Faraday Future(FFIE) - 2024 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents Faraday Future's unaudited condensed consolidated financial statements for Q1 2024, covering balance sheets, operations, equity, cash flows, and detailed notes Item 1. Condensed Consolidated Financial Statements (Unaudited) This item presents Faraday Future's unaudited condensed consolidated financial statements for Q1 2024, including balance sheets, statements of operations, equity, cash flows, and detailed notes Condensed Consolidated Balance Sheets This section presents Faraday Future's financial position, detailing assets, liabilities, and stockholders' equity as of March 31, 2024, and December 31, 2023 | Metric (in thousands) | March 31, 2024 | December 31, 2023 | | :-------------------- | :------------- | :---------------- | | Assets: | | | | Cash | $407 | $1,898 | | Total current assets | $82,736 | $91,364 | | Total assets | $499,941 | $530,539 | | Liabilities: | | | | Total current liabilities | $256,990 | $261,176 | | Total liabilities | $298,422 | $302,303 | | Stockholders' Equity: | | | | Total stockholders' equity | $201,519 | $228,236 | - The company's cash balance significantly decreased from $1,898 thousand at December 31, 2023, to $407 thousand at March 31, 2024[8] - Total assets decreased by approximately $30.6 million, and total liabilities decreased by approximately $3.9 million from December 31, 2023, to March 31, 2024[8][9] Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited) This section outlines Faraday Future's financial performance for the three months ended March 31, 2024 and 2023, including revenue, expenses, and net loss | Metric (in thousands) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 (As Restated) | | :-------------------- | :-------------------------------- | :---------------------------------------------- | | Revenue | $2 | $— | | Cost of revenues | $20,687 | $— | | Gross Profit | $(20,685) | $— | | Research and development | $6,688 | $57,808 | | Sales and marketing | $2,474 | $5,065 | | General and administrative | $13,848 | $26,513 | | Total operating expenses | $22,923 | $95,848 | | Loss from operations | $(43,608) | $(95,848) | | Net loss | $(48,217) | $(144,973) | | Basic Net loss per share | $(0.66) | $(48.22) | - Net loss significantly decreased from $(144,973) thousand in Q1 2023 to $(48,217) thousand in Q1 2024, primarily due to reduced operating expenses[11] - Research and development expenses decreased by 88% YoY, from $57,808 thousand to $6,688 thousand, reflecting the substantial completion of FF91 R&D[11] - Sales and marketing expenses decreased by 51% YoY, from $5,065 thousand to $2,474 thousand, due to cost-saving measures and headcount reduction[11] Condensed Consolidated Statements of Stockholders' Equity (Unaudited) This section details changes in Faraday Future's stockholders' equity for the three months ended March 31, 2024, including impacts from net loss and stock conversions | Metric (in thousands, except share data) | Balance as of Dec 31, 2023 | Conversion of notes payable | Stock-based compensation | Net loss | Balance as of Mar 31, 2024 | | :--------------------------------------- | :------------------------- | :-------------------------- | :----------------------- | :------- | :------------------------- | | Class A Common Stock (shares) | 42,433,025 | 116,945,093 | — | — | 159,390,384 | | Additional paid-in capital | $4,180,869 | $20,714 | $542 | — | $4,202,125 | | Accumulated deficit | $(3,958,499) | — | — | $(48,217) | $(4,006,716) | | Total stockholders' equity | $228,236 | $20,726 | $542 | $(48,217) | $201,519 | - Total stockholders' equity decreased from $228,236 thousand at December 31, 2023, to $201,519 thousand at March 31, 2024, primarily due to the net loss[14] - The number of Class A Common Stock shares issued and outstanding increased significantly from 42,433,025 to 159,390,384 due to the conversion of notes payable and accrued interest[14] Condensed Consolidated Statements of Cash Flows (Unaudited) This section presents Faraday Future's cash flow activities for the three months ended March 31, 2024 and 2023, categorized into operating, investing, and financing | Metric (in thousands) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 (As