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 | |||||
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
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||
(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 | ||||||
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 | ☐ | ||||||||
| ☒ | 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 1,076,721,342 shares of Class A common stock and 64,000,588 shares of Class B common stock as of May 5, 2023.
Table of Contents
INDEX TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| Pages | ||||||||
| FARADAY FUTURE INTELLIGENT ELECTRIC INC. | ||||||||
| 5 | ||||||||
2
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)
| March 31, 2023 | December 31, 2022 | ||||||||||
| Assets | |||||||||||
| Current assets | |||||||||||
| Cash | $ | $ | |||||||||
| Restricted cash | |||||||||||
| Deposits | |||||||||||
| Other current assets | |||||||||||
| Total current assets | |||||||||||
| Property and equipment, net | |||||||||||
| Operating lease right-of-use assets | |||||||||||
| Other non-current assets | |||||||||||
| Total assets | $ | $ | |||||||||
| Liabilities and stockholders’ equity | |||||||||||
| Current liabilities | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Accrued expenses and other current liabilities | |||||||||||
| Bridge Warrants | |||||||||||
| Accrued interest | |||||||||||
| Related party accrued interest | |||||||||||
| Operating lease liabilities, current portion | |||||||||||
| Finance lease liabilities, current portion | |||||||||||
| Related party notes payable | |||||||||||
| Notes payable, current portion | |||||||||||
| Total current liabilities | |||||||||||
| Finance lease liabilities, less current portion | |||||||||||
| Operating lease liabilities, less current portion | |||||||||||
| Other liabilities | |||||||||||
| Notes payable, less current portion | |||||||||||
| Total liabilities | |||||||||||
| Commitments and contingencies (Note 11) | |||||||||||
| Stockholders’ equity | |||||||||||
Class A Common Stock, $ | |||||||||||
Class B Common Stock, $ | |||||||||||
| Additional paid-in capital | |||||||||||
| Accumulated other comprehensive gain | |||||||||||
| Accumulated deficit | ( | ( | |||||||||
| Total stockholders’ equity | |||||||||||
| Total liabilities and stockholders’ equity | $ | $ | |||||||||
The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.
3
Faraday Future Intelligent Electric Inc.
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
(in thousands, except share and per share )
(Unaudited)
| Three Months Ended March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Operating expenses | |||||||||||
| Research and development | $ | $ | |||||||||
| Sales and marketing | |||||||||||
| General and administrative | |||||||||||
| Loss on disposal of property and equipment | |||||||||||
| Total operating expenses | |||||||||||
| Loss from operations | ( | ( | |||||||||
| Change in fair value measurements | |||||||||||
| Loss on settlement of notes payable | ( | ||||||||||
| Interest expense | ( | ( | |||||||||
| Related party interest expense | ( | ( | |||||||||
| Other income (expense), net | ( | ||||||||||
| Income (loss) before income taxes | ( | ||||||||||
| Income tax provision | |||||||||||
| Net income (loss) | $ | $ | ( | ||||||||
| Per share information: | |||||||||||
| Net income (loss) per share of Common Stock attributable to common stockholders: | |||||||||||
| Basic | $ | $ | ( | ||||||||
| Diluted | ( | ( | |||||||||
| Weighted average shares used in computing net income (loss) per share of Common Stock: | |||||||||||
| Basic | |||||||||||
| Diluted | |||||||||||
| Total comprehensive income (loss): | |||||||||||
| Net income (loss) | $ | $ | ( | ||||||||
| Change in foreign currency translation adjustment | ( | ( | |||||||||
| Total comprehensive income (loss) | $ | $ | ( | ||||||||
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
(in thousands, except share and per share data)
(Unaudited)
| Common Stock | Additional Paid-in Capital | Accumulated Other Comprehensive Gain (Loss) | Accumulated Deficit | Total Stockholders’ Equity | ||||||||||||||||||||||||||||||||||||||||||||||
| Class A | Class B | |||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||||||
Balance as of December 31, 2022 | $ | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||||||
| Conversion of notes payable and accrued interest into Class A Common Stock (Note 9) | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Change in classification of warrants from Additional paid-in capital to liability pursuant to the Warrant Exchange (Note 9) | — | — | — | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||
| Reclassification of earnout shares liability to equity as part of authorized share increase | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Reclassification of liability for insufficient authorized shares related to stock options and RSUs | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Exercise of warrants | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Exercise of stock options | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Issuance of shares for RSU vesting | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Foreign Currency translation adjustment | — | — | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
