and nine months ended September 30, 2022 in the amount of $7,690, calculated as the cumulative change in fair value from initial recognition through to the date of amendment.

 

On September 25, 2022, the Company entered into a Joinder and Amendment Agreement to the SPA (the “Joinder”) with Senyun International Ltd., an affiliate of Daguan International Limited (“Senyun”), pursuant to which Senyun agreed to purchase incremental notes under the SPA in an aggregate principal amount of up to $60,000, subject to the completion of due diligence by the Company of Senyun and its financing sources. Senyun has all of the same rights and obligations as a Purchaser under the SPA.

 

Pursuant to the Joinder and following the completion of the Company’s due diligence of Senyun and its financing sources, Senyun is expected to fund its commitments according to the following schedule (subject, in each case to the satisfaction of certain conditions): (a) $10,000 in principal which was funded on October 27, 2022 (“First Senyun Funding Date”), out of which the Company received $8,800, net of original issue discount and transaction costs); (b) $10,000 in principal on the later of (x) 14 business days after the First Senyun Funding Date and (y) the receipt of approval of the Company’s stockholders of certain proposals (which was obtained on November 3, 2022), and was funded on November 15, 2022, out of which the Company received $8,970, net of original issue discount and transaction costs (“Second Senyun Funding Date”); (c) $10,000 in principal amount not later than 15 business days after the Form S-1 Effective Date; (d) $10,000 in principal amount within 30 business days after the Form S-1 Effective Date; and (e) $20,000 in principal amount on a date that is no later than ten (10) business days after the launch of the FF 91.

 

Upon the First Senyun Funding Date, the Purchasers’ obligation to purchase an additional $5,000 in aggregate principal amount of senior secured convertible notes automatically terminated.

 

The Company elected the fair value option afforded by ASC 825, Financial Instruments, with respect to the Bridge Notes because the notes include features, such as a contingently exercisable put option, which meets the definition of an embedded derivative. Upon their issuance, the Company determined that the aggregated fair value of the Bridge Notes and Bridge Warrants was $33,079 and $6,971, respectively. The Company expenses original issue discount and transaction costs to Changes in fair value measurements in the unaudited Condensed Consolidated Statement of Operations and Comprehensive Loss.

 

On September 30, 2022, the Company determined that the fair value of the Bridge Notes and Bridge Warrants was $40,769 and $4,686, respectively, resulting in a loss in Changes in fair value measurements in the unaudited Condensed Consolidated Statement of Operations and Comprehensive Loss for the three and nine months ended September 30, 2022 in the amount of $7,690 and $2,285, respectively.

 

Fair Value of Notes Payable Not Carried at Fair Value

 

The estimated fair value of the Company’s notes payable not carried at fair value, using inputs from Level 3 under the fair value hierarchy, was $4,857 and $5,350 as of September 30, 2022 and December 31, 2021, respectively.

 

22

 

 

Faraday Future Intelligent Electric Inc.

Notes to Condensed Consolidated Financial Statements

(in thousands, except share and per share data)

(Unaudited)

 

Schedule of Principal Maturities of Notes Payable

 

The future scheduled principal maturities of notes payable as of September 30, 2022 are as follows:

 

Due on demand  $4,902 
2022   4,012 
2023   2,687 
2026   44,606 
   $56,207 

 

*On October 24, 2022, the Company entered into a Limited Consent and Third Amendment to the SPA (the “Third Amendment”) pursuant to which the maturity date for the Bridge Notes was extended from August 14, 2026 to October 27, 2028 (see Note 15, Subsequent Events).

 

Notes payable consists of the following as of December 31, 2021:

 

   December 31, 2021
Note Name  Contractual
Maturity
Date
  Contractual
Interest
Rates
   Unpaid
Balance
   Fair Value
Measurement
Adjustments
   Original
issue
discount
and
proceeds
allocated to
warrants
   Net
Carrying
Value
 
March 1, 2021 Notes  March 1, 2022   14%  $55,000   $7,692   $(5,997)  $56,695 
August 26, 2021 Notes  March 1, 2022   14%   30,000    1,011    (87)   30,924 
June 9, 2021 Note 1 and Note 2  December 9, 2022   %   40,000    8,503    (9,522)   38,981 
August 10, 2021 Optional Notes  February 10, 2023   15%   33,917    12,283    (11,518)   34,682 
Notes payable - China various other  Due on demand   %   5,458            5,458 
PPP Loan  April 17, 2022   1%   193            193 
Auto loans  Various   Various    121            121 
Total notes payable          $164,689   $29,489   $(27,124)  $167,054 

 

10. Leases

 

The Company determines if an arrangement is a lease at its commencement if the Company is both able to identify an asset and conclude the Company has the right to control the identified asset. Leases are classified as finance or operating based on the principle of whether or not the lease is effectively a financed purchase by the lessee. An ROU asset represents the Company’s right to use an underlying asset for the lease term and a lease liability represents the Company’s obligation to make lease payments related to the lease. The Company recognizes operating and finance lease ROU assets and liabilities at the commencement date based on the present value of lease payments over the lease term. The lease term includes renewal options when it is reasonably certain that the option will be exercised, and excludes termination options. The Company’s leases do not provide an implicit rate therefore, the Company uses its incremental borrowing rate based on information available at the commencement date to determine the present value of lease payments. The incremental borrowing rate used is estimated based on what the Company would be required to pay for a collateralized loan for a similar asset over a similar term. The Company’s leases do not include any material residual value guarantees, bargain purchase options, or asset retirement obligations.

 

To the extent that the Company’s agreements have variable lease payments, the Company includes variable lease payments that depend on an index or a rate in the measurement and classification of a lease and excludes those that depend on facts or circumstances occurring after the commencement date, other than the passage of time. Lease expense for operating leases is recognized on a straight-line basis over the lease term and is recorded in operating expenses on the unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss. Amortization of ROU assets on finance leases is recorded on a straight-line basis within operating expenses in the unaudited Condensed Consolidated Statements of Operations. Interest expense incurred on finance lease liabilities is recorded in Interest expense on the unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss. The Company has elected not to recognize ROU assets and lease liabilities that arise from short-term (12 months or less) leases for any class of underlying asset. Additionally, the Company does not separate lease and non-lease components. Operating leases are included in ROU assets, Operating leases liabilities, current portion and Operating lease liabilities, less current portion in the Company’s unaudited Condensed Consolidated Balance Sheets. Finance leases are included in Property and equipment, net, Finance lease liabilities, current portion, and Finance lease liabilities, less current portion in the Company’s unaudited Condensed Consolidated Balance Sheets.

 

23

 

 

Faraday Future Intelligent Electric Inc.

Notes to Condensed Consolidated Financial Statements

(in thousands, except share and per share data)

(Unaudited)

 

The Company’s lease arrangements consist primarily of its ieFactory California production facility, corporate office, store, equipment, and vehicle lease agreements. The leases expire at various dates through 2032, some of which include options to extend the lease term for additional 5 years periods.

 

Total lease costs for the three and nine months ended September 30, 2022 were:

 

   Three
Months
Ended
September 30,
2022
   Nine Months
Ended
September 30,
2022
 
Finance lease cost        
Amortization of right-of-use assets  $91   $273 
Interest on lease liabilities   169    520 
Total finance lease cost   260    793 
           
Operating lease cost   434    1,966 
Variable lease cost   24    425 
Total lease cost  $718   $3,184 

 

The following table summarizes future lease payments as of September 30, 2022:

 

Fiscal year  Operating
Leases
   Finance
Leases
 
2022  $1,289   $643 
2023   5,259    2,166 
2024   5,482    1,757 
2025   5,243    1,792 
2026   5,197    1,828 
Thereafter   12,173    1,864 
Total   34,643    10,050 
Less: Imputed Interest   13,516    1,326 
Present value of net lease payments   21,127    8,724 
           
Lease liability, current portion  $2,487   $1,807 
Lease liability, net of current portion   18,640    6,917 
Total lease liability  $21,127   $8,724 

 

Supplemental information and non-cash activities related to operating and finance leases are as follows:

 

   Nine
Months
Ended
September 30,
2022
 
Cash paid for amounts included in the measurement of lease liabilities    
Operating cash flows from operating leases  $1,966 
Operating cash flows from finance leases   520 
Financing cash flows from finance leases   1,410 
    3,896 
Lease liabilities arising from new right-of-use assets     
Operating leases   11,906 

 

24

 

 

Faraday Future Intelligent Electric Inc.

Notes to Condensed Consolidated Financial Statements

(in thousands, except share and per share data)

(Unaudited)

 

   As of September 30,
2022
 
Weighted average remaining lease term (in years)    
Operating leases   6.2 
Finance leases   5 
      
Weighted average discount rate     
Operating leases   15.6%
Finance leases   5.7%

 

Disclosures Related to Periods Prior to Adoption of the New Lease Standard:

 

The Company recorded rent expense of $1,131 and $2,361 for the three and nine months ended September 30, 2021, respectively.

 

The minimum aggregate future obligations under non-cancelable operating leases as of December 31, 2021 were as follows:

 

Year ended December 31,    
2022  $2,384 
2023   2,695 
2024   2,775 
2025   2,859 
2026   2,944 
Thereafter   991 
   $14,648 

 

The Company has three capital leases, one in Hanford, California for its ieFactory California production facility, and two equipment leases.

 

The minimum aggregate future minimum lease payments under capital leases as of December 31, 2021 were as follows:

 

Year ended December 31,    
2022  $2,574 
2023   2,166 
2024   1,757 
2025   1,792 
2026   1,840 
Thereafter   1,864 
   $11,993 

 

11. Commitments and Contingencies

 

Legal Matters

 

The Company is, from time to time, subject to claims and disputes arising in the normal course of business. In the opinion of management, the outcome of any such claims and disputes cannot be predicted with certainty.

 

25

 

 

Faraday Future Intelligent Electric Inc.

Notes to Condensed Consolidated Financial Statements

(in thousands, except share and per share data)

(Unaudited)

 

On December 23, 2021, a putative class action lawsuit alleging violations of the Securities Exchange Act of 1934 was filed in the United States District Court, Central District of California, against the Company, among others, and its current Global CEO, its former CFO, its current Chief Product and User Ecosystem Officer, as well as the CFO of Legacy FF and former CFO of the Company, and the Co-CEOs of PSAC. Also, on March 8, March 21, April 11, and April 25 2022, putative stockholder derivative lawsuits were filed in the United States District Court, Central District of California and United States District Court, District of Delaware against numerous current and former officers and directors of the Company alleging violations of the Securities Exchange Act of 1934 and various common law claims. Also, on June 14, 2022, a verified stockholder class action complaint was filed in the Court of Chancery of the State of Delaware against, among others, the Company, its current Global CEO, its former CFO and its current Chief Product and User Ecosystem Officer alleging breaches of fiduciary duties. Lastly, on September 21, 2022, a verified stockholder class action complaint was filed in the Court of Chancery of the State of Delaware against, among others, the Company, the Co-CEOs and independent directors of PSAC, and certain third-party advisors to PSAC, alleging breaches of fiduciary duties, and aiding and abetting the alleged breaches, in connection with disclosures and stockholder voting leading up to the Business Combination.