Restated) | | :-------------------- | :-------------------------------- | :---------------------------------------------- | | Net cash used in operating activities | $(14,719) | $(102,980) | | Net cash used in investing activities | $(12) | $(16,873) | | Net cash provided by financing activities | $12,013 | $134,443 | | Net change in cash and restricted cash | $(2,720) | $14,760 | | Cash and restricted cash, end of period | $1,305 | $33,274 | - Net cash used in operating activities decreased substantially from $(102,980) thousand in Q1 2023 to $(14,719) thousand in Q1 2024[21] - Net cash provided by financing activities decreased from $134,443 thousand in Q1 2023 to $12,013 thousand in Q1 2024[21] - Cash and restricted cash at the end of the period significantly declined from $33,274 thousand in Q1 2023 to $1,305 thousand in Q1 2024[21] Notes to Unaudited Condensed Consolidated Financial Statements This section provides detailed explanatory notes to Faraday Future's unaudited condensed consolidated financial statements, covering business, accounting policies, and key financial items 1. Nature of Business and Organization and Basis of Presentation This note describes Faraday Future's business as an intelligent electric vehicle company, its manufacturing capabilities, and the basis for its financial statement presentation - Faraday Future designs and engineers next-generation, intelligent, electric vehicles, manufacturing them at its FF ieFactory California in Hanford, California, with additional capabilities in China[27] - Revenue for Q1 2024 was less than $0.1 million, primarily from automotive leasing, with no automotive sales revenue recognized in Q1 2023[36] - The company applies a five-step model for revenue recognition under ASU 2014-09, recognizing automotive sales revenue upon vehicle delivery and OTA software updates over time[35][37] - The company provides a manufacturer's warranty on all vehicles sold, with an accrued warranty balance of $658 thousand as of March 31, 2024[47][48] 2. Liquidity and Capital Resources and Going Concern This note addresses Faraday Future's liquidity challenges, capital resources, and the substantial doubt regarding its ability to continue as a going concern - Faraday Future has substantial doubt about its ability to continue as a going concern due to recurring losses, negative cash flows, an accumulated deficit of $4,006.7 million, and a negative working capital of $175.2 million as of March 31, 2024[65][67] - The company has $211.3 million remaining to be funded from SPA Commitments and $325.4 million from Optional Commitments, subject to various conditions[68] - As of March 31, 2024, the company had the right to issue and sell up to an additional $192.5 million (or $342.5 million with option exercise) of Class A Common Stock under the SEPA[69] - The ATM Program, a primary source of liquidity since September 2023, is currently inaccessible due to the company's failure to timely file its Form 10-K and 10-Q, rendering it not S-3 eligible[70] - The company is in default on SPA Commitments and in breach of a debt agreement with Chongqing Leshi Small Loan Co., Ltd. (a related party) since January 1, 2024, with an outstanding principal of $7.6 million and interest of $17.4 million[75] 3. Inventory This note provides a breakdown of Faraday Future's inventory, including raw materials, work in progress, and finished goods, as of March 31, 2024, and December 31, 2023 | (in thousands) | March 31, 2024 | December 31, 2023 | | :------------- | :------------- | :---------------- | | Raw materials | $28,812 | $33,345 | | Work in progress | $301 | $572 | | Finished goods | $312 | $312 | | Total inventory | $29,425 | $34,229 | - Total inventory decreased from $34,229 thousand at December 31, 2023, to $29,425 thousand at March 31, 2024, primarily driven by a reduction in raw materials[76] 4. Deposits and Other Current Assets This note details Faraday Future's deposits for R&D and goods, prepaid expenses, and other current assets as of March 31, 2024, and December 31, 2023 | (in thousands) | March 31, 2024 | December 31, 2023 | | :------------- | :------------- | :---------------- | | Deposits for R&D, prototype parts, and other | $24,364 | $28,609 | | Deposits for goods and services (Future Work) | $2,760 | $2,773 | | Total deposits | $27,124 | $31,382 | | Prepaid expenses | $16,595 | $13,309 | | Other current assets | $8,280 | $8,412 | | Total other current assets | $24,875 | $21,721 | - Total deposits decreased from $31,382 thousand to $27,124 thousand, while total other current assets increased from $21,721 thousand to $24,875 thousand[77] 5. Property, Plant and Equipment, Net This note presents Faraday Future's net property, plant, and equipment, including accumulated depreciation, as of March 31, 2024, and December 31, 2023 | (in thousands) | March 31, 2024 | December 31, 2023 | | :------------- | :------------- | :---------------- | | Total property, plant and equipment | $464,621 | $467,352 | | Less: Accumulated depreciation | $(67,189) | $(49,540) | | Total property, plant and equipment, net | $397,432 | $417,812 | - Net property, plant and equipment decreased from $417,812 thousand to $397,432 thousand, primarily due to increased accumulated depreciation[80] - Depreciation and amortization expense for Q1 2024 was $17.8 million, significantly higher than $1.1 million in Q1 2023[80] 6. Accrued Expenses and Other Current Liabilities This note details Faraday Future's accrued payroll, legal contingencies, and other current liabilities as of March 31, 2024, and December 31, 2023 | (in thousands) | March 31, 2024 | December 31, 2023 | | :------------- | :------------- | :---------------- | | Accrued payroll and benefits | $27,263 | $28,037 | | Accrued legal contingencies | $20,804 | $21,590 | | Other current liabilities | $12,998 | $12,764 | | Total accrued expenses and other current liabilities | $61,065 | $62,391 | - Total accrued expenses and other current liabilities slightly decreased from $62,391 thousand to $61,065 thousand[82] 7. Notes Payable This note outlines Faraday Future's various notes payable, including secured, unsecured, and convertible notes, and their net carrying values as of March 31, 2024 | (in thousands) | March 31, 2024 Net Carrying Value | | :------------- | :-------------------------------- | | Secured SPA Notes | $41,888 | | Unsecured SPA Notes | $9,050 | | Unsecured Convertible Notes | $9,494 | | Notes payable – China other | $4,897 | | Auto loans | $72 | | Total Net Carrying Value | $65,401 | | Less: Related party notes payable | $(1,632) | | Less: Notes payable, current portion | $(63,769) | | Total: Notes payable, less current portion | $— | - The fair value of SPA Notes was $50.9 million and SPA Warrants was $0.1 million as of March 31, 2024, resulting in a $28.3 million gain in fair value for Q1 2024[114] - During Q1 2024, $19.0 million of SPA Notes principal (fair value $9.1 million) was converted to Class A Common Stock, leading to an $11.6 million loss on settlement[115] - The company issued $9.1 million in unsecured convertible notes in Q1 2024, which are due in three months and accrue 4.27% interest, and subsequently defaulted on this debt[116][117] 8. Related Party Transactions This note details Faraday Future's transactions with related parties, including notes payable, debt defaults, and consulting agreements, as of March 31, 2024 | (in thousands) | March 31, 2024 Net Carrying Value | | :------------- | :-------------------------------- | | Related party notes – China | $7,612 | | Related party notes – Unsecured Other Convertible | $1,632 | | Related party notes – China various other | $3,759 | | Related party notes – Convertible FFGP | $250 | | Related party notes – FFGP | $1,576 | | Total Net Carrying Value | $14,829 | | Less: Related party notes payable, current | $(14,829) | | Total: Related party notes payable, less current | $— | - The company recognized a $14.1 million loss on related party notes payable in Q1 2024 due to defaulting on a debt agreement with Chongqing Leshi Small Loan Co., Ltd., which reinstated full principal and accrued interest/penalties[132] - MHL, a related party, converted its remaining $0.7 million outstanding principal balance of Unsecured SPA Notes into Class A Common Stock in Q1 2024, resulting in a $0.2 million loss on settlement[128] - The Consulting Services Agreement with FF Global, a related party, automatically renewed in March 2024, requiring a monthly consulting fee of $0.2 million[141] 9. Commitments and Contingencies This note outlines Faraday