Balance as of March 31, 2023 | $ | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||||||
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
(in thousands, except share and per share data)
(Unaudited)
| Commitment to Issue Class A Common Stock | Common Stock | Additional Paid-in Capital | Accumulated Other Comprehensive Loss | Accumulated Deficit | Total Stockholders’ Equity (Deficit) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Class A | Class B | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance as of December 31, 2021 | $ | $ | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Reclassification of obligation to issue registered shares of Class A Common Stock upon adoption of ASU 2020-06 (Note 7) | — | — | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Reclassification of deferred gain upon adoption of ASC 842 | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of shares pursuant to the commitment to issue Class A and Class B Common Stock (Note 3) | — | — | ( | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Exercise of stock options | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | — | — | — | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance as of March 31, 2022 | $ | $ | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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)
| Three Months Ended March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Cash flows from operating activities | |||||||||||
| Net income (loss) | $ | $ | ( | ||||||||
| Adjustments to reconcile net loss to net cash used in operating activities | |||||||||||
| Depreciation and amortization expense | |||||||||||
| Stock-based compensation | |||||||||||
| Loss on disposal of property and equipment | |||||||||||
| Change in fair value measurement of related party notes payable and notes payable | ( | ( | |||||||||
| Change in fair value measurement of warrant liability | ( | ||||||||||
| Change in fair value measurement of earnout liability | |||||||||||
| Amortization of operating lease right-of-use assets and intangible assets | |||||||||||
| Loss on foreign exchange | |||||||||||
| Non-cash interest expense | |||||||||||
| Loss on settlement of notes payable | |||||||||||
| Other | |||||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Deposits | ( | ||||||||||
| Other current and non-current assets | |||||||||||
| Accounts payable | ( | ||||||||||
| Accrued expenses and other current liabilities | ( | ||||||||||
| Operating lease liabilities | ( | ( | |||||||||
| Accrued interest expense | ( | ( | |||||||||
| Net cash used in operating activities | $ | ( | $ | ( | |||||||
| Cash flows from investing activities | |||||||||||
| Payments for property and equipment | ( | ( | |||||||||
| Net cash used in investing activities | $ | ( | $ | ( | |||||||
| Cash flows from financing activities | |||||||||||
| Proceeds from notes payable, net of original issuance discount | |||||||||||
| Proceeds from exercise of warrants | |||||||||||
| Payments of notes payable | ( | ( | |||||||||
| Settlement of notes payable transaction costs | ( | ||||||||||
| Payments of finance lease obligations | ( | ( | |||||||||
| Proceeds from exercise of stock options | |||||||||||
| Net cash (used in) provided by financing activities | $ | $ | ( | ||||||||
| Effect of exchange rate changes on cash and restricted cash | ( | ||||||||||
| Net (decrease) increase in cash and restricted cash | $ | $ | ( | ||||||||
| Cash and restricted cash, beginning of period | |||||||||||
| Cash and restricted cash, end of period | |||||||||||
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:
7
Faraday Future Intelligent Electric Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
| Three Months Ended March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Cash | $ | $ | |||||||||
| Restricted cash | |||||||||||
| Total cash and restricted cash, end of period | $ | $ | |||||||||
| Supplemental disclosure of cash flow information | |||||||||||
| Cash paid for interest | $ | $ | |||||||||
| Supplemental disclosure of noncash investing and financing activities | |||||||||||
| Additions of property and equipment included in accounts payable and accrued expenses | $ | $ | |||||||||
| Reclassification of liability for insufficient authorized shares related to stock options and RSUs | |||||||||||
| Reclassification of earnout shares liability to equity as part of authorized share increase | |||||||||||
| Conversion of notes payable and accrued interest into Class A Common Stock | |||||||||||
| Issuance of SPA Notes pursuant to the Exchange Agreement (Note 9) | |||||||||||
| Issuance of SPA Warrants pursuant to the Exchange Agreement (Note 9) | |||||||||||
| Disposal of SPA Warrants and ATW NPA Warrants pursuant to the Exchange Agreement (Note 9) | |||||||||||
| Change in classification of warrants from Additional paid-in capital to liability pursuant to the Warrant Exchange (Note 9) | |||||||||||
| Recognition of operating right of use assets and lease liabilities upon adoption of ASC 842 and for new leases entered into in 2022 | |||||||||||
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
(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. FF is a global shared intelligent electric mobility ecosystem company with a vision to reformat the automotive industry.