 

On March 8, 2022 and March 21, 2022, putative derivative lawsuits alleging violations of the Securities Exchange Act of 1934 and various common law claims were filed in the United States District Court, Central District of California. On April 8, 2022, these two derivative lawsuits were consolidated. On May 24, 2022, the consolidated derivative actions were stayed pending resolution of a motion to dismiss in the putative class action described above. Additionally, on April 11 and April 25, 2022, putative derivative lawsuits alleging violations of the Securities Exchange Act of 1934 and various common law claims were filed in the United States District Court, District of Delaware. These lawsuits purport to assert claims on behalf of the Company against numerous current and former officers and directors of the Company. Lastly, on June 14, 2022, a verified stockholder class action complaint was filed in the Court of Chancery of the State of Delaware against, among others, the Company, its current Global CEO, its former CFO and its founder and Chief Product and User Ecosystem Officer alleging breaches of fiduciary duties. Given the early stages of the legal proceedings, it is not possible to predict the outcome of the claims.

 

On June 14, 2022, a verified stockholder class action complaint was filed in the Court of Chancery of the State of Delaware against, among others, the Company, its current Global CEO, its former CFO and its current Chief Product and User Ecosystem Officer alleging breaches of fiduciary duties. On August 11, 2022, the Court of Chancery granted a stipulation and order governing briefing on a motion to dismiss the complaint. On September 21, 2022, an additional verified stockholder class action complaint was filed in the Court of Chancery of the State of Delaware against, among others, the Company alleging, among other issues, breaches of fiduciary duties. On October 12, 2022, plaintiff filed a motion to consolidate the Cleveland and Yun actions and appoint Cleveland’s counsel as lead counsel for the consolidated action. On October 20, 2022, the Company filed a motion to dismiss the complaint.

 

On September 23, 2022, plaintiff and defendants of the original June 14, 2022 action filed a stipulation and proposed order vacating the briefing schedule set forth pending consolidation of the action alongside the September 21, 2022 complaint. If the proposed order is entered by the court, the parties will meet and confer regarding a schedule governing further proceedings following consolidation of the actions. Given the early stages of the legal proceedings, the Company is unable to evaluate the likelihood of an unfavorable outcome and/or the amount or range of potential loss.

 

On September 19, 2022, three Company employees and stockholders brought an action seeking to compel the Company to comply with its obligations under Delaware law to hold an annual meeting of stockholders for the purpose of electing directors. Plaintiffs have stayed this action until January 10, 2022. Given the early stages of the legal proceedings, the Company is unable to evaluate the likelihood of an unfavorable outcome and/or the amount or range of potential loss.

 

On October 20, 2022, FF received a subpoena from the SEC requiring FF to produce certain documents relating to FF’s transactions with Senyun International Ltd. FF intends to fully comply with the subpoena.

 

As of September 30, 2022 and December 31, 2021, the Company had accrued legal contingencies of $22,417 and $16,881, respectively, within Accrued expenses and other current liabilities, and Accounts Payable on the unaudited Condensed Consolidated Balance Sheets for potential financial exposure related to ongoing legal matters primarily related to breach of contracts and employment matters which are deemed both probable of loss and reasonably estimable. Accrued legal contingencies recorded to Accounts Payable relate to disputes with service providers, whereas legal contingencies recorded to Accrued expenses and other current liabilities include all other anticipated legal accruals.

 

26

 

 

Faraday Future Intelligent Electric Inc.

Notes to Condensed Consolidated Financial Statements

(in thousands, except share and per share data)

(Unaudited)

 

During the nine months ending September 30, 2022, the Company settled a legal dispute for breach of lease under which the Company was named a co-defendant, in a civil action case with the plaintiff seeking damages including unpaid rent, future unpaid rent, unpaid expenses, and unpaid taxes related to the lease for a total of $6,400. Pursuant to the settlement agreement, the Company agreed to pay $1,800 in cash in January 2022 and an additional $3,400 plus 5% interest in October 2022 and was liable for the remainder of the settlement, in the amount of $1,200, in the event the co-defendants failed to make the payment in January 2022. In January 2022, the Company made the initial settlement payment of $1,800 and was relieved of the liability of $1,200. As of the date of issuing these unaudited Condensed Consolidated Financial Statements, the Company has not made the additional $3,400 settlement and interest payments, as prescribed in the settlement agreement. On October 26, 2022, the plaintiff filed a motion to enforce the settlement agreement in the Superior Court of the State of California for the County of Santa Clara, seeking no material additional damages. Such hearing is scheduled for December 22, 2022.

 

Special Committee Investigation

 

As previously disclosed on November 15, 2021, the Company’s Board of Directors (the “Board”) established a special committee of independent directors (“Special Committee”) to investigate allegations of inaccurate Company disclosures, including those made in an October 2021 short seller report and whistleblower allegations, which resulted in the Company being unable to timely file its third quarter 2021 Quarterly Report on Form 10-Q, Annual Report on Form 10-K for the year ended December 31, 2021, first quarter 2022 Quarterly Report on Form 10-Q and amended Registration Statement on Form S-1 (File No. 333-258993) (the “Form S-1”). The Special Committee engaged outside independent legal counsel and a forensic accounting firm to assist with its review. On February 1, 2022, the Company announced that the Special Committee completed its review. On April 14, 2022, the Company announced the completion of additional investigative work based on the Special Committee’s findings which were performed under the direction of the Executive Chairperson, reporting to the Audit Committee. In connection with the Special Committee’s review and subsequent investigative work, the following findings were made:

 

In connection with the Business Combination, statements made by certain Company employees to certain investors describing the role of Yueting (“YT”) Jia, the Company’s founder and former CEO, within the Company were inaccurate and his involvement in the management of the Company post-Business Combination was more significant than what had been represented to certain investors.

 

The Company’s statements leading up to the Business Combination that it had received more than 14,000 reservations for the FF 91 vehicle were potentially misleading because only several hundred of those reservations were paid, while the others (totaling 14,000) were unpaid indications of interest.

 

Consistent with the Company’s previous public disclosures regarding identified material weaknesses in its internal control over financial reporting, the Company’s internal control over financial reporting requires an upgrade in personnel and systems.

 

The Company’s corporate culture failed to sufficiently prioritize compliance.

 

Mr. Jia’s role as an intermediary in leasing certain properties which were subsequently leased to the Company was not disclosed in the Company’s corporate housing disclosures.

 

In preparing the Company’s related party transaction disclosures, the Company failed to investigate and identify the sources of loans received from individuals and entities associated with Company employees.

 

In addition, the investigation found that certain individuals failed to fully disclose to individuals involved in the preparation of the Company’s SEC filings their relationships with certain related parties and affiliated entities in connection with, and following, the Business Combination, and failed to fully disclose relevant information, including but not limited to, information in connection with related parties and corporate governance to the Company’s former independent registered public accounting firm PricewaterhouseCoopers LLP.

 

The investigation also found that certain individuals failed to cooperate and withheld potentially relevant information in connection with the Special Committee investigation. Among such individuals were non-executive officers or members of the management team of FF, and remedial action was taken with respect to such individuals based on the extent of non-cooperation and/or withholding of information. The failure to cooperate with the investigation was taken into consideration in connection with the remedial actions outlined below with respect to Mr. Jiawei (“Jerry”) Wang, the Company’s former Vice President, Global Capital Markets, and withholding of information also affected the remedial action taken with respect to Mr. Matthias Aydt, Senior Vice President, Business Development and Product Definition and a director of the Company.

 

27

 

 

Faraday Future Intelligent Electric Inc.

Notes to Condensed Consolidated Financial Statements

(in thousands, except share and per share data)

(Unaudited)

 

Based on the results of the investigation, the Special Committee concluded that, except as described above, other substantive allegations of inaccurate FF disclosures that it evaluated, were not supported by the evidence reviewed. Although the investigation did not change any of the above findings with respect to the substantive allegations of inaccurate FF disclosures, the investigation did confirm the need for remedial actions to help ensure enhanced focus on compliance and disclosure within FF.

 

Based on the results of the Special Committee investigation and subsequent investigative work described above, the Board approved the following remedial actions designed to enhance oversight and corporate governance of the Company:

 

certain remedial actions designed to enhance oversight and corporate governance of the Company, namely the following:

 

the appointment of Ms. Swenson, a former member of the Board, to the then newly created position of Executive Chairperson of FF;

 

Carsten Breitfeld, FF’s Global Chief Executive Officer, reporting directly to Ms. Swenson and receiving a 25% annual base salary reduction;

 

the removal of Mr. Jia as an executive officer, although continuing in his position as Chief Product & User Ecosystem Officer of the Company. Certain dual-reporting arrangements were eliminated with respect to Mr. Jia, and he is required to report directly to Ms. Swenson, a non-independent director nominated by FF Top Holding LLC (“FF Top”). Mr. Jia also received a 25% annual base salary reduction, and his role was limited from a policy-making position to focusing on (a) Product and Mobility Ecosystem and (b) Internet, Artificial Intelligence, and Advanced R&D technology;

 

Mr. Matthias Aydt, Senior Vice President, Business Development and Product Definition and a director of the Company, being placed on probation as an executive officer for a six-month period, during which period he will remain as a non-independent member of the Board;

 

the appointment of Mr. Jordan Vogel as Lead Independent Director; certain changes to the composition of Board committees, including Brian Krolicki stepping down from his role as Chairman of the Board and Chair of the Nominating and Corporate Governance Committee and becoming a member of the Audit and Compensation Committees of the Board; Mr. Jordan Vogel stepping down from the Nominating and Corporate Governance Committee; and Scott Vogel becoming the Chair of the Audit Committee and the Nominating and Corporate Governance Committee of the Board;

 

the suspension without pay of Mr. Jiawei (“Jerry”) Wang, the Company’s former Vice President, Global Capital Markets, who subsequently notified the Board of his decision to resign from FF on April 10, 2022;

 

the assessment and enhancement of FF’s policies and procedures regarding financial accounting and reporting and the upgrading of FF’s internal control over financial accounting and reporting, including by hiring additional financial reporting and accounting support, in each case at the direction of the Audit Committee;

 

the implementation of enhanced controls around FF’s contracting and related party transactions, including regular attestations by FF’s employees with authority to bind FF to contracts and related party transactions, for purposes of enabling FF to make complete and accurate disclosures regarding related party transactions;

 

the hiring of a Chief Compliance Officer, who reports on a dotted line to the Chair of the Audit Committee, and assessing and enhancing FF’s compliance policies and procedures (and a search for a Chief Compliance Officer of FF is still pending as of the date of this Report);

 

the implementation of a comprehensive training program for all directors and officers regarding, among other things, internal FF policies;

 

the separation of Mr. Jarret Johnson, FF’s Vice President, General Counsel and Secretary; and

 

certain other disciplinary actions and terminations of employment with respect to other FF employees (none of whom is an executive officer).

 

28

 

 

Faraday Future Intelligent Electric Inc.

Notes to Condensed Consolidated Financial Statements

(in thousands, except share and per share data)

(Unaudited)

 

As of the date hereof, FF is continuing to implement the remedial actions approved by the Board. However, no assurance can be provided that such remedial measures will be implemented in a timely manner or will be successful to prevent inaccurate disclosures in the future.

 

SEC and DOJ Investigations

 

Subsequent to FF announcing the completion of the Special Committee investigation on February 1, 2022, FF, certain members of the management team and employees of FF received a notice of preservation and subpoena from the staff of the SEC stating that the SEC had commenced a formal investigation relating to the matters that were the subject of the Special Committee investigation. FF, which had previously voluntarily contacted the SEC in connection with the Special Committee investigation in October 2021, is cooperating fully with the SEC’s investigation. The outcome of such an investigation is difficult to predict. FF has incurred, and may continue to incur, significant expenses related to legal and other professional services in connection with the SEC investigation. At this stage, FF is unable to assess whether any material loss or adverse effect is reasonably possible as a result of the SEC’s investigation or estimate the range of any potential loss. In addition, in June 2022, FF received a preliminary request for information from the U.S. Department of Justice (“DOJ”) in connection with the matters that were the subject of the Special Committee investigation. FF has responded to that request and intends to fully cooperate with any future requests from the DOJ.