Future's legal contingencies, settlement agreements, and total unconditional contractual commitments as of March 31, 2024 - Accrued legal contingencies were $20.8 million as of March 31, 2024, primarily for breach of contracts and employment matters[147] - The Zhou putative class action settlement for $7.5 million, funded by the company's insurers, received final court approval on March 18, 2024[150] - The company settled a dispute with Palantir Technologies Inc. for $5.0 million, but subsequently failed to make a settlement payment in June 2024, leading to amended arbitration demands[165] - Total unconditional contractual commitments are estimated at $296.0 million as of March 31, 2024, with $102.1 million due in 2024[193] 10. Stockholders' Equity This note details Faraday Future's authorized and outstanding shares, changes in common stock, and warrant information as of March 31, 2024 | Stock Class | March 31, 2024 Authorized Shares | March 31, 2024 Issued and Outstanding Shares | | :---------- | :------------------------------- | :------------------------------------------- | | Preferred Stock | 10,000,000 | — | | Class A Common Stock | 443,625,000 | 159,390,384 | | Class B Common Stock | 19,687,500 | 266,670 | | Total | 473,312,500 | 159,657,054 | - Stockholders approved an increase in authorized Common Stock to 1,389,937,500 shares on February 5, 2024, and a 1-for-3 reverse stock split was effected on February 29, 2024, reducing authorized shares to 463,312,500[201] - A Series A Preferred Stock was designated on June 21, 2024, granting 16 billion votes per share for shareholder proposals (share authorization or reverse stock split) and a $100 liquidation preference[202][205] | Warrant Type | Number of Warrants (March 31, 2024) | Exercise Price | | :----------- | :---------------------------------- | :------------- | | Ares warrants | 9,139,280 | $0.73 | | SPA Warrants | 558,689 | $0.73 | | Public Warrants | 98,088 | $2,760 | | Private Warrants | 464 | $2,760 | | Total | 9,796,521 | | 11. Stock-Based Compensation This note details Faraday Future's stock-based compensation expense for Q1 2024, available shares under incentive plans, and RSU grants to executive officers - Stock-based compensation expense for Q1 2024 was $542 thousand, a significant decrease from $8,633 thousand in Q1 2023[220] - The 2021 SI Plan had 2,469,957 shares of Class A Common Stock available for future issuance as of March 31, 2024[215] - The Incentive Plan Amendment, approved in August 2023, includes RSU grants to executive officers upon meeting delivery and share issuance conditions, with $0.2 million cash bonus expense recognized in Q1 2024[216][217][219] 12. Fair Value of Financial Instruments This note explains Faraday Future's fair value measurements for financial instruments, including notes payable and warrant liabilities, using Level 3 valuations - The company measures certain notes payable and SPA Warrants at fair value using Level 3 valuations (binomial lattice and Monte Carlo simulation models), incorporating assumptions like stock volatility and debt discount rates[225][227] March 31, 2024 Level 3 Fair Value (in thousands) | (in thousands) | March 31, 2024 Level 3 | | :------------- | :--------------------- | | Warrant liabilities | $103 | | Notes payable | $60,432 | Fair Value Changes (in thousands) | (in thousands) | Warrant Liabilities | Notes Payable | | :------------- | :------------------ | :------------ | | Balance as of December 31, 2023 | $306 | $86,712 | | Additions | $1 | $1,457 | | Change in fair value measurements | $(204) | $(28,113) | | Conversions of notes to Class A Common Stock | — | $(9,118) | | Balance as of March 31, 2024 | $103 | $50,938 | 13. Net Loss per Share This note presents Faraday Future's basic and diluted net loss per share for Class A and B Common Stock, and lists potentially dilutive shares excluded due to anti-dilution - Basic and diluted net loss per share for Class A and B Common Stock was $(0.66) for Q1 2024, compared to $(48.22) for Q1 2023[11] - All potentially dilutive common stock equivalents were anti-dilutive and excluded from diluted EPS calculation due to net losses[235] Potentially Dilutive Shares | Potentially Dilutive Shares | Three Months Ended March 31, 2024 | | :-------------------------- | :-------------------------------- | | Shares issuable upon conversion of SPA Notes and make-whole provisions | 93,243,053 | | Shares issuable upon conversion of Unsecured Convertible Notes | 15,624,025 | | Shares issuable upon exercise of SPA Warrants | 558,689 | | Other warrants | 9,139,280 | | Stock-based compensation awards – Options | 109,224 | | Stock-based compensation awards – RSUs | 857,530 | | Public warrants | 98,088 | | Private warrants | 464 | | Total | 119,630,353 | 14. Subsequent Events This note discloses significant events occurring after March 31, 2024, including new convertible notes, SPA funding, stock conversions, and a lease financing arrangement - Subsequent to March 31, 2024, the company issued $12.3 million in unsecured convertible notes to a third party, with $1.4 million already in default due to non-payment[241] - The company received an additional $6.5 million in SPA Notes funding and converted $15.4 million principal and $8.3 million interest of SPA Notes into 282.7 million shares of Class A Common Stock[242] - On July 11, 2024, the company entered into a $4.9 million lease financing arrangement for equipment with UTICA LEASECO, LLC, guaranteed by the company[243][245] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on Faraday Future's financial condition and results of operations, detailing business model, product pipeline, and liquidity challenges Overview This section provides an overview of Faraday Future's business, including its intelligent electric vehicle design, manufacturing capabilities, key differentiators, and product pipeline - Faraday Future is a California-based, global, shared, intelligent, mobility ecosystem company founded in 2014, designing and engineering next-generation intelligent, connected, electric vehicles[255] - The company manufactures vehicles at its FF ieFactory California and has additional engineering, sales, and operational capabilities in China, exploring potential manufacturing capabilities there[255] - Key differentiators include its proprietary Variable Platform Architecture (VPA), advanced Internet Artificial Intelligence (I.A.I.) technology, and a portfolio of approximately 660 global patents[256][257] - The product pipeline includes the FF91 series (first deliveries in 2023), FF81 series, FF71 series, and a Smart Last Mile Delivery (SLMD) vehicle, all subject to future financing[258][259][261] - The company has updated its corporate strategy to include a China-U.S. Automotive Bridge Strategy, aiming to establish a second mass market-focused brand by partnering with China-based OEMs[262] Recent Developments This section highlights Faraday Future's recent operational and strategic developments, including OTA upgrades, a new Master Plan, and changes in sales agreements - In Q1 2024, the company hosted a Chinese automotive supplier delegation, completed nearly 1,600 OTA upgrades for the FF 91 2.0, and announced an updated Master Plan 1.1 for strategic growth[269] - Subsequent to Q1 2024, the company completed a voluntary recall via OTA software update, established a Middle Eastern sales entity in Dubai, and announced Werner Wilhelm as Executive Launch Director[270] - In June 2024, two previously announced FF 91 Alliance Edition users, Rem D Koolhaas and Emma Hernan, would not complete the acquisition of their respective FF cars due to personal reasons[270] Recent Governance Developments This section outlines Faraday Future's recent corporate governance changes, including stockholder approvals for stock adjustments, a reverse stock split, and executive/director resignations - On February 5, 2024, stockholders approved an increase in authorized Common Stock to 1,389,937,500 shares and a 1-for-3 reverse stock split, which was effected on February 29, 2024[271][272] - The reverse stock split adjusted the number of shares reserved under incentive plans and the exercise prices of outstanding options, warrants, and convertible securities[274] - Mr. Xuefeng Chen transitioned from China CEO to Senior Vice President in February 2024 and resigned in March 2024; Ms. Li Han resigned as a director in June 2024[277] Components of FF's Results of Operations This section describes the key components influencing Faraday Future's results of operations, including