On July 21, 2021 (the “Closing Date”), the Company consummated a business combination pursuant to an Agreement and Plan of Merger dated January 27, 2021 (as amended, the “Merger Agreement”), by and among the Company, PSAC Merger Sub Ltd. (“Merger Sub”), an exempted company with limited liability incorporated under the laws of the Cayman Islands and wholly-owned subsidiary of Property Solutions Acquisition Corp. (“PSAC”), a Delaware corporation our predecessor company, 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 (the “Business Combination”). Upon the consummation of the Business Combination (the “Closing”), PSAC changed its name from “Property Solutions Acquisition Corp.” to “Faraday Future Intelligent Electric Inc.”
Concurrently with the execution of the Merger Agreement, the Company entered into separate Subscription Agreements with a number of investors (“PIPE Investors”) pursuant to which, on the Closing Date, 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 $10.00 per share with an aggregate purchase price of $761.4 million (“PIPE Financing”). Shares sold and issued in the PIPE Financing included registration rights. The closing of the Private Placement occurred immediately prior to the Closing Date.
The Company operates in a single operating segment and designs and engineers next-generation, intelligent, electric vehicles. The Company manufactures 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
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, 2022, included in the Company’s Form 10-K filed with Securities and Exchange Commission (“SEC”) on March 9, 2023 (“Form 10-K”). Accordingly, the Condensed Consolidated Balance Sheet as of December 31, 2022, 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, 2022, included in the Form 10-K, except as described below.
Certain reclassifications have been made to prior periods in the Consolidated Financial Statements and accompanying notes to conform with the current presentation. Buildings and Leasehold improvements within Property and Equipment, Net were previously presented separately for the year ended December 31, 2022. Beginning 2023, the two lines were conformed to report these two balances together.
9
Faraday Future Intelligent Electric Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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 and notes payable; (v) fair value of options granted to employees and non-employees; (vi) fair value of warrants, and (vii) 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 under different assumptions, financial inputs, or circumstances.
Given the global economic climate, unpredictable nature and unknown duration of the COVID-19 pandemic, estimates are subject to additional volatility. 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. 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.
Inventory and Inventory Valuation
Inventory is stated at the lower of cost or net realizable value (“LCNRV”) and consists of raw materials, work-in-progress, and finished goods. The Company primarily computes cost using standard cost, which approximates cost on the first-in, first-out (“FIFO”) basis. Net realizable value (“NRV”) is the estimated selling price of inventory in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The Company assesses the valuation of inventory and periodically adjusts its value for estimated excess and obsolete inventory based upon expectations of future demand and market conditions, as well as damaged or otherwise impaired goods. As of March 31, 2023, substantially all of the Company’s inventory balance is classified as raw materials. Inventory is included in Other current assets on the unaudited Condensed Consolidated Balance Sheet.
Stock-Based Compensation
Forfeiture rate - Effective January 1, 2023, stock-based compensation expense is reduced for forfeitures only when they occur. This change of accounting policy resulted in the recognition of a cumulative increase of prior stock-based compensation expenses totaling $1.8 million, which was recorded in the unaudited Condensed Consolidated Statement of Operations and Comprehensive Income for the three months ended March 31, 2023.
Income Tax
There was no income tax provision impact on the unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the three months ended March 31, 2023 and 2022. 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, the state of 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 March 31, 2023, 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 March 31, 2023 and 2022, as the uncertain tax benefits only reduced the net operating losses. The Company does not expect the uncertain
10
Faraday Future Intelligent Electric Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
tax benefits to have material impact on its unaudited Condensed Consolidated Financial Statements within the next twelve months.
Recent Accounting Pronouncements
Recently issued accounting pronouncements not yet adopted
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.
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 $3,470.1 million of March 31, 2023. 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 1, Nature of Business and Organization and Basis of Presentation).
FF announced the start of production of its first electric vehicle, the FF 91 Futurist, on March 29, 2023. However, FF has not recognized any revenue as of the date hereof. FF’s future business depends in large part on its ability to execute its plans to develop, manufacture, market, and deliver electric vehicles, including the FF 91, FF 81, FF 71 series, and SLMD electric vehicle models that appeal to customers. Based on certain management assumptions, including timely completion of certain testing and the suppliers meeting our supply chain requirement, FF originally expected deliveries of the FF 91 to users to begin before the end of April 2023. However, certain of FF’s suppliers informed FF that they will be unable to meet FF’s timing requirements and, therefore, FF has updated the timing for the start of deliveries for its FF 91 vehicle. Based on the revised delivery plan, FF expects the first phase of the three-phase delivery plan to begin at the end of May 2023, and the second phase of the three-phase delivery plan to begin at the end of the second quarter of 2023, followed by the third phase. The first phase is the “Industry Expert Futurist Product Officer (FPO) Co-Creation Delivery.” In this first phase, the Industry Expert FPO(s) will pay in full for an FF 91 vehicle in order to reserve the vehicle and be trained in the use of the vehicle. The reserved FF 91 vehicle will be delivered to the FPO at the beginning of the second phase. The second phase is the “FPO Co-Creation Delivery.” In this second phase, FPO(s) will take possession of the FF 91 vehicle. The third phase is the “Full Co-Creation Delivery.” In this third phase, FF will deliver FF 91 vehicles to all spire users that pay in full for an FF 91 vehicle.