 

12. Stockholders’ Equity

 

The number of authorized, issued and outstanding stock, were as follows:

 

   September 30, 2022 
   Authorized
Shares
   Issued
Shares
 
Preferred Stock   10,000,000     
Class A Common Stock   750,000,000    345,794,368 
Class B Common Stock   75,000,000    64,000,588 
    835,000,000    409,794,956 

 

   December 31, 2021 
   Authorized
Shares
   Issued
Shares
   Shares to be
Issued
   Total Issued
and to be
Issued
Shares
 
Preferred Stock   10,000,000             
Class A Common Stock   750,000,000    168,693,323    89,152,130    257,845,453 
Class B Common Stock   75,000,000        64,000,588    64,000,588 
    835,000,000    168,693,323    153,152,718    321,846,041 

 

29

 

 

Faraday Future Intelligent Electric Inc.

Notes to Condensed Consolidated Financial Statements

(in thousands, except share and per share data)

(Unaudited)

Warrants

 

The number of outstanding warrants to purchase the Company’s Class A Common Stock as of September 30, 2022 and December 31, 2021 were as follows:

 

   Number of
Warrants
   Exercise
Price
   Expiration Date
Public Warrants (1)   23,375,988   $11.50   July 21, 2026
Private Warrants(2)   276,131    11.50   July 21, 2026
ATW NPA Warrants(3)   28,431,635    0.64   Various through August 10, 2028
Bridge Warrants(4)   42,342,839    0.71   Various through September 23, 2029
Other warrants   1,429,068    4.69   August 5, 2027
Total   95,855,661         

 

(1)On August 9, 2022, PSAC Sponsor transferred 398,420 Private Warrants to unaffiliated third-party purchasers on the open market. Upon such transfer the transferred warrants became subject to identical terms to the Public Warrants underlying the units offered in the initial public offering of PSAC. Therefore, upon their transfer the Company classified the warrants to APIC at their fair value.

 

(2)The Private Warrants are recorded in Other liabilities, less current portion in the unaudited Condensed Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021.

 

(3)On September 23, 2022, the Company and Purchasers of the ATW NPA Notes entered into an agreement to place a total of 31,118,718 outstanding warrants related to the Optional Notes and the June 2021 Notes (see Note 9, Notes Payable) into a warrant reserve with an exercise price now set to $0.6427 per warrant (“Warrant Reserve”). Upon the completion of certain milestones and conditions, the Company may elect a forced conversion clause settleable in cash through January 23, 2023 on the warrants, requiring the warrant holders to exercise their warrants on a cash basis in exchange for newly issued shares of the Company’s Class A Common Stock. The aggregate exercise price of the Warrant Reserve is $20,000. The remaining outstanding warrants not in the Warrant Reserve but also issued pursuant to the Optional Notes and the June 2021 Notes totaling 29,158,364 warrants, are agreed to have their exercise price set at $0.50 per warrant. As of the date the unaudited Consolidated Condensed Financial Statements were issued, the Company did not force the conversion of any of the warrants underlying the Warrant Reserve.

 

The amendment of the warrants issued pursuant to the Optional Notes and the June 2021 Notes, which set the exercise price to $0.50 per warrant, resulted in the recognition of expense of $1,238 in Change in fair value measurements in the unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2022.

 

(4)The Bridge Warrants are recorded in Accrued expenses and other current liabilities in the unaudited Condensed Consolidated Balance Sheets as of September 30, 2022. The warrants were issued pursuant to the SPA and recorded at fair value at each issuance date and at September 30, 2022.

 

The number of outstanding warrants to purchase the Company’s Class A Common Stock as of December 31, 2021 were as follows:

 

   Number of
Warrants
   Exercise
Price
   Expiration Date
Public Warrants   22,977,568   $11.50   July 21, 2026
Private Warrants(1)   674,551    11.50   July 21, 2026
Other warrants   4,544,258    10.00   Various through August 10, 2028
Total   28,196,377         

 

(1)The Private Warrants are recorded in Other liabilities, less current portion in the unaudited Condensed Consolidated Balance Sheet as of December 31, 2021.

 

30

 

 

Faraday Future Intelligent Electric Inc.

Notes to Condensed Consolidated Financial Statements

(in thousands, except share and per share data)

(Unaudited)

 

13. Stock-Based Compensation

 

2021 SI Plan

 

In July 2021, the Company adopted the 2021 Stock Incentive Plan (“2021 SI Plan”). The 2021 SI Plan allows the Board of Directors to grant up to 49,573,570 incentive and nonqualified stock options, restricted shares, unrestricted shares, restricted share units, and other stock-based awards for the Company’s Class A Common Stock to employees, directors, and non-employees. The number of shares of Class A Common Stock available under the 2021 SI Plan will increase annually on the first day of each calendar year, beginning with the calendar year ending December 31, 2022, and continuing until (and including) the calendar year ending December 31, 2031. Annual increases are equal to the lesser of (i) 5 percent of the number of shares of Class A Common Stock issued and outstanding on December 31 of the immediately preceding fiscal year and (ii) an amount determined by the Board of Directors. As of the effective date of the 2021 SI Plan, no further stock awards have been or will be granted under the EI Plan or STI Plan (defined below).

 

As of September 30, 2022, the Company had 43,410,364 shares of Class A Common Stock available for future issuance under its 2021 SI Plan.

 

A summary of the Company’s stock option activity under the SI Plan is as follows:

 

   Number of
Options
   Weighted
Average
Exercise
Price
   Weighted
Average
Remaining
Contractual Life (Years)
   Aggregate
Intrinsic
Value
 
Outstanding as of December 31, 2021                   
Granted   6,632,387    3.68           
Exercised                  
Cancelled/forfeited   (469,181)   5.32           
Outstanding as of September 30, 2022   6,163,206   $3.56    9.55   $     — 

 

The weighted-average assumptions used in the Black-Scholes option pricing model for awards granted during the nine months ended September 30, 2022 are as follows:

 

   September 30,
2022
   September 30,
2021
 
Risk-free interest rate:   2.46%   0.79%
Expected term (in years):   7.16    6.05 
Expected volatility:   42.17%   42.10%
Dividend yield:   0.00%   0.00%

 

As of September 30, 2022, the total remaining stock-based compensation expense for unvested stock options was $4,368, which is expected to be recognized over a weighted average period of 2.47 years.

 

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Faraday Future Intelligent Electric Inc.

Notes to Condensed Consolidated Financial Statements

(in thousands, except share and per share data)

(Unaudited)

 

EI Plan

 

On February 1, 2018, the Board of Directors adopted the Equity Incentive Plan (“EI Plan”), under which the Board of Directors authorized the grant of up to 42,390,000 incentive and nonqualified stock options, restricted stock, unrestricted stock, restricted stock units, and other stock-based awards for Legacy FF’s Class A Ordinary Stock to employees, directors, and non-employees.

 

A summary of the Company’s stock option activity under the EI Plan is as follows:

 

   Number of
Options
   Weighted
Average
Exercise
Price
   Weighted
Average
Remaining
Contractual Life (Years)
   Aggregate
Intrinsic
Value
 
Outstanding as of December 31, 2021   31,962,921   $2.81    7.77   $86,075 
Granted                   
Exercised   (1,606,795)   2.52         3,658 
Cancelled/forfeited   (5,083,652)   2.57           
Outstanding as of September 30, 2022   25,272,474   $2.82    7.17   $74 

 

As of September 30, 2022, the total remaining stock-based compensation expense for unvested stock options was $8,812, which is expected to be recognized over a weighted average period of 2.52 years.

 

STI Plan

 

The Special Talent Incentive Plan (“STI Plan”) allows the Board of Directors to grant up to 14,130,000 incentive and nonqualified stock options, restricted shares, unrestricted shares, restricted share units, and other stock-based awards for Legacy FF’s Class A Ordinary Stock to employees, directors, and non-employees.

 

The STI Plan does not specify a limit on the number of stock options that can be issued under the plan. Per the terms of the STI Plan, the Company must reserve and keep available a sufficient number of shares to satisfy the requirements of the STI Plan.

 

A summary of the Company’s stock option activity under the STI Plan is as follows:

 

   Number of
Options
   Weighted
Average
Exercise
Price
   Weighted
Average
Remaining
Contractual Life (Years)
   Aggregate
Intrinsic
Value
 
Outstanding as of December 31, 2021   9,526,727   $5.55    8.0   $13,905 
Granted                  
Exercised   (2,181,335)   2.5         1,678 
Cancelled/forfeited   (888,381)   8.04           
Outstanding as of September 30, 2022   6,457,011   $6.51    7.99   $ 

 

As of September 30, 2022, the total remaining stock-based compensation expense for unvested stock options was $5,630, which is expected to be recognized over a weighted average period of approximately 3.6 years.

 

The following table presents stock-based compensation expense included in each respective expense category in the unaudited Condensed Consolidated Statements of Operations and Other Comprehensive Loss:

 

   Three Months Ended
September 30,
   Nine Months Ended
September 30,
 
   2022   2021   2022   2021 
Research and development  $2,311   $1,879   $7,012   $2,873 
Sales and marketing   301    538    926    847 
General and administrative   707    2,636    1,855    4,801 
   $3,319   $5,053   $9,793   $8,521 

 

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Faraday Future Intelligent Electric Inc.

Notes to Condensed Consolidated Financial Statements

(in thousands, except share and per share data)

(Unaudited)

14. Net Loss per Share

 

Net Loss Per Share Attributable to Common Stockholders

 

Basic net loss per share attributable to common stockholders is calculated by dividing net loss attributable to common stockholders by the weighted-average number of shares issued and shares to be issued under the commitment to issue shares, as these shares are issuable for no consideration.

 

Diluted net loss per share attributable to common stockholders adjusts the basic net loss per share attributable to common stockholders and the weighted-average number of shares issued and shares to be issued under the commitment to issue shares for potentially dilutive instruments.

 

For purposes of presentation of basic and diluted net loss per share, the Company includes shares to be issued in the denominator in accordance with ASC 710-10-54-4 and ASC 260-10-45-48 as if they had been issued on the date of the merger, as such shares are non-contingent and are issuable for no consideration (see Note 3, Business Combination).

 

The net loss per common share was the same for the Class A and Class B Common Stock because they are entitled to the same liquidation and dividend rights and are therefore, combined on the unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2022 and 2021.

 

Because the Company reported net losses for all periods presented, all potentially dilutive Common Stock equivalents were determined to be antidilutive for those periods and have been excluded from the calculation of net loss per share.

 

The following table presents the number of anti-dilutive shares excluded from the calculation of diluted net loss per share as of the following dates:

 

   September 30,
2022
   September 30,
2021
 
Stock-based compensation awards – SI Plan   6,163,206     
Stock-based compensation awards – EI Plan   25,272,474    32,137,760 
Stock-based compensation awards – STI Plan   6,457,011    9,529,482 
Restricted stock awards       1,364,018 
Public Warrants   23,375,988    22,977,568 
Private Warrants   276,131    674,551 
ATW NPA Warrants   28,431,635    3,874,166 
Bridge Warrants   42,342,839     
Other Warrants   1,429,068    670,092 
ATW NPA Notes   8,982,677    9,009,210 
Bridge Notes   46,918,768     
Make-Whole Amount   32,954,973     
Total   222,604,770    80,236,847 

 

15. Subsequent Events

 

The Company evaluated subsequent events and transactions that occurred after the balance sheet date up to the date that the unaudited Condensed Consolidated Financial Statements were issued. Other than as described below and in Note 2, Liquidity and Capital Resources with respect to the Company entering into the SEPA, in Note 9, Notes Payable with respect to the Lien Security Agreement, the funding of the Fourth Bridge Notes, the First Senyun Funding Date and the Second Senyun Funding Date and in Note 11, Commitments and Contingencies with respect to certain legal matters, the Company did not identify any subsequent events that would have required adjustment or disclosure in the unaudited Condensed Consolidated Financial Statements.

