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 aCalifornia -based, global, shared, intelligent, mobility ecosystem company founded in 2014 with a vision to disrupt the automotive industry. OnJuly 21, 2021 (the "Closing Date"),Faraday Future Intelligent Electric Inc. (f/k/aProperty Solutions Acquisition Corp. ("PSAC")), aDelaware corporation, consummated the previously announced business combination pursuant to that certain Agreement and Plan of Merger, dated as ofJanuary 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 theCayman 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"). 17 -------------------------------------------------------------------------------- Upon the consummation of the Business Combination ("Closing"), PSAC changed its name fromProperty Solutions Acquisition Corp. toFaraday 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 inLos Angeles, California , FF designs and engineers next-generation, intelligent, connected, electric vehicles. FF intends to manufacture vehicles at its ieFactoryCalifornia production facility inHanford, California , with additional future production capacity needs addressed through a contract manufacturing agreement withMyoung Shin Co., Ltd. , ("Myoung Shin"), an automotive manufacturer headquartered inSouth Korea . FF has additional engineering, sales, and operational capabilities inChina and is exploring opportunities for potential manufacturing capabilities inChina 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 ofSeptember 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 inEurope ,China and theU.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. 18 -------------------------------------------------------------------------------- FF has adopted a hybrid manufacturing strategy consisting of its refurbished manufacturing facility inHanford, California and a collaboration with Myoung Shin. FF is also exploring other potential contract manufacturing options in addition to the contract manufacturing agreement inSouth Korea . FF is also exploring the possibility of manufacturing capacity inChina through a joint venture or other arrangements. All passenger vehicles as well as the SLMD vehicle are expected to be available for sale in theU.S. andChina . 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 inCalifornia have been subject to stay-at-home orders from state and local governments. While the stay-at-home orders were lifted onJune 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 theUnited 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 byEast 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 ofDecember 31, 2021 . The Company paid an amount of$193 inApril 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 19 -------------------------------------------------------------------------------- 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. Business Combination OnJune 24, 2021 , the registration statement on Form S-4 (File No. 333-255027), initially filed with theU.S. Securities and Exchange Commission ("SEC") onApril 5, 2021 (as amended, the "Registration Statement"), relating to the Business Combination was declared effective by theSEC , and (ii) PSAC established a record date ofJune 24, 2021 and a meeting date ofJuly 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
•Announced that
•Announced its sponsorship and attendance at the 2022 Pebble Beach Concours d'Elegance taking place fromAugust 18-21, 2022 . FF's flagship FF 91 EV was available for demo rides and made a special appearance on the Concept Lawn onAugust 21, 2022 . •Announced a joint partnership withGameloft , 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 theU.S. Environmental Protection Agency ("EPA"). •Announced thatPricewaterhouseCoopers LLP ("PwC") notifiedFaraday 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 endingDecember 31, 2022 and, effectiveAugust 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
•Announced the resignation ofBecky Roof , the Company's former Interim Chief Financial Officer, resigned from the Company effectiveOctober 12, 2022 .Ms. Roof's departure from the Company followed the successful completion of key milestones in the Company'sSEC 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. •AppointedYun Han as Chief Accounting Officer and Interim Chief Financial Officer, effectiveOctober 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 theState of California .
•Appointed Mazars
20 -------------------------------------------------------------------------------- •Announced 369 pre-orders as ofNovember 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 theU.S. andChina . FF 91 Futurist Alliance Edition pre-orders require a$5,000 deposit for customers in theU.S. and anCNY 50,000 deposit for customers inChina . FF 91 Futurist pre-orders require a$1,500 deposit for customers in theU.S. and anCNY 20,000 deposit for customers inChina .
•Announced the achievement of Production Milestone #6, completion of
construction and equipment installation in final vehicle manufacturing areas at
FF's
•Announced theCalifornia 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 inCalifornia .
Recent Governance Developments
•As previously disclosed, from June toSeptember 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. OnSeptember 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 ofAdam (Xin) He to the Board. In connection with the Heads of Agreement, onSeptember 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 theCourt 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 ofSeptember 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. OnSeptember 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." OnOctober 3, 2022 ,Ms. Swenson and Mr.Scott Vogel , a member of the Board, tendered their resignation from the Board effective immediately. OnOctober 3, 2022 , Mr.Jordan Vogel also tendered his resignation from the Board effective onOctober 5, 2022 upon his receipt of a supplemental release pursuant to the Mutual Release. •OnOctober 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 byMs. Swenson's resignation. FF Top asserted the right to nominate Ms.Li Han to fill the vacancy created byMs. Swenson's resignation because such resignation was not effected in accordance with the Heads of Agreement, and thus, the provision thatMs. 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 thatMs. 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. •OnOctober 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 21 -------------------------------------------------------------------------------- issued and outstanding shares of the Company Common Stock pursuant to the Financing Documents at the special meeting of the Company's stockholders held onNovember 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 thanOctober 27, 2022 (provided thatMr. Chen or a substitute nominee, as applicable, is reasonably acceptable to theNominating and Corporate Governance Committee of the Board with respect to the Nasdaq independence rules and legal compliance and criminal compliance) (provided that ifMr. Chen is not so reasonably acceptable to theNominating 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. OnOctober 27, 2022 , Mr.Chad Chen was appointed to the Board. OnOctober 28, 2022 , Mr.Brian Krolicki tendered his resignation from the Board effective immediately.