The successful beginning of the second phase is contingent on receiving parts on our required timeframes and completion of requisite tests. Further, FF expects to need substantial additional financing to start the third phase of the delivery plan and is in discussions with additional potential investors to obtain such financing. As FF executes the three-phase delivery plan, it plans to continue to move vehicles into production and off-the-line with high quality and high product power. There is no assurance FF will be able to timely receive sufficient funding under existing or new financing commitments to produce and deliver the FF 91 Futurist on that timeline or at all. If unable to receive sufficient funding, FF will be required to obtain new financing commitments, which may not be available to it under reasonable commercial terms. Further, there cannot be any assurance that FF will be able to secure additional funding, under reasonable commercial terms if at all, develop the
11
Faraday Future Intelligent Electric Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
manufacturing capabilities and processes, secure reliable sources of component supply to meet quality, engineering, design or production standards, or to meet the required production volumes to successfully grow into a viable, cash flow positive, business.
The Company has continued financing discussions with multiple parties, but has experienced delays in securing additional funding commitments, which have exacerbated the supply chain pressures on FF’s business. Additionally, certain investors under the SPA may not fund their commitments until the Company increases the number of authorized shares of its Class A Common Stock and registers the securities underlying the SPA Warrants and SPA Notes in an effective registration statement. 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 reducing spending, extending payment cycles and implementing other similar measures. If FF’s ongoing capital raising efforts are unsuccessful or significantly delayed, or if FF experience prolonged material adverse trends in its business, FF’s production will be delayed or decreased, and actual use of cash, production volume and revenue for 2023 will vary from the Company’s previously disclosed forecasts, and such variances may be material. While FF is actively engaged in negotiations with potential financing sources, there is no guarantee that it will be able to raise additional capital on terms acceptable to it or at all. In addition to the risk that FF’s assumptions and analyses may prove incorrect, the projections may underestimate the professional fees and other costs to be incurred related to the pursuit of various financing options currently being considered and the ongoing legal risks. Incremental capital needs beyond 2023 to fund operations and the development of the Company’s remaining product portfolio and to ramp up production 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. Apart from the FF 91 series, substantial additional capital will be required to fund operations, research, development, and design efforts for future vehicles.
As part of the SPA, as amended (as defined in Note 9, Notes Payable), the Company has obtained commitments from several investors totaling $267.0 million in new convertible note financing and in committed forced warrant exercise proceeds, subject to certain conditions. A total of $220.3 million under these commitments has been funded to date, through which the Company has received $193.3 million (net of original discount and transaction costs). The right to force exercise of the Warrant Reserve (defined in Note 9, Notes Payable) expired upon the holders exercising their warrants during 2023. In February 2023, Senyun and a purchaser affiliated with ATW Partners LLC exercised 20 % of their respective options to purchase additional senior secured notes and SPA Warrants (defined in Note 9, Notes Payable) of the Company under the same terms as the Incremental Notes (defined in Note 9, Notes Payable). The Company received aggregated gross proceeds of $38.0 million ($32.9 million net of original issuance discount and transaction costs) in exchange for such issuances.
On November 11, 2022, FF entered into a Standby Equity Purchase Agreement (the “SEPA”) with YA II PN, Ltd. (“Yorkville”), which is an affiliate of Yorkville Advisors. Under terms of the SEPA, FF has the right, but not the obligation, to sell up to $200.0 million (which can be increased up to $350.0 million under FF’s option) of Class A common stock (“Class A Common Stock”) to an affiliate of Yorkville Advisors, subject to certain limitations, at the time of the Company’s choosing during the three year term of the SEPA.