 

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Faraday Future Intelligent Electric Inc.

Notes to Condensed Consolidated Financial Statements

(in thousands, except share and per share data)

(Unaudited)

 

Exchange Agreements

 

On October 10, 2022 and October 19, 2022, the Company exchanged $4,012 and $2,687, respectively, in aggregate principal amounts of the remaining outstanding ATW NPA Notes for 6,269,031 and 5,227,837 shares of Class A Common Stock, reflecting a price per share of Class A Common Stock of $0.64 and $0.51, respectively.

 

Third and Fourth Amendments to the SPA

 

On October 24, 2022, the Company entered into a Limited Consent and Third Amendment to the SPA (the “Third Amendment”), pursuant to which the maturity date for the Bridge Notes was extended from August 14, 2026 to October 27, 2028. In addition, pursuant to the Third Amendment, each Purchaser and the Agent waived certain defaults and events of default under the SPA, any notes issued pursuant to the SPA and other related documents.

 

On November 8, 2022, the Company entered into a Limited Consent and Amendment to the SPA (the “Fourth Amendment”), pursuant to which the parties agreed that (i) in no event will the effective conversion price of any interest or interest make-whole amount payable in shares of Class A Common Stock in respect of Bridge Notes issued or issuable under the SPA be lower than $0.21 per share of Class A Common Stock, and (ii) in order for the Company to make payment of any interest or interest make-whole amount in shares of Class A Common Stock, certain price and volume requirements must be met, namely that (x) the VWAP of the Class A Common Stock is not less than $0.21 per share on any trading day during the preceding seven trading day period, and (y) the total volume of the Class A Common Stock does not drop below $1,500 on any trading day during the same period (in each case, as adjusted for any stock splits, stock dividends, stock combinations, recapitalizations or other similar transactions).

 

Bridge Notes Conversions

 

Between November 10, 2022 and November 21, 2022, the Purchasers converted portions of the aggregate principal amount of the outstanding convertible notes of $13,500 of principal of Bridge Notes at a conversion price of $0.89 per share into 14,369,722 shares of Class A Common Stock with an additional 26,910,917 Class A Common Stock issued at conversion prices of $0.35 to $0.53 per share in accordance with Make-Whole Amount provisions.

 

Equity Awards

 

On October 15, 2022, the Board granted, under the 2021 SI Plan, 1,393,616 restricted stock units (“RSUs”), with a grant date value of $0.50, to certain non-executive employees of the Company.

 

On October 25, 2022, the Board granted, under the 2021 SI Plan, 1,379,310 RSUs, with a grant date value of $0.58, to Ms. Yun Han, the Company’s Chief Accounting Officer and Interim Chief Financial Officer. Ms. Han’s RSUs vest according to the following schedule: (a) 25% on the 30th day following the grant date; (b) 37.5% in four equal installments on each of the first four anniversaries of the grant date; and (c) 37.5% in three equal installments on each of the first three anniversaries of the start of production of FF 91.

 

Authorized Shares

 

As of the date of issuance of the unaudited Condensed Consolidated Financial Statements, and as a result of securing additional commitments subsequent to September 30, 2022, as described above, the Company does not have sufficient remaining authorized shares of Class A Common Stock to fulfill its obligation to issue shares upon exercise of all of the warrants and conversion of all of the notes issued or issuable under the NPA and SPA, or to pay interest Make-Whole Amounts in shares upon conversion of such notes. Under the SPA, each Purchaser has the option, from time to time until November 10, 2023, to purchase additional Tranche B Notes and warrants of the Company, subject to certain conditions, in an aggregate amount not to exceed the initial principal amount of the Bridge Notes and Incremental Notes issued to such Purchaser. Under the NPA, the Investors have a similar option to acquire additional Optional Notes and warrants of the Company, subject to certain conditions. If there is an insufficient number of remaining authorized shares of Class A Common Stock, the Company would be required to pay the interest “Make-Whole Amount” in cash, which could adversely affect the Company’s liquidity position, business and results of operations. At a special meeting of the Company’s stockholders held on November 3, 2022, the Company’s stockholders approved (among other proposals) a proposal to amend the Amended and Restated Charter to increase the Company’s authorized number of shares of common stock from 825,000,000 to 900,000,000 shares. In order to have a sufficient number of authorized shares of common stock to issue to the Purchasers and/or Investors pursuant to the NPA and SPA, the Company intends to call a subsequent special meeting to obtain stockholder approval to further increase the Company’s authorized shares of common stock.

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion and analysis is intended to help the reader understand FF’s results of operations and financial condition. This discussion and analysis is provided as a supplement to, and should be read in conjunction with FF’s unaudited Condensed Consolidated Financial Statements and Notes thereto included elsewhere in this quarterly report on Form 10-Q (this “Report”). Some of the information contained in this discussion and analysis or set forth elsewhere in this Report, including information with respect to FF’s plans and strategy for FF’s business, includes forward-looking statements that involve risks and uncertainties. FF’s actual results may differ materially from management’s expectations as a result of various factors, including but not limited to those discussed in the sections entitled “Risk Factors” in the Company’s Form 10-K, as updated by Part II, Item 1A of this Report and “Cautionary Note Regarding Forward Looking Statements” below. The objective of this section is to provide investors an understanding of the financial drivers and levers in FF’s business and describe the financial performance of the business.

 

Cautionary Note Regarding Forward-Looking Statements

 

This Report includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements can be identified by the use of forward-looking terminology, including the words “believes,” “estimates,” “anticipates,” “expects,” “intends,” “plans,” “may,” “will,” “potential,” “projects,” “predicts,” “continue,” or “should,” or, in each case, their negative or other variations or comparable terminology. There can be no assurance that actual results will not materially differ from expectations. Such statements include, but are not limited to, any statements relating to our financial and business performance, market acceptance and success of our business model, our ability to expand the scope of our offerings, and our ability to comply with the extensive, complex, and evolving regulatory requirements. These statements are based on management’s current expectations, but actual results may differ materially due to various factors.

 

The forward-looking statements contained in this Report are based on our current expectations and beliefs concerning future developments and their potential effects on us. Future developments affecting us may not be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control), and other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, those factors described under the section titled “Risk Factors” in the Form 10-K, in this Report. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. We undertake no obligation (and expressly disclaim any obligation) to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws. These risks and others described under the section titled “Risk Factors” in the Form 10-K, as updated in this Report may not be exhaustive.

 

By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and developments in the industry in which we operate may differ materially from those made in or suggested by the forward-looking statements contained in this Report. In addition, even if our results or operations, financial condition and liquidity, and developments in the industry in which we operate are consistent with the forward-looking statements contained in this Report, those results or developments may not be indicative of results or developments in subsequent periods.

 

Overview

 

Faraday Future Intelligent Electric, Inc. (together with its consolidated subsidiaries, “FF,” “the Company,” “we,” “us” or “our”) is a California-based, global, shared, intelligent, mobility ecosystem company founded in 2014 with a vision to disrupt the automotive industry.

 

On July 21, 2021 (the “Closing Date”), Faraday Future Intelligent Electric Inc. (f/k/a Property Solutions Acquisition Corp. (“PSAC”)), a Delaware corporation, consummated the previously announced business combination pursuant to that certain Agreement and Plan of Merger, dated as of January 27, 2021 (as amended, the “Merger Agreement”), by and among PSAC, PSAC Merger Sub Ltd., an exempted company with limited liability incorporated under the laws of the Cayman Islands and wholly-owned subsidiary of PSAC (“Merger Sub”), and Legacy FF. Pursuant to the terms of the Merger Agreement, Merger Sub merged with and into Legacy FF, with Legacy FF surviving the merger as a wholly-owned subsidiary of the Company (“Business Combination”).

 

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Upon the consummation of the Business Combination (“Closing”), PSAC changed its name from Property Solutions Acquisition Corp. to Faraday Future Intelligent Electric Inc. (“FF”) and FF’s Class A Common Stock and warrants (“Public Warrants”) originally issued in the initial public offering of PSAC began trading on The Nasdaq Global Select Market (“Nasdaq”) under the ticker symbols FFIE and FFIEW, respectively.

 

With headquarters in Los Angeles, California, FF designs and engineers next-generation, intelligent, connected, electric vehicles. FF intends to manufacture vehicles at its ieFactory California production facility in Hanford, California, with additional future production capacity needs addressed through a contract manufacturing agreement with Myoung Shin Co., Ltd., (“Myoung Shin”), an automotive manufacturer headquartered in South Korea. FF has additional engineering, sales, and operational capabilities in China and is exploring opportunities for potential manufacturing capabilities in China through a joint venture or other arrangement.

 

Since its founding, FF has created major innovations in technology, products, and a user-centered business model. FF believes these innovations will enable FF to set new standards in luxury and performance that will redefine the future of intelligent mobility.

 

FF’s innovations in technology include its proprietary Variable Platform Architecture (“VPA”), propulsion system, and Internet Artificial Intelligence (“I.A.I.”) system. We believe the following combination of capabilities of FF’s products, technology, team, and business model distinguish FF from its competitors:

 

FF has designed and developed a breakthrough mobility platform — its proprietary VPA.

 

FF’s propulsion system provides a competitive edge in acceleration and range, enabled by an expected industry-leading inverter design, and propulsion system.

 

FF’s advanced I.A.I. technology offers high-performance computing, high speed internet connectivity, Over the Air (“OTA”) updating, an open ecosystem for third-party application integration, and a Level 3 autonomous driving-ready system, in addition to several other proprietary innovations that enable FF to build an advanced, highly-personalized user experience.

 

Since inception, FF has developed a portfolio of intellectual property, established its proposed supply chain, and assembled a global team of automotive and technology experts and innovators to achieve its goal of redefining the future of the automotive industry. As of September 30, 2022, FF has been granted approximately 650 patents globally.

 

FF’s B2C (business-to-customer) passenger vehicle launch pipeline over the next five years includes the FF 91 series, the FF 81 series, and the FF 71 series.

 

FF believes that the FF 91 will be the first ultra-luxury EV to offer a highly-personalized, fully-connected user experience for driver and passengers. FF previously expected deliveries of the FF 91 series to begin in the fourth quarter of 2022. However, in light of its delayed timing in securing funding commitments needed to fund its projected use of cash, FF no longer expects to launch the FF 91 in the fourth quarter of 2022. The timing of launch of FF 91 vehicles is uncertain and remains subject to various conditions, many of which are outside of FF’s control, including the timing, size, and availability of additional financing as well as the implementation and effectiveness of FF’s headcount reductions and other expense reduction and payment delay measures. It is also subject to suppliers meeting their commitments on program deliverables including parts, and timely and successful certification testing.

 

Subject to future financing, FF plans to launch its second passenger vehicle, the FF 81, which will be a premium, mass-market electric vehicle positioned to compete against the Tesla Model S, Tesla Model X, the BMW 5-series, and the Nio ES8.