Recent Financing Developments
•OnAugust 14, 2022 , the Company entered into a definitive Securities Purchase Agreement ("SPA") withFF Simplicity Ventures LLC , an entity affiliated withATW 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 theSEC onAugust 15, 2022 for additional information. •OnSeptember 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 andRAAJJ Trading LLC , as purchaser (together withFF Simplicity Ventures LLC , the "Purchasers"), to amend, among other things, (a) that certain Securities Purchase Agreement, dated as ofAugust 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 ofAugust 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 ofSeptember 14, 2022 . Please refer to the Current Report on Form 8-K that was filed by the Company with the theSEC onAugust 15, 2022 for a description of the key terms of the Existing SPA. •OnSeptember 25, 2022 , the Company entered into a Joinder and Amendment Agreement withSenyun International Ltd. , an affiliate ofDaguan 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 onAugust 16, 2022 ,FF Aventuras SPV XI, LLC ,FF Adventures SPV XVIII LLC ,FF Ventures SPV IX LLC andFF Venturas SPV X LLC , entities affiliated withATW 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 ofOctober 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: Total Principal Amount of ATW NPA Notes Total Number of Converted (in Shares of Class A Conversion Period thousands) Conversion Price Common Stock Issued August 16, 2022 to September 14, 2022$67,218 $0.84 to$2.29 64,843,850 •OnSeptember 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
22 -------------------------------------------------------------------------------- •OnOctober 10, 2022 , the Company entered into an exchange agreement with the Investors, pursuant to which, onOctober 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 . •OnOctober 19, 2022 , the Company and the Investors entered into an exchange agreement, pursuant to which, onOctober 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. •BetweenNovember 10, 2022 andNovember 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. •OnNovember 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 ofYorkville 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 onNovember 14, 2022 .
Governance Agreement with FF Top and FF Global
As previously disclosed, beginning inJune 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. OnSeptember 23, 2022 , the Company entered into the Heads of Agreement with FF Global and FF Top, pursuant to which, effective as ofSeptember 23, 2022 , theCompany (a) increased the size of the Board from nine to ten, (b) appointedMr. He to fill the vacancy resulting from such increase in the size of the Board until the 2022 AGM, (c) appointedMr. He to the Audit Committee and theNominating and Corporate Governance Committee of the Board and (d) agreed to not removeMr. He from either committee prior to the 2022 AGM. Pursuant to the Heads of Agreement, FF Top and FF Global caused all actions in theCourt 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 ofSeptember 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 thanDecember 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
•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 ofMr. He (the designee from theNominating 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
23 -------------------------------------------------------------------------------- •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 ofMs. Swenson andMr. Krolicki as directors of the Company. It was also agreed that (i)Ms. Swenson andMr. 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). OnOctober 3, 2022 ,Ms. Swenson and Mr.Scott Vogel , a member of the Board, tendered their resignation from the Board effective immediately. OnOctober 3, 2022 , Mr.Jordan Vogel also tendered his resignation from the Board effective onOctober 5, 2022 upon his receipt of a supplemental release pursuant to the Mutual Release (described below). OnOctober 28, 2022 , Mr.Brian Krolicki tendered his resignation from the Board effective immediately.
As of
In connection with the Heads of Agreement, onSeptember 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 whichMr. 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 withMr. 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. OnSeptember 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. OnOctober 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 byMs. Swenson's resignation. FF Top asserted the right to nominate Ms.Li Han to fill the vacancy created byMs. Swenson's resignation because such resignation was not effected in accordance with the Heads of Agreement, and thus, the provision thatMs. Swenson's seat would remain empty until the 2022 AGM did not apply. FF Top maintained that it believed thatMs. 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. OnOctober 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 onNovember 3, 2022 . FF Top's obligations pursuant to the FF Top Amendment are conditioned on (i) the appointment ofMr. Chen (or a substitute nominee, as applicable), in lieu of Ms.Li Han , to the Board as the fourth FF Top designee no later thanOctober 27, 2022 24 -------------------------------------------------------------------------------- (provided thatMr. Chen or a substitute nominee, as applicable, is reasonably acceptable to theNominating and Corporate Governance Committee of the Board with respect to the Nasdaq independence rules and legal compliance and criminal compliance) (provided that ifMr. Chen is not acceptable to theNominating and Corporate Governance Committee of the Board, then FF Top will be permitted to nominate another individual to the Board); and (ii) constructive engagement byMr. 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. OnOctober 27, 2022 ,Mr. Chen was appointed to the Board. OnOctober 28, 2022 ,Mr. Krolicki tendered his resignation from the Board effective immediately. 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 onJuly 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 asFF 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 theHanford 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. 25 --------------------------------------------------------------------------------
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 inHanford, 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 theHanford, California , ieFactoryCalifornia , 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 ieFactoryCalifornia 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 theU.S. andChina , 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.
General and Administrative
26 -------------------------------------------------------------------------------- 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.
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