On May 8, 2023, the Company entered into a Securities Purchase Agreement (the “Unsecured SPA”) with Metaverse Horizon Limited and V W Investment Holding Limited (the ”Unsecured SPA Purchasers”) to issue and sell, subject to the satisfaction of certain closing conditions, $100.0 million aggregate principal amount of the Company’s senior unsecured convertible promissory notes. On May 10, 2023, the Company received gross proceeds pursuant to the Unsecured SPA totaling $3.3 million ($3.0 million net of original issuance cost). The Unsecured SPA Purchasers committed to fund in eight subsequent closings fifteen days apart, subject to the satisfaction of certain closing conditions. In addition, any Unsecured SPA Purchaser may postpone or cancel any closing pursuant to the Unsecured SPA in its reasonable discretion if it reasonably determines, based on public information, that the first phase of the Company’s three-phase delivery plan as disclosed in public filings has not begun or will not begin prior to May 31, 2023 and/or the second phase of such delivery plan has not begun or will not begin prior to June 30, 2023, in each case within 15 calendar days of such deadline.
Despite the access to liquidity resulting from the SEPA and the unfunded commitments from the SPA, and the Unsecured SPA, the Company projects that it will require additional funds 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 March 2023 to fund operations and the development of the Company’s remaining product portfolio and to ramp up production 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.
12
Faraday Future Intelligent Electric Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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 Company is exploring various funding and financing alternatives to fund its ongoing operations and to ramp up production after start of production, including equipment leasing, construction financing of the Hanford, 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.
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 and other potential impact of the COVID-19 pandemic. Refer to the section titled, “Risk Factors” in the Company’s Form 10-K for a full discussion of the risks associated with the COVID-19 pandemic. 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.
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.
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. Variable Interest Entities and Joint Ventures
The The9 Arrangement
On March 24, 2019, the Company entered into a Joint Venture Agreement (“JVA”) with The9 Limited (“The9”). Pursuant to the JVA, the Company and The9 agreed to establish an equity joint venture in Hong Kong, which would in turn establish a wholly-owned subsidiary in China, intended to engage in the business of manufacturing, marketing, selling and distributing the planned Faraday Future Icon V9 model electric vehicle in China. The Company and The9 would each be 50 % owners of the joint venture. The9 made a $5.0 million non-refundable initial deposit (“The9 Conditional Obligation”) to the Company to participate in the joint venture. The9 had the right to convert the initial deposit into various classes of stock in the Company. For accounting purposes, the deposit is a financial instrument that embodies a conditional obligation that the issuer may settle by issuing a variable number of shares. The9 Conditional Obligation was measured at fair value, was remeasured at each reporting period, and represented a Level 3 financial instrument under the fair value hierarchy (see Note 7, Fair Value of Financial Instruments). On November 22, 2020, the parties entered into an agreement to convert the initial deposit into 423,053 shares of Class A Common Stock of the Company, which were issued on February 23, 2021. Neither the Company nor The9 have made contributions to the joint venture as of March 31, 2023 and December 31, 2022, and it has yet to commence business activities.
13
Faraday Future Intelligent Electric Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The Geely Arrangement
In December 2020, the Company entered into a non-binding memorandum of understanding with Zhejiang Geely Holding Group Co., Ltd. (“Geely Holding”), which was also a subscriber in the PIPE Financing, pursuant to which the parties contemplate strategic cooperation in various areas including engineering, technology, supply chain, and contract manufacturing (“Geely JV”).
In January 2021, the Company and Geely Holding entered into a cooperation framework agreement and a license agreement (“Geely License”) that set forth the major commercial understanding of the proposed cooperation among the parties in the areas of potential investment into the Geely JV, engineering, technology, and contract manufacturing support. The foregoing framework agreement and the Geely License may be terminated if the parties fail to enter into the joint venture definitive agreement.
4. Deposits and Other Current Assets
Deposits and other current assets consist of the following (dollars in thousands):
| Deposits: | March 31, 2023 | December 31, 2022 | |||||||||
| Deposits for research and development, prototype and production parts, and other | $ | $ | |||||||||
Deposits for goods and services yet to be received (“Future Work”) | |||||||||||
| Total deposits | $ | $ | |||||||||
| Other current assets: | |||||||||||
| Prepaid expenses | $ | $ | |||||||||
| Inventory | |||||||||||
| Other current assets | |||||||||||
| Total other current assets | $ | $ | |||||||||
During the three months ended March 31, 2023, the Company made deposits for research and developments (“R&D”) services, prototype parts, and other 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. In addition, during the three months ended March 31, 2023, the Company made deposits for inventory and property and equipment items which are classified out of Deposits upon receipt of title.
In July 2022, the Company entered into an annual 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 $5,433 was amortized to General and administrative expenses in the unaudited Condensed Consolidated Statement of Operations and Comprehensive Income (Loss) for three months ended March 31, 2023.