 

Subject to future financing, FF plans to develop a mass-market passenger vehicle, the FF 71. FF expects to launch the FF 71 subsequent to the launch of FF 81. The FF 71 will integrate full connectivity and advanced technology into a smaller vehicle size and is positioned to compete against the Tesla Model 3, Tesla Model Y, and the BMW 3-series.

 

Subject to future financing, FF plans to develop a Smart Last Mile Delivery (“SLMD”) vehicle to address the high-growth, last-mile delivery opportunity, particularly in Europe, China and the U.S. FF’s modular VPA facilitates entry into the last-mile delivery segment, allowing FF to expand its total addressable market and avenues of growth.

 

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FF has adopted a hybrid manufacturing strategy consisting of its refurbished manufacturing facility in Hanford, California and a collaboration with Myoung Shin. FF is also exploring other potential contract manufacturing options in addition to the contract manufacturing agreement in South Korea. FF is also exploring the possibility of manufacturing capacity in China through a joint venture or other arrangements. All passenger vehicles as well as the SLMD vehicle are expected to be available for sale in the U.S. and China. European markets may be added as early as 2024.

 

Emerging Growth Company Status

 

Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can choose not to take advantage of the extended transition period and comply with the requirements that apply to non-emerging growth companies. Any such election to not take advantage of the extended transition period is irrevocable.

 

FF is an “emerging growth company” as defined in Section 2(a) of the Securities Act of 1933, as amended, and has elected to take advantage of the benefits of the extended transition period for new or revised financial accounting standards. FF expects to continue to take advantage of the benefits of the extended transition period, although it may decide to early adopt such new or revised accounting standards to the extent permitted by such standards. This may make it difficult or impossible to compare our financial results with the financial results of another public company that is either not an emerging growth company or is an emerging growth company that has chosen not to take advantage of the extended transition period exemptions because of the potential differences in accounting standards used.

 

Segment Information

 

FF has determined that FF operates as one reportable segment, which is the design, development, manufacture, engineering, sale, and distribution of electric vehicles and related products in the global market.

 

Impact of COVID-19 on FF’s Business (in thousands)

 

There continues to be worldwide impact from the COVID-19 pandemic. The impact of COVID-19 includes changes in consumer and business behavior, pandemic fears, market downturns, restrictions on business, and individual activities have created significant volatility in the global economy and have led to reduced economic activity. The spread of COVID-19 has also created a disruption in the manufacture, delivery, and overall supply chain of vehicle manufacturers and suppliers and has led to a global decrease in vehicle sales in markets around the world.

 

The pandemic has resulted in government authorities implementing numerous measures to try to contain the virus, such as travel bans, restrictions, quarantines, stay-at-home or shelter-in-place orders, and business shutdowns. For example, FF’s employees based in California have been subject to stay-at-home orders from state and local governments. While the stay-at-home orders were lifted on June 15, 2021, FF continues to operate under various return-to-work protocols and must continue to follow certain safety and COVID-19 protocols. These measures may adversely impact FF’s employees and operations, the operations of FF’s suppliers and business partners, and could negatively impact the construction schedule of FF’s manufacturing facility and the production schedule of the FF 91. In addition, various aspects of FF’s business and manufacturing facility cannot be conducted remotely. These measures by government authorities may remain in place for a significant period of time and could adversely affect FF’s construction and manufacturing plans, sales and marketing activities, and business operations. The extent of the continuing impact of the COVID-19 pandemic on FF’s operational and financial performance is uncertain and will depend on many factors outside FF’s control, including, without limitation, the timing, extent, trajectory and duration of the pandemic; the availability, distribution and effectiveness of vaccines; the imposition of protective public safety measures; and the impact of the pandemic on the global economy, including FF’s supply chain, and on the demand for consumer products. Future measures taken by government authorities in response the COVID-19 pandemic could adversely affect FF’s construction and manufacturing plans, sales and marketing activities, and business operations.

 

In response to the pandemic, Congress passed the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) administered by the United States Small Business Administration (“SBA”). In 2020, Legacy FF received a Paycheck Protection Program (“PPP”) loan in the amount of $9,168. The Company was notified by East West Bank that a principal amount of $8,975 as well as accrued interest of $155 relating to the PPP Loan had been forgiven as of December 31, 2021. The Company paid an amount of $193 in April 2022 to settle the PPP loan.

 

The COVID-19 vaccine is currently being administered. Any resurgence may slow down FF’s ability to ramp-up FF’s production program on time to satisfy investors and potential customers. Any delay to production will delay FF’s ability to launch the FF 91 and begin generating revenue. The COVID-19 pandemic could limit the ability of FF’s suppliers and business partners to perform, including third-party suppliers’ ability to provide components and materials used in the FF 91. FF may also experience an increase in the cost of raw materials. FF does not anticipate any material impairments as a result of COVID-19; however, FF will continue to evaluate conditions on an ongoing basis. Even after the COVID-19 pandemic has subsided, FF may continue to experience an adverse impact to its business as a result of the global economic impact and any lasting effects on the global economy, including any recession that has occurred or may occur in the future. Refer to the section titled “Risk Factors” of the Form 10-K for a full discussion of the risks associated with the COVID-19 pandemic.

 

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Business Combination

 

On June 24, 2021, the registration statement on Form S-4 (File No. 333-255027), initially filed with the U.S. Securities and Exchange Commission (“SEC”) on April 5, 2021 (as amended, the “Registration Statement”), relating to the Business Combination was declared effective by the SEC, and (ii) PSAC established a record date of June 24, 2021 and a meeting date of July 21, 2021 for its special meeting of stockholders, where the Business Combination was approved. For purposes of the discussions in this section related to conversion on the Closing Date of all issued and outstanding Legacy FF Ordinary Stock into shares of Common Stock of FF in accordance with the terms and conditions of the Merger Agreement and the settlement of liabilities in conjunction with the closing of the Business Combination, we refer to that parties’ right to receive Class A and Class B Common Stock.

 

Recent Developments

 

FF accomplished the following major milestones during the three months ended September 30, 2022:

 

Announced that Mathias Hofmann, Head of Global Supply Chain, would assume the additional position of Head of Manufacturing Operations, on an interim basis.

 

Announced its sponsorship and attendance at the 2022 Pebble Beach Concours d’Elegance taking place from August 18-21, 2022. FF’s flagship FF 91 EV was available for demo rides and made a special appearance on the Concept Lawn on August 21, 2022.

 

Announced a joint partnership with Gameloft, a leader in the creation and development of games. FF’s first concept car, the FFZERO1, is featured inside Asphalt 8.

 

Announced the FF 91 Futurist, the Ultimate Intelligent TechLuxury EV, was officially certified to have a robust rating of 381 miles of EV range from the U.S. Environmental Protection Agency (“EPA”).

 

Announced that PricewaterhouseCoopers LLP (“PwC”) notified Faraday Future Intelligent Electric Inc. (the “Company”) that it would not stand for re-election as the Company’s independent registered public accounting firm for the year ending December 31, 2022 and, effective August 23, 2022, was no longer the Company’s independent registered public accounting firm.

 

Announced that a thorough independent external investigation found that allegations that certain directors were conspiring to pursue an unnecessary bankruptcy of the Company were without merit.

 

Announced an agreement relating to its governance dispute with FF Top. See Recent Governance Developments for more information.

 

Subsequent to September 30, 2022, FF accomplished these additional events and milestones:

 

Announced the resignation of Becky Roof, the Company’s former Interim Chief Financial Officer, resigned from the Company effective October 12, 2022. Ms. Roof’s departure from the Company followed the successful completion of key milestones in the Company’s SEC reporting and fundraising activities, and was not a result of any disagreement with the Company’s independent auditors or any member of Company management on any matter of accounting principles or practices, financial statement disclosure, or internal controls.

 

Appointed Yun Han as Chief Accounting Officer and Interim Chief Financial Officer, effective October 25, 2022. Ms. Yun Han was most recently Senior Vice President and Chief Accounting Officer of Romeo Power, Inc., and spent over 13 years with PwC. Ms. Yun Han is a Certified Public Accountant licensed in the State of California.

 

Appointed Mazars USA LLP as the Company’s independent registered public accounting firm as of and for the year ending December 31, 2022, effective October 27, 2022.

 

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Announced 369 pre-orders as of November 17, 2022. Pre-orders are fully refundable, non-binding, paid deposits for the FF 91 Futurist Alliance Edition and/or the FF 91 Futurist vehicles available initially for sale to customers in the U.S. and China. FF 91 Futurist Alliance Edition pre-orders require a $5,000 deposit for customers in the U.S. and an CNY 50,000 deposit for customers in China. FF 91 Futurist pre-orders require a $1,500 deposit for customers in the U.S. and an CNY 20,000 deposit for customers in China.

 

Announced the achievement of Production Milestone #6, completion of construction and equipment installation in final vehicle manufacturing areas at FF’s Hanford, California manufacturing facility (“ieFactory California”).

 

Announced the California Air Resources Board (CARB) has certified the FF 91 Futurist as a zero-emissions vehicle (ZEV). The ZEV program is part of CARB’s Advanced Clean Cars package of coordinated standards that control smog-causing pollutants and greenhouse gas emissions of passenger vehicles in California.

 

Recent Governance Developments

 

As previously disclosed, from June to September 2022, FF and FF Global Partners LLC (“FF Global”) were party to a dispute over various terms of the Shareholder Agreement as then in effect, including relating to FF Global’s right to remove its designees from the Board of Directors. On September 23, 2022, the Company, FF Global and FF Top entered into a governance settlement with FF Top, the largest holder of the Company’s Common Stock, including with respect to the composition of the Board, resignation of Ms. Susan Swenson and Mr. Brian Krolicki, and the appointment of Adam (Xin) He to the Board. In connection with the Heads of Agreement, on September 23, 2022, the Company and FF Global entered into a mutual release agreement (the “Mutual Release”), pursuant to which, the Company and FF agreed to a mutual general release of claims and to settle fully and finally all differences between them, including any differences that arose out of the Company directors’ service as a director, employee, officer or manager of the Company up through and including the date of the Mutual Release subject to customary exceptions. See “Governance Agreement with FF Top and FF Global” for more information. Pursuant to the Heads of Agreement, FF Top and FF Global caused all actions in the Court of Chancery of the State of Delaware, and any other forum, filed by FF Top, FF Global and/or any of their respective controlled affiliates as of the effective date of the Heads of Agreement, naming the Company or any of its directors or officers to be dismissed without prejudice as of September 27, 2022.

 

Shortly following the execution of the Heads of Agreement, FF Global began making additional demands of the Company which were beyond the scope of the terms contemplated by the Heads of Agreement and pertained to, among other things, the Company’s management reporting lines and certain governance matters. On September 30, 2022, FF Global alleged that the Company was in material breach of the spirit of the Heads of Agreement. The Company believes it is in full compliance with the Heads of Agreement and intends to comply with its terms, and disputes any characterization to the contrary. While the Company is in discussions with FF Global regarding these additional demands, such disputes divert management and Board resources and are costly. There can be no assurance that this or any other dispute between the Company and FF Global will not result in litigation. See “Item 1A. Risk Factors — Disputes with our shareholders are costly and distracting.”

 

On October 3, 2022, Ms. Swenson and Mr. Scott Vogel, a member of the Board, tendered their resignation from the Board effective immediately. On October 3, 2022, Mr. Jordan Vogel also tendered his resignation from the Board effective on October 5, 2022 upon his receipt of a supplemental release pursuant to the Mutual Release.