14
Faraday Future Intelligent Electric Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
5. Property and Equipment, Net
Property and equipment, net, consists of the following (dollars in thousands):
| March 31, 2023 | December 31, 2022 | ||||||||||
| Buildings and leasehold improvements | $ | $ | |||||||||
| Computer hardware | |||||||||||
| Tooling, machinery, and equipment | |||||||||||
| Vehicles | |||||||||||
| Computer software | |||||||||||
| Construction in process | |||||||||||
| Less: Accumulated depreciation | ( | ( | |||||||||
| Total property and equipment, net | $ | $ | |||||||||
Depreciation expense related to property and equipment totaled $1.1 million and $0.8 million for the three months ended March 31, 2023 and 2022, respectively.
FF announced the start of production of its first electric vehicle, the FF 91 Futurist, on March 29, 2023, at which point the Company classified a portion of its construction in process assets that are available for their intended use in the amount of $225.7 million and $75.7 million to Tooling, machinery and equipment and Buildings, respectively.
6. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consist of the following (dollars in thousands):
| March 31, 2023 | December 31, 2022 | ||||||||||
| Accrued payroll and benefits | $ | $ | |||||||||
| Accrued legal contingencies | |||||||||||
| Engineering, design and testing services received not invoiced | |||||||||||
| Deposits from customers | |||||||||||
| Other current liabilities | |||||||||||
| Total accrued expenses and other current liabilities | $ | $ | |||||||||
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
15
Faraday Future Intelligent Electric Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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 1Valuations 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 2Valuations 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 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 and Black Scholes methodology to value various convertible notes payable. The significant assumptions used in the models 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 Income (Loss).
Bridge Warrants
The Company has elected to measure the Bridge Warrants at fair value. 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. Fair value measurements associated with the liability-classified warrants represent Level 3 valuations under the fair value hierarchy.
SEPA
On November 23, 2022, the Company issued 789,016 Commitment Shares in satisfaction of the commitment fee agreed upon in the SEPA. During the period ended March 31, 2023 and as of the date of issuing the Condensed Consolidated Financial Statements, the Company did not direct Yorkville to buy any shares of Class A Common Stock. The Company determined that SEPA represents a derivative financial instrument under ASC 815, Derivatives and Hedging, which should be recorded at fair value at inception and each reporting date thereafter. The financial instrument was classified as a derivative asset with a fair value of $0.0 million
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.
16
Faraday Future Intelligent Electric Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Prior to the adoption of ASU 2020-06 on January 1, 2022, 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.
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.
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 $32.9 million.
The Company used the probability-weighted expected return method (“PWERM”) to determine the fair value of the obligation to issue registered shares. The PWERM framework is a scenario-based methodology that estimates the fair value of the obligation based upon an analysis of future values of the settlement of the obligation to issue shares, assuming various outcomes. The probability weightings assigned to certain potential scenarios were based on management’s assessment of the probability of settlement of the liability in cash or shares and an assessment of the timing of settlement. In the equity settlement scenario, the obligation valuation was based on the Company’s share price as of each valuation date. In the cash settlement scenario, the obligation valuation was based the cash payment that equates to the share price times total shares to be issued, discounted to each valuation date.
Fair value measurements associated with the obligation to issue shares represent Level 3 valuations under the fair value hierarchy.
Private Warrants
The Private Warrants are classified as liabilities and the fair value is included in Other Liabilities, Less Current Portion on the Consolidated Balance Sheets. The Company valued the Private Warrants using a binomial lattice model. Inherent in a binomial lattice model are assumptions related to risk-free rate, annual dividend yield, expected warrant life, and volatility of the Company's stock. Changes in the fair value of the Private Warrants are recorded in Change in Fair Value Measurements in the Company’s Consolidated Statements of Operations and Comprehensive Income (Loss). Fair value measurements associated with the Private Warrants liabilities represent Level 3 valuations under the fair value hierarchy.
Transfer of Private Warrants to Unaffiliated Third Parties
Upon transfer of Private Warrants to unaffiliated third-party purchasers on the open market, the transferred warrants become subject to identical terms to the Public Warrants (see Note 12, Stockholders' Equity). Therefore, upon their transfer the Company classified the warrants to APIC at their fair value of $0.0 million and $0.6 million, as of March 31, 2023 and December 31, 2022.
Liability Classified Instruments
From time to time, certain of the Company’s equity-linked financial instruments may be classified as derivative liabilities under ASC 815, Derivatives and Hedging, due to the Company having insufficient authorized shares to fully settle the equity-linked financial instruments in shares. See Note 12, Stockholders’ Equity.
17
Faraday Future Intelligent Electric Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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 (dollars in thousands):
| March 31, 2023 | |||||||||||||||||
| Level 1 | Level 2 | Level 3 | |||||||||||||||
| Liabilities: | |||||||||||||||||
| Notes payable | $ | $ | $ | ||||||||||||||
| Private warrants | |||||||||||||||||
| Bridge warrants | |||||||||||||||||
| December 31, 2022 | |||||||||||||||||
| Level 1 | Level 2 | Level 3 | |||||||||||||||
| Liabilities: | |||||||||||||||||
| Notes payable | $ | $ | $ | ||||||||||||||
| Accrued expenses and other current liabilities | |||||||||||||||||
| Private warrants | |||||||||||||||||
| Bridge warrants | |||||||||||||||||
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.
The following table summarizes the activity of Level 3 fair value measurements (dollars in thousands):
| Bridge Warrants | Notes Payable, Bridge | Private Warrants | Earnout Shares Liability | Liability for Insufficient Authorized Shares Related to Stock Options and RSUs | |||||||||||||||||||||||||
Balance as of December 31, 2022 | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Additions | |||||||||||||||||||||||||||||
| Disposals pursuant to warrant exchange | ( | ||||||||||||||||||||||||||||
| Exercises | ( | ||||||||||||||||||||||||||||
| Settlement of transaction costs | ( | ||||||||||||||||||||||||||||
| ( | ( | ||||||||||||||||||||||||||||
| Stock-based compensation expense | |||||||||||||||||||||||||||||
| Conversions of liability to Common Stock | ( | ( | |||||||||||||||||||||||||||
| Conversions of notes to Common Stock | ( | ||||||||||||||||||||||||||||
Balance as of March 31, 2023 | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
8. Related Party Notes Payable
18
Faraday Future Intelligent Electric Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Related party notes payable consists of the following as of March 31, 2023 (dollars in thousands):
| Note Name | Contractual Maturity Date | Contractual Interest Rates | Net Carrying Value | Interest Expense for the Three Months Ended March 31, 2023 | Accrued Interest | |||||||||||||||||||||||||||
| Related party notes - China | December 31, 2023 | $ | $ | $ | ||||||||||||||||||||||||||||
| Related party notes – China various other | Due on Demand | |||||||||||||||||||||||||||||||
| $ | $ | $ | ||||||||||||||||||||||||||||||
Related party notes payable consists of the following as of December 31, 2022 (dollars in thousands):
| Note Name | Contractual Maturity Date | Contractual Interest Rates | Balance as of December 31, 2022 | ||||||||||||||||||||
| Related party notes - China | December 31, 2023 | $ | |||||||||||||||||||||
| Related party notes – China various other | Due on Demand | ||||||||||||||||||||||
| $ | |||||||||||||||||||||||
Fair Value of Related Party Notes Payable Not Carried at Fair Value
The estimated fair value of the Company’s related party notes payable not carried at fair value using inputs from Level 3 under the fair value hierarchy is $9.1 million and $8.7 million as of March 31, 2023 and December 31, 2022, respectively.
Schedule of Principal Maturities of Related Party Notes Payable
The future scheduled principal maturities of related party notes payable as of March 31, 2023 were as follows (dollars in thousands):
| Due on demand | $ | ||||
| 2023 | |||||
| $ | |||||
The future scheduled principal maturities of related party notes payable as of December 31, 2022 were as follows (dollars in thousands):
| Due on demand | $ | ||||
| 2023 | |||||
| $ | |||||
19
Faraday Future Intelligent Electric Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
FF Top Expense Reimbursements and Consulting Fees
On January 31, 2023, the Company entered into a supplemental agreement to the Preliminary Term Sheet (the “Term Sheet” and such supplemental agreement, the “Supplemental Agreement”) with FF Top Holding LLC (“FF Top”), pursuant to which the parties agreed, due to the high amount of FF Top’s out-of-pocket legal fees and expenses incurred in connection with its financing efforts, to amend the Term Sheet to increase the cap for legal fees and expenses from $0.3 million to $0.7 million. The Company agreed to pay the remaining $0.4 million of the fees owed to FF Top as follows: (i) $0.2 million within one business day of execution of the Supplemental Agreement, and (ii) $0.2 million within one business day of consummation of new financing by the Company in an amount not less than $5.0 million or an earlier date approved by the Board. Pursuant to the Term Sheet, as amended by the Supplemental Agreement, the Company paid FF Top $0.2 0.1 million related to legal expenses incurred by FF Top in connection with Amendment No. 6 (as defined in Note 9, Notes Payable).