 

On October 14, 2022, FF Top delivered to the Company a “Notice of Nomination of Replacement FF Top Designees” stating, among other things, that FF Top was nominating Ms. Li Han to fill the vacancy on the Board left by Ms. Swenson’s resignation. FF Top asserted the right to nominate Ms. Li Han to fill the vacancy created by Ms. Swenson’s resignation because such resignation was not effected in accordance with the Heads of Agreement, and thus, the provision that Ms. Swenson’s seat would remain empty until the 2022 Annual General Meeting of Stockholders (the “2022 AGM”) did not apply. FF Top maintained that it believed that Ms. Swenson’s vacancy should be filled with a nominee of FF Top, notwithstanding the current level of FF Top’s beneficial ownership of the Company shares, in light of substantial dilution in its ownership of the Company shares based on recent financing transactions entered into by the Company. See “Governance Agreement with FF Top and FF Global” for more information.

 

On October 22, 2022, the Company and FF Top entered into the FF Top Amendment to the FF Top Voting Agreement. Pursuant to the FF Top Amendment, FF Top (among other things) reaffirmed its commitment under the FF Top Voting Agreement, in light of the extension of the maturity date of the Bridge Notes under the Third Amendment, to vote all of its shares of the Company voting stock in favor of the proposal to approve (for purposes of the NASDAQ listing rules) the issuance, in the aggregate, of shares in excess of 19.99% of the total issued and outstanding shares of the Company Common Stock pursuant to the Financing Documents at the special meeting of the Company’s stockholders held on November 3, 2022. FF Top’s obligations pursuant to the FF Top Amendment are conditioned on (i) the appointment of Mr. Chad Chen (or a substitute nominee, as applicable), in lieu of Ms. Li Han, to the Board of Directors of the Company as the fourth FF Top designee no later than October 27, 2022 (provided that Mr. Chen or a substitute nominee, as applicable, is reasonably acceptable to the Nominating and Corporate Governance Committee of the Board with respect to the Nasdaq independence rules and legal compliance and criminal compliance) (provided that if Mr. Chen is not so reasonably acceptable to the Nominating and Corporate Governance Committee of the Board, then FF Top will be permitted to nominate another individual to the Board); and (ii) constructive engagement by Mr. Adam (Xin) He, the Chairman of the Board, directly with representatives of FF Top on certain additional governance and management matters and, to the extent the Chairman of the Board so determines, in his discretion, such matters will be put to a discussion and a vote of the full Board. On October 27, 2022, Mr. Chad Chen was appointed to the Board. On October 28, 2022, Mr. Brian Krolicki tendered his resignation from the Board effective immediately.

 

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Recent Financing Developments

 

On August 14, 2022, the Company entered into a definitive Securities Purchase Agreement (“SPA”) with FF Simplicity Ventures LLC, an entity affiliated with ATW Partners LLC (“FF Simplicity”), for $52 million of committed near-term convertible senior secured notes financing and the potential for an additional $248 million of incremental senior secured convertible notes financing to be funded within 90 days after the initial closing. See Note 9, Notes Payable in FF’s unaudited Condensed Consolidated Financial Statements included above, and the Company’s Form 8-Ks filed with the SEC on August 15, 2022 for additional information.

 

On September 23, 2022, the Company entered into Amendment No. 1 to Securities Purchase Agreement and Convertible Senior Secured Promissory Notes (the “Amendment”) with its subsidiaries party thereto, FF Simplicity as administrative and collateral agent (in such capacity, the “Agent”) and purchaser and RAAJJ Trading LLC, as purchaser (together with FF Simplicity Ventures LLC, the “Purchasers”), to amend, among other things, (a) that certain Securities Purchase Agreement, dated as of August 14, 2022, by and among the Company, its subsidiaries party thereto, the Purchasers and the Agent (the “Existing SPA”), (b) that certain Convertible Senior Secured Promissory Note in favor of FF Simplicity in the principal amount of $25.0 million, dated as of August 15, 2022, and (c) that certain Convertible Senior Secured Promissory Note in favor of FF Simplicity in the principal amount of $10.0 million, dated as of September 14, 2022. Please refer to the Current Report on Form 8-K that was filed by the Company with the the SEC on August 15, 2022 for a description of the key terms of the Existing SPA.

 

On September 25, 2022, the Company entered into a Joinder and Amendment Agreement with Senyun International Ltd., an affiliate of Daguan International Limited (“Senyun”), FF Simplicity and RAAJJ Trading LLC (“RAAJJ”), for the purchase of up to $60 million under the SPA, subject to the completion of due diligence by the Company of Senyun and its financing sources. See Note 9, Notes-Payable for additional information.

 

Beginning on August 16, 2022, FF Aventuras SPV XI, LLC, FF Adventures SPV XVIII LLC, FF Ventures SPV IX LLC and FF Venturas SPV X LLC, entities affiliated with ATW Partners LLC (“Investors”), converted portions of the aggregate principal amount of the outstanding convertible notes issued by the Company in a private placement pursuant to a Second Amended and Restated Note Purchase Agreement, dated as of October 9, 2020 (as amended from time to time, the “NPA,” and such convertible notes issued under the NPA, the “ATW NPA Notes”), into shares of Class A Common Stock, as follows below:

 

Conversion Period  Total Principal Amount of
ATW NPA Notes Converted
(in thousands)
   Conversion Price  Total Number of Shares of
Class A Common Stock
Issued
 
August 16, 2022 to September 14, 2022  $67,218   $0.84 to $2.29   64,843,850 

 

On September 26, 2022, the Investors exercised 2,687,083 ATW NPA Warrants, each with an exercise price of $0.6427 per share, into an equivalent number of shares of Class A Common Stock, resulting in net cash exercise proceeds to the Company of $1.7 million.

 

On September 27, 2022, the Investors exercised 29,158,364 ATW NPA Warrants, each with an exercise price of $0.50 per share, on a cashless basis into 14,339,110 shares of Class A Common Stock.

 

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On October 10, 2022, the Company entered into an exchange agreement with the Investors, pursuant to which, on October 10, 2022, the Investors exchanged $4,012,180 in aggregate principal amount of the outstanding ATW NPA Notes for 6,269,031 newly issued shares of Class A Common Stock, reflecting a price per share of Class A Common Stock of $0.64.

 

On October 19, 2022, the Company and the Investors entered into an exchange agreement, pursuant to which, on October 19, 2022, the Investors exchanged $2,687,109 in aggregate principal amount of the outstanding ATW NPA Notes for 5,227,837 newly issued shares of the Class A Common Stock, reflecting a price per share of Class A Common Stock of $0.51. Following the completion of such exchange, there were no outstanding ATW NPA Notes.

 

Between November 10, 2022 and November 21, 2022, FF Simplicity and RAAJJ Trading LLC converted portions of the aggregate principal amount of the outstanding convertible notes of $13,500 issued by the Company pursuant to the SPA at a conversion price of $0.89 per share into 14,369,722 shares of Class A Common Stock with an additional 26,910,917 Class A Common Stock issued at conversion prices of $0.35 to $0.53 per share in accordance with Make-Whole Amount provisions, as defined in the SPA.

 

On November 14, 2022,the Company announced entry into a definitive Standby Equity Purchase Agreement (“SEPA”) for a new standby equity line of credit with an affiliate of Yorkville Advisors Global, LP (“Yorkville”), with an initial commitment of $200 million. Under the terms of the SEPA, Faraday Future will have the right, but not the obligation, to issue and sell to Yorkville up to $200 million in shares of the Company’s Class A common stock subject to customary conditions including an effective registration statement for the resale of such shares. The Company has the right to increase the $200 million commitment by up to $150 million in one or more installments. The shares will be sold to Yorkville at a discounted price of 97% of the 3-day volume-weighted average price at the time of funding, and generally limited to one-third of the Company’s trading volume during such time period. Additional information about the SEPA can be found in our 8-K filed on November 14, 2022.

 

Governance Agreement with FF Top and FF Global

 

As previously disclosed, beginning in June 2022 the Company was party to a dispute with FF Global, its largest stockholder, over various terms of the Shareholder Agreement (as then in effect), including relating to FF Global’s right to remove its designees from the Board. On September 23, 2022, the Company entered into the Heads of Agreement with FF Global and FF Top, pursuant to which, effective as of September 23, 2022, the Company (a) increased the size of the Board from nine to ten, (b) appointed Mr. He to fill the vacancy resulting from such increase in the size of the Board until the 2022 AGM, (c) appointed Mr. He to the Audit Committee and the Nominating and Corporate Governance Committee of the Board and (d) agreed to not remove Mr. He from either committee prior to the 2022 AGM. Pursuant to the Heads of Agreement, FF Top and FF Global caused all actions in the Court of Chancery of the State of Delaware, and any other forum, filed by FF Top, FF Global and/or any of their respective controlled affiliates as of the effective date of the Heads of Agreement, naming the Company or any of its directors or officers, to be dismissed without prejudice as of September 27, 2022. Pursuant to the Heads of Agreement, the Company, FF Global and FF Top agreed to the following matters, and have further agreed to work expeditiously, cooperatively and in good faith to draft, negotiate, execute and deliver definitive documentation, including an amendment to the Shareholder Agreement by no later than December 2, 2022 (or such later date as may be agreed by the Company, FF Global and FF Top in writing), with the Heads of Agreement constituting the binding agreement of the parties with respect to such matters unless and until such further definitive documentation is entered into:

 

the Company will call, convene, hold and complete the 2022 AGM on the earliest date permitted under Delaware law and applicable Nasdaq and SEC requirements;

 

the size of the Board will be reduced to seven members effective with the directors to be elected at the 2022 AGM;

 

the following individuals will be nominated for election to the Board and included on the Board’s recommended slate at the 2022 AGM: (a) Dr. Breitfeld, (b) three directors selected by FF Top, at least one of whom will be an independent director, and (c) three independent directors selected by a committee, consisting of Mr. He (the designee from the Nominating and Corporate Governance Committee of the Board reasonably acceptable to FF Top), Dr. Breitfeld and Mr. Chui Tin Mok (the individual designated by FF Top and reasonably acceptable to the Company) (the “Selection Committee”), from a pool of candidates recruited with the assistance of an executive search firm;

 

no re-nomination of existing directors of the Company (other than Dr. Breitfeld and Mr. He) at the 2022 AGM without the consent of the Selection Committee;

 

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FF Top’s right to maintain three FF Top-nominated directors on the Board through the Company’s 2026 annual general meeting of stockholders (subject to certain conditions) and thereafter the right to nominate directors to the Board based on the formula in the Shareholder Agreement between the Company and FF Top, in each case as long as FF Top maintains a Shareholder Share Percentage (as defined in the Shareholder Agreement) of at least five percent (5%); and

 

the resignation of Ms. Swenson and Mr. Krolicki as directors of the Company. It was also agreed that (i) Ms. Swenson and Mr. Krolicki would not thereafter seek or accept re-appointment, re-nomination or re-election to the Board and (ii) that following their resignations from the Board, their seats would be left empty until the 2022 AGM (which would result in the Company having an eight-person Board until the 2022 AGM).

 

On October 3, 2022, Ms. Swenson and Mr. Scott Vogel, a member of the Board, tendered their resignation from the Board effective immediately. On October 3, 2022, Mr. Jordan Vogel also tendered his resignation from the Board effective on October 5, 2022 upon his receipt of a supplemental release pursuant to the Mutual Release (described below). On October 28, 2022, Mr. Brian Krolicki tendered his resignation from the Board effective immediately.

 

As of November 17, 2022, the Company had executed $80 million in financing commitments toward satisfaction of the Implementation Condition, $19.5 million of which have been funded and made available for the Company’s general use.