In early February 2023, FF Top requested from the Company legal expense reimbursement of $6.5 million for costs incurred related to the governance changes at the Company, which was not approved by the Board as of the date the unaudited Condensed Consolidated Financial Statements were issued. FF Top may in the future continue to request additional expense reimbursements and indemnification from the Company.
On March 6, 2023, the Company entered into a Consulting Service Agreement with FF Global Partners LLC (“FF Global”), according to which the Company agreed to pay a monthly consulting fee of $0.2 million to FF Global for the following services:
•Assistance in developing its funding strategy.
•Assistance in developing its value return and management strategy.
•Consultation on and integration of stockholder relations and stockholder resources.
•Supporting communications regarding stockholders meetings.
•Developing existing stockholder financing strategy, including with respect to retail investors and others.
•Assistance in risk management strategy.
•Assistance in capability build up and operation strategy.
Either party may terminate this Agreement upon one month prior written notice to the other party. Upon any termination of this Agreement, the Company shall promptly pay Consultant any accrued but unpaid fees hereunder, and shall reimburse Consultant for any unreimbursed expenses that are reimbursable hereunder. In addition, FF Global is entitled for reimbursement for all reasonable and documented out-of-pocket travel, legal, and other out-of-pocket expenses incurred in connection with their services, which out-of-pocket expenses shall not exceed $0.1 million without the prior written consent of the Company. The Company paid $0.6 million to FF Global during the 2023 to date, pursuant to the Consulting Service Agreement.
Advertising Services Payable to Leshi Information Technology Co., Ltd. (“LeTV”)
The Company accrued a payable to LeTV within Accrued expenses and other current liabilities in the amount of $7.1 million and $7.0 million as of March 31, 2023 and December 31, 2022, respectively, in connection with advertising services provided to the Company in prior years. LeTV is a Shanghai Stock Exchange-listed public company founded and controlled by Mr. Yueting Jia, the Company’s founder and Chief Product and User Ecosystem Officer.
Warm Time Inc. (“Warm Time”) and Ocean View Drive Inc. (“Ocean View”) Transactions
The Company leased two real properties, located in Rancho Palos Verdes, California (the “Rancho Palos Verdes Properties”), from Warm Time from January 1, 2018 through March 31, 2022. Warm Time in turn leased the Rancho Palos Verdes Properties from Mr. Jia. The Rancho Palos Verdes Properties were used by the Company to provide long-term or temporary housing to employees of the Company (including Dr. Carsten Breitfeld, former Global CEO of the Company). According to the agreement between the parties, the Company paid Warm Time a monthly amount of $0.1 million for rent and certain services, including catering, room services and organization of meetings, external gatherings and events, for the Rancho
20
Faraday Future Intelligent Electric Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Palos Verdes Properties. In each of the three months ended March 31, 2023 and 2022, the Company paid to Warm Time $0.1
As part of its relationship with the Company, Warm Time also served as the conduit for certain loans from Ocean View Drive Inc., an entity formerly controlled by Mr. Yueting Jia and now wholly owned by the spouse of Ruokun Jia, who is the former Assistant Treasurer of the Company and Mr. Yueting Jia’s nephew. The loans principal was repaid to the Company in prior years and accrued interest on such loans is outstanding as of March 31, 2023 and December 31, 2022 in the amount of $0.2
In prior years, the Company advanced funding to Ocean View for various real estate purchases, including the Rancho Palos Verdes Properties and related expenses. As of March 31, 2023 and December 31, 2022, the Company has a receivable in the amount of $0.9
On February 9, 2023, the Company made a payment of approximately $0.2 million on behalf of Ocean View, an indemnified co-defendant, in connection with a seizure of funds related to the outstanding judgment in ongoing litigation, also involving Han’s San Jose Hospitality, LLC. Ocean View fulfilled its payment obligation under the settlement arrangement of such litigation, but the Company did not make its payment on the outstanding judgment which caused such seizure of funds of Ocean View. See Note 11, Commitments and Contingencies for more information. Following such seizure, the Company paid the outstanding judgment and all accrued interest. The payment remitted on behalf of Ocean View was recorded in Deposits in the unaudited Condensed Consolidated Balance Sheet as of March 31, 2023, the Company received the return of such indemnification payment in April 2023.
9. Notes Payable
The Company has entered into notes payable agreements with third parties, which consists of the following as of March 31, 2023 and December 31, 2022 (dollars in thousands):
| March 31, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| 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 March 31, 2023 | Accrued Interest | ||||||||||||||||||||||||||||||||||||||||||
Bridge Notes (1) | Various | |||||||||||||||||||||||||||||||||||||||||||||||||