 

In connection with the Heads of Agreement, on September 23, 2022, the Company entered into a Mutual Release (the “Mutual Release”) with FF Global, its executive committee members and their controlled affiliates, FF Global’s controlled affiliates (including FF Top), and the directors of the Company and their controlled affiliates (collectively, and together with the Company, the “Release Parties”), pursuant to which the Release Parties agreed to a mutual release of claims and to settle various matters among them, including with respect to any differences that arose out of the Company directors’ service as a director, employee, officer or manager of the Company up through and including the date of the Mutual Release, subject to customary exceptions.

 

As a result of the governance settlement described above, we expect that the composition of the Board will change substantially effective as of the completion of the 2022 AGM. See “Item 1A. Risk Factors– The composition of the Company’s Board has changed, and is expected to further change substantially prior to or immediately following completion of the 2022 AGM.” In addition, as a result of these developments, Mr. Jia and FF Global have strengthened their already significant influence over the Company. See “Item 1A. Risk Factors– Yueting Jia and FF Global, over which Mr. Jia exercises influence, have the ability to significantly influence the Company’s management, business and operations, and may use this ability in ways that are not aligned with the Company’s business or financial objectives or strategies or that are otherwise inconsistent with the Company’s interests. Such significant influence may increase if and to the extent the current members of the Board and management are removed and replaced with individuals who are aligned with Mr. Jia and/or FF Global.

 

Shortly following the execution of the Heads of Agreement, FF Global began making additional demands of the Company which were beyond the scope of the terms contemplated by the Heads of Agreement and pertained to, among other things, the Company’s management reporting lines and certain governance matters. On September 30, 2022, FF Global alleged that the Company was in material breach of the spirit of the Heads of Agreement. The Company believes it is in full compliance with the Heads of Agreement and intends to comply with its terms, and disputes any characterization to the contrary.

 

On October 14, 2022, FF Top delivered to the Company a “Notice of Nomination of Replacement FF Top Designees” stating, among other things, that FF Top was nominating Ms. Li Han to fill the vacancy on the Board left by Ms. Swenson’s resignation. FF Top asserted the right to nominate Ms. Li Han to fill the vacancy created by Ms. Swenson’s resignation because such resignation was not effected in accordance with the Heads of Agreement, and thus, the provision that Ms. Swenson’s seat would remain empty until the 2022 AGM did not apply. FF Top maintained that it believed that Ms. Swenson’s vacancy should be filled with a nominee of FF Top, notwithstanding the current level of FF Top’s beneficial ownership of the Company shares, in light of substantial dilution in its ownership of the Company shares based on recent financing transactions entered into by the Company.

 

On October 22, 2022, the Company and FF Top entered into the FF Top Amendment to the FF Top Voting Agreement. Pursuant to the FF Top Amendment, FF Top (among other things) reaffirmed its commitment under the FF Top Voting Agreement, in light of the extension of the maturity date of the Bridge Notes under the Third Amendment, to vote all of its shares of the Company voting stock in favor of the proposal to approve (for purposes of the Nasdaq listing rules) the issuance, in the aggregate, of shares in excess of 19.99% of the total issued and outstanding shares of the Company Common Stock pursuant to the Financing Documents at the special meeting of the Company’s stockholders held on November 3, 2022. FF Top’s obligations pursuant to the FF Top Amendment are conditioned on (i) the appointment of Mr. Chen (or a substitute nominee, as applicable), in lieu of Ms. Li Han, to the Board as the fourth FF Top designee no later than October 27, 2022 (provided that Mr. Chen or a substitute nominee, as applicable, is reasonably acceptable to the Nominating and Corporate Governance Committee of the Board with respect to the Nasdaq independence rules and legal compliance and criminal compliance) (provided that if Mr. Chen is not acceptable to the Nominating and Corporate Governance Committee of the Board, then FF Top will be permitted to nominate another individual to the Board); and (ii) constructive engagement by Mr. He, the Chairman of the Board, directly with representatives of FF Top on certain additional governance and management matters and, to the extent the Chairman of the Board so determines, in his discretion, such matters will be put to a discussion and a vote of the full Board. On October 27, 2022, Mr. Chen was appointed to the Board. On October 28, 2022, Mr. Krolicki tendered his resignation from the Board effective immediately.

 

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While the Company is in discussions with FF Global regarding these additional demands, such disputes divert management and Board resources and are costly. There can be no assurance that this or any other dispute between the Company and FF Global will not result in litigation. See “Item 1A. Risk Factors– Disputes with our stockholders are costly and distracting.

 

Financing Discussions and New Convertible Note and Warrant Financing

 

In order to fund its ongoing operations and business plan, including to launch the FF 91, FF is seeking to raise additional capital from various fundraising efforts currently underway. Although FF has successfully obtained commitments from several investors and continues financing discussions with multiple parties, FF has experienced delays in securing additional funding commitments relative to its business plan included in the Form 8-K filed on July 25, 2022, which have exacerbated the supply chain pressures on FF’s business. These factors, in addition to the continued rise in inflation and other challenging macroeconomic conditions, have led FF to take steps to preserve its current cash position, including implementing headcount reductions and other expense reduction and payment delay measures. Further efforts, including additional headcount reductions, may be undertaken in response to FF’s financial condition and market conditions. The timing of first deliveries of FF 91 vehicles is uncertain and is not expected to occur in 2022 and remains subject to various conditions, many of which are outside of FF’s control, including the timing, size, and availability of additional financing as well as the implementation and effectiveness of FF’s headcount reductions and other expense reduction and payment delay measures. It is also subject to suppliers meeting their commitments on program deliverables including parts, and timely and successful certification testing. There is no assurance FF will be able to raise sufficient funding to launch the FF 91, develop the manufacturing capabilities and processes, or secure reliable sources of component supply to meet the quality, engineering, design or production standards, or the required production volumes to successfully grow into a viable business.

 

FF is actively engaged in confidential discussions and negotiations with entities affiliated with FF Top and other potential investors with respect to purchasing incremental convertible senior secured notes on the same terms as FF Simplicity Ventures LLC under the SPA. There can be no assurance that FF will be able to successfully obtain additional incremental convertible senior secured note Purchasers under the SPA or other debt or equity financing in a timely manner or on acceptable terms, if at all. In particular, the Company is currently conducting due diligence on potential financing sources. This process has been time consuming and may result in the Company not being able to consummate any financing from these or other financing sources on a timely basis or at all. If we are unable to raise sufficient additional funds in the near term, we may be required to further delay our launch plans for the FF 91, reduce headcount, liquidate our assets, file for bankruptcy, reorganize, merge with another entity, and/or cease operations.

 

FF’s cash needs after the launch of the FF 91 will depend on the extent to which FF’s actual costs vary from FF’s estimates and FF’s ability to control these costs and raise additional funds. Any challenges in supplier engagements, delays in ramping capacity or labor at the Hanford facility or for sales and service engagements, rising prices of materials, or ongoing global supply chain disruptions may further increase the need for additional capital to launch the FF 91 series. In particular, recently, some suppliers have threatened to terminate their relationship with the Company because of late payments or requested accelerated payments and other terms and conditions as a result of our past payment history and concerns about the Company’s financial condition, leading to less favorable payment terms than the Company had anticipated, and delaying or putting at risk certain deliveries. FF is in active negotiations with these suppliers to minimize these risks. Apart from the FF 91 series, substantial additional capital will be required to fund operations, research, development, and design efforts for future vehicles.

 

Components of FF’s Results of Operations

 

Key Factors Affecting Operating Results (in thousands)

 

FF’s performance and future success depend on several factors that present significant opportunities but also pose risks and challenges including those discussed below and in the section titled “Risk Factors” in the Form 10-K, as updated in this Report.

 

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Faraday Future Vehicle Launch

 

FF expects to derive revenue from the sale of the FF 91. FF previously expected deliveries of the FF 91 series to begin in the fourth quarter of 2022. However, in light of delayed timing in securing funding commitments needed to fund its projected use of cash, FF no longer expects to begin deliveries of the FF 91 in the fourth quarter of 2022. The timing of first deliveries of FF 91 vehicles is uncertain and is not expected to occur in 2022 and remains subject to various conditions, many of which are outside of FF’s control, including the timing, size, and availability of additional financing as well as the implementation and effectiveness of FF’s headcount reductions and other expense reduction and payment delay measures. It is also subject to suppliers meeting their commitments on program deliverables including parts, and timely and successful certification testing. FF plans to manufacture the FF 91 in its own manufacturing facility in Hanford, California. The FF 81, FF 71, and SLMD electric vehicle models are in various stages of development and are planned to be released after the FF 91.

 

Production and Operations

 

FF expects to continue to incur significant operating costs that will impact its future profitability, including research and development expenses as it introduces new models and improves existing models; capital expenditures for the expansion of its manufacturing capacities; additional operating costs and expenses for production ramp-up; raw material procurement costs; general and administrative expenses as it scales its operations; interest expense from debt financing activities; and selling and distribution expenses as it builds its brand and markets its vehicles. FF may incur significant costs in connection with its services once it delivers the FF 91, including servicing and warranty costs. FF’s ability to become profitable in the future will depend on its ability to successfully market its vehicles and control its costs.

 

To date, FF has not yet sold any electric vehicles. As a result, FF will require substantial additional capital to develop products and fund operations for the foreseeable future. Until FF can generate sufficient revenue from product sales, FF will fund its ongoing operations through a combination of various funding and financing alternatives, including equipment leasing and construction financing of the Hanford, California, ieFactory California, manufacturing facility, secured syndicated debt financing, convertible notes, working capital loans, and equity offerings, among other options. The particular funding mechanisms, terms, timing, and amounts are dependent on the Company’s assessment of opportunities available in the marketplace and the circumstances of the business at the relevant time. Any delays in the successful completion of its ieFactory California manufacturing facility will impact FF’s ability to generate revenue. For additional discussion of the substantial doubt about FF’s ability to continue as a going concern, see Note 2, Liquidity and Capital Resources in the notes to the unaudited Condensed Consolidated Financial Statements and for further details on liquidity, please see the “Liquidity and Capital Resources” section below.

 

Revenues

 

FF is a development stage company and has not generated any revenue to date. FF’s anticipated introduction of the FF 91, its first vehicle launch, is expected to generate the majority of FF’s future revenue while other vehicles are in development.

 

Operating Expenses

 

Research and Development

 

Research and development activities represent a significant part of FF’s business. FF’s research and development efforts focus on the design and development of FF’s electric vehicles and continuing to prepare its prototype electric vehicles to exceed industry standards for compliance, innovation, and performance. Research and development expenses consist of personnel-related costs (including salaries, bonuses, benefits, and stock-based compensation) for FF’s employees focused on research and development activities, other related costs, depreciation, and an allocation of overhead. FF expects research and development expenses to increase as FF continues to develop its vehicles. FF anticipates an increase in activities in the U.S. and China, where FF’s research and development operations are primarily located.

 

Sales and Marketing

 

Sales and marketing expenses consist primarily of personnel-related costs (including salaries, bonuses, benefits, and stock-based compensation) for FF’s employees focused on sales and marketing, costs associated with sales and marketing activities, and an allocation of overhead. Marketing activities are those related to introducing FF’s brand and its electric vehicle prototypes to the market. FF expects selling and marketing expenses to continue to increase as FF brings its electric vehicles to market and seeks to generate sales.

 

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General and Administrative

 

General and administrative expenses consist primarily of personnel-related costs, (including salaries, bonuses, benefits, and stock-based compensation) for employees associated with administrative services such as legal, human resources, information technology, accounting and finance, other related costs, and legal loss contingency expenses, which are FF’s estimates of future legal settlements. These expenses also include certain third-party consulting services, certain facilities costs, and any corporate overhead costs not allocated to other expense categories. FF expects its general and administrative expenses to increase as FF continues to grow its business. FF also anticipates that it will incur additional costs for employees and third-party consulting services now that it operates as a public company.

 

Loss on Disposal of Property and Equipment

 

Loss on disposal of property and equipment relates to the abandonment of certain FF 91 program construction in progress assets, primarily vendor tooling, machinery, and equipment, due to the redesign of the related FF 91 components and implementation of FF’s cost reduction program. Charges associated with disposals are recognized within operating expenses in the unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss.

Non-operating Expenses

 

Change in Fair Value Measurements

 

Change in fair value measurements consists of the losses and gains as a result of fair value measurements of certain financial instruments which FF records at fair value. Changes in fair value measurement of related party notes payable and notes payable have decreased following the Business Combination as the majority of the liabilities converted to equity or were paid in cash.

 

Related Party Interest Expense

 

Related party interest expense consists of interest expense on notes payable with related parties. Related party interest expense has decreased relative to prior periods, as the majority of related party notes payable converted to equity upon completion of the Business Combination.

 

Interest Expense

 

Interest expense primarily consists of interest on outstanding notes payable, capital leases, certain supplier payables, and vendor payables in trust. Interest expense decreased as the majority of notes payable and vendor payables in trust were either settled in cash or converted to equity upon completion of the Business Combination.

 

Other Expense, net

 

Other expense, net consists of foreign currency transaction gains and losses and other expenses such as bank fees and late charges. Foreign currency transaction gains and losses are generated by revaluation of debt and the settlements of invoices denominated in currencies other than the functional currency. FF expects other expense to fluctuate as FF continues to transact internationally.

 

Loss on Extinguishment or Settlement of Related Party Notes Payable, Notes Payable and Vendor Payables in Trust, net

 

Loss on extinguishment or settlement of related party notes payable, notes payable, and vendor payables in trust, net consists of losses resulting from the settlement of related party notes payable, notes payable, and vendor payables in trust in connection with the Business Combination.

 

Results of Operations (in thousands) (Unaudited)

 

FF has not generated any revenue from the design, development, manufacturing, engineering, sale, or distribution of its electric vehicles. Please refer to the section “Risk Factors” in the Form 10-K, as updated in this Report for a full discussion on the risks and uncertainties related to costs.

 

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Comparison of the Three Months Ended September 30, 2022 and 2021

 

   Three Months Ended
September 30,
 
   2022   2021 
Consolidated Statements of Operations        
Operating expenses        
Research and development  $48,062   $79,757 
Sales and marketing   3,888    6,832 
General and administrative   28,655    36,725 
Loss on disposal of property and equipment       62,342 
Total operating expenses   80,605    185,656 
           
Loss from operations   (80,605)   (185,656)
Change in fair value measurements   (6,966)   (22,747)
Interest expense   (663)   (296)
Related party interest expense   (996)   (1,597)
Other (expense) income, net   (6,457)   1,117 
Loss on extinguishment or settlement of related party notes payable, notes payable and vendor payables in trust, net   (7,690)   (94,727)
Loss before income taxes   (103,377)   (303,906)
Income tax provision        
Net loss  $(103,377)  $(303,906)

 

Research and Development

 

   Three Months Ended
September 30,
   Change 
   2022   2021   Amount   % 
Research and development  $48,062   $79,757   $(31,695)   (40)%

 

The decrease in research and development expense of $31,695 was primarily due to the occurrence of expense in the three months ended September 30, 2021, related to a non-exclusive, perpetual, irrevocable, and sublicensable license to use an electric vehicle manufacturing platform owned by Liankong, a subsidiary of Geely Holdings, for $50,000, reserve for unrecoverable value added taxes of $2,984, and expense associated with the grant of restricted stock awards issued as a bonus to employees and other service providers in connection with the closing of the Business Combination of $6,061 with no comparable activity in the three months ended September 30, 2022. The decrease is further derived from a $5,985 reduction in bonus accruals given the Company’s liquidity needs and as part of the implementation of costs saving measures. These decreases were partially offset by higher expenses for engineering, design, and testing (“ED&T”) services of $13,991, professional services of $8,363 and employee compensation related expenses of $11,795, incurred to support the development of the FF 91.

 

Sales and Marketing

 

   Three Months Ended
September 30,
   Change 
   2022   2021   Amount   % 
Sales and marketing  $3,888   $6,832   $(2,944)   (43)%

 

The decrease in sales and marketing expense of $2,944 was primarily due to the occurrence of expense in the three months ended September 30, 2021, related to restricted stock awards issued as a bonus to employees and other service providers in connection with the closing of the Business Combination of $1,797, with no comparable activity in the three months ended September 30, 2022, lower allocations of overhead expenses based on headcount of $1,526, and a decrease in marketing-related expenses due to the implementation of cost saving measures of $706, partially offset by an increases in employee compensation and related expenses of $794 and stock-based compensation expense of $278 due to an increase in headcount.

 

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General and Administrative

 

   Three Months Ended
September 30,
   Change 
   2022   2021   Amount   % 
General and administrative  $28,655   $36,725   $(8,070)   (22)%

 

The decrease in general and administrative expense of $8,070 was primarily related to restricted stock awards issued as a bonus to employees and other service providers in connection with the closing of the Business Combination of $1,797 during the three months ended September 30, 2021, with no comparable activity in the three months ended September 30, 2022, lower accruals for legal contingencies of $18,753, and lower allocated expenses resulting from cost reduction initiatives of $1,431, partially offset by an increase in professional services primarily related to the Special Committee investigation, financing efforts and governance matters totaling $26,049, an increase in information technology related expense, including software licenses, of $688, and an increase in employee benefits and stock compensation of $647 and $301, respectively, both due to an increase in headcount.

 

Loss on disposal of property and equipment

 

   Three Months Ended
September 30,
   Change 
   2022   2021   Amount   % 
Loss on disposal of property and equipment  $   $62,342   $(62,342)   (100)%

 

During the three months ended September 30, 2021, the Company wrote off $62,342 relating to the abandonment of certain construction in progress FF 91 program assets, primarily vendor tooling, machinery and equipment, due to the redesign of the related FF 91 components and implementation of FF’s cost reduction program. For the three month period ended September 30, 2022, there was no comparable activity.

 

Change in Fair Value Measurements

 

   Three Months Ended
September 30,
   Change 
   2022   2021   Amount   % 
Change in fair value measurements  $(6,966)  $(22,747)  $15,781    69%

 

The change in fair value measurements for the three months ended September 30, 2022 is primarily due to notes payable that were measured at fair value in the comparative period in 2021 and were converted during 2022, partially offset by the issuance of new notes during the period which contained significant original issue discounts and favorable conversion features, resulting in a charge to fair value measurement expense.

 

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Interest Expense

 

   Three Months Ended
September 30,
   Change 
   2022   2021   Amount   % 
Interest expense  $(663)  $(296)  $(367)   (124)%

 

The increase in interest expense during the three months ended September 30, 2022, was due to the Company issuing new notes in the principal amount of $44,500, partially offset by a reduction in capital lease interest charges as a result of the successful sale leaseback transaction of the Company’s Gardena, California headquarters in the three months ended December 31, 2021 and principal balances totaling $85,193 which were settled in the three months ended March 31, 2022.

 

Related Party Interest Expense

 

   Three Months Ended
September 30,
   Change 
   2022   2021   Amount   % 
Related party interest expense  $(996)  $(1,597)  $601    38%

 

The decrease in related party interest expense for the three months ended September 30, 2022 as compared to the same period in 2021 was primarily due to the Company’s settlement of $91,420 principal amounts of related party notes payable upon closing of the Business Combination in July 2021, which accrued interest from July 1, 2021, to July 21, 2021.

 

Other Expense, Net

 

   Three Months Ended
September 30,
   Change 
   2022   2021   Amount   % 
Other (expense) income, net  $(6,457)  $1,117   $(7,574)   NM 

 

The change in Other (expense) income, net of $7,574 was primarily due to foreign currency transaction losses of $5,986 in the three months ended September 30, 2022, resulting from the revaluation of transactions denominated in currencies other than local currencies, including $3,026 related to vendor deposits paid by the U.S. operations, franchise, other taxes and bank fees of $448 and penalties related to late vendor payments of $405.

 

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Loss on extinguishment or settlement of related party notes payable, notes payable and vendor payables in trust, net

 

   Three Months Ended
September 30,
   Change 
   2022   2021   Amount   % 
Loss on extinguishment or settlement of related party notes payable, notes payable and vendor payables in trust, net  $(7,690)  $(94,727)  $87,037    92%

 

The loss in the three months ended September 30, 2022 represents an extinguishment due to the change in the conversion price relating to an amendment to convertible notes issued during the period. The loss in the three months ended September 30,2021 represents the conversion of certain related party notes payable, notes payable, and vendor payables in trust to equity at $10 per share which was below the fair value of the stock on the date of conversion in connection with the closing of the Business Combination.

 

Comparison of the Nine Months Ended September 30, 2022 and 2021

 

   Nine Months Ended
September 30,
 
   2022   2021 
Consolidated Statements of Operations        
Operating expenses        
Research and development  $260,221   $94,506 
Sales and marketing   16,272    11,099 
General and administrative   89,173    64,148 
Loss on disposal of property and equipment   1,407    62,987 
Total operating expenses   367,073    232,740 
           
Loss from operations   (367,073)   (232,740)
Change in fair value measurements   (622)   (60,394)
Interest expense   (5,537)   (26,550)
Related party interest expense   (2,931)   (15,765)
Other expense, net   (14,307)   (718)
Loss on extinguishment or settlement of related party notes payable, notes payable and vendor payables in trust, net   (7,690)   (96,036)
Loss before income taxes   (398,160)   (432,203)
Income tax provision   (9)   (3)
Net loss  $(398,169)  $(432,206)

  

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Research and Development

 

   Nine Months Ended
September 30,
   Change 
   2022   2021   Amount   % 
Research and development  $260,221   $94,506   $165,715    175%

 

The increase in research and development expense was primarily due to the increase in ED&T services of $153,954 and professional services related expense of $12,224 as the Company re-engaged suppliers and made significant purchases of ED&T services to progress the development of the FF 91; an increase in personnel and compensation related expenses and stock-based compensation expenses due to increased headcount of $45,382 and $5,871, respectively; an increase in information technology related expense due to increases in business activities and headcount of $7,896, partially offset by a decrease in general expenses of $57,365, primarily due to expensing a one-time amount of $50,000 for a non-exclusive, perpetual, irrevocable, and sublicensable license to use a platform owned by Liankong, a subsidiary of Geely Holdings, and recognition of restricted stock awards issued as a bonus to employees and other service providers in connection with the closing of the Business Combination during the nine months ended September 30, 2022, of $6,061.

 

Sales and Marketing

 

   Nine Months Ended
September 30,
   Change 
   2022   2021   Amount   % 
Sales and marketing  $16,272   $11,099   $5,173    47%

 

The increase in sales and marketing expense was primarily due to an increase in personnel and compensation related expenses of $6,703, stock-based compensation expense of $593 and employee benefits relates expenses of $489 due to an increase in headcount; an increase in marketing expenses due to an increase in marketing efforts of $614 and an increase in rent relates expense of $865 due to increase in business activity, partially offset by primarily restricted stock awards issued as a bonus to employees and other service providers in connection with the closing of the Business Combination during the nine months ended September 30, 2022 and other overhead expenses of $3,408 and a decrease in professional services related expenses of $644.

 

General and Administrative

 

   Nine Months Ended
September 30,
   Change 
   2022