expected R&D, manufacturing, sales, and administrative expenses, and non-operating items - The company expects to incur significant operating costs for R&D, manufacturing expansion, production ramp-up, raw material procurement, and sales/marketing as it introduces new models and scales operations[279] - As of March 31, 2024, the company had sold four and leased six vehicles, indicating a need for substantial additional capital to fund operations and product development[280] - R&D expenses are expected to decrease as FF91 R&D activities were substantially completed in late 2023, while sales and marketing expenses are expected to increase as vehicles are brought to market[292][293] - General and administrative expenses are expected to increase with business growth, and non-operating expenses include changes in fair value of notes/warrants, losses on debt settlement, and related party interest[294][297][298] Results of Operations This section analyzes Faraday Future's financial performance for the three months ended March 31, 2024 and 2023, focusing on revenue, expenses, and net loss drivers | Metric (in thousands) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 (As Restated) | Change Amount | Change % | | :-------------------- | :-------------------------------- | :---------------------------------------------- | :------------ | :------- | | Revenue | $2 | $— | $2 | NM* | | Cost of revenues | $20,687 | $— | $20,687 | NM* | | Research and development | $6,688 | $57,808 | $(51,120) | (88)% | | Sales and marketing | $2,474 | $5,065 | $(2,591) | (51)% | | General and administrative | $13,848 | $26,513 | $(12,665) | (48)% | | Loss from operations | $(43,608) | $(95,848) | $52,240 | (54)% | | Net loss | $(48,217) | $(144,973) | $96,756 | (67)% | - The significant decrease in R&D expense (88% YoY) was due to the substantial completion of FF91 R&D activities and cost-saving measures, including headcount reduction[303] - Loss on settlement of notes payable decreased by 88% YoY to $(11,403) thousand, driven by lower conversion volume and a reduced loss per dollar of principal due to anti-dilution price protection[309] - Related party interest expense increased significantly to $(5,094) thousand due to the company's default on the Chongqing Leshi Small Loan Co., Ltd note, which reinstated higher interest rates and penalties[313] Liquidity and Capital Resources This section discusses Faraday Future's liquidity and capital resources, highlighting going concern doubts, available funding, and the inaccessibility of its ATM Program - The company faces substantial doubt about its ability to continue as a going concern, with an accumulated deficit of $4,006.7 million, $0.4 million unrestricted cash, and a negative working capital of $175.2 million as of March 31, 2024[317] - Remaining funding from SPA Commitments is $211.3 million, and Optional Commitments is $325.4 million, both subject to various conditions and potential delays[318] - The ATM Program, a primary liquidity source, is currently inaccessible due to the company's non-compliance with SEC filing requirements (Form 10-K and 10-Q)[320] - The company is in default on SPA Commitments and in breach of a related party debt agreement, with an outstanding principal of $7.6 million and interest of $17.4 million as of March 31, 2024[324] Cash Flow Analysis This section analyzes Faraday Future's cash flows from operating, investing, and financing activities for the three months ended March 31, 2024 and 2023 | (in thousands) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :------------- | :-------------------------------- | :-------------------------------- | | Operating activities | $(14,719) | $(102,980) | | Investing activities | $(12) | $(16,873) | | Financing activities | $12,013 | $134,443 | - Net cash used in operating activities decreased significantly to $14.7 million in Q1 2024 from $103.0 million in Q1 2023, driven by a lower net loss and reduced losses on settlement of notes payable[333] - Net cash provided by financing activities decreased to $12.0 million in Q1 2024 from $134.4 million in Q1 2023, primarily from proceeds from notes payable and related party notes payable[335] Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Faraday Future is exempt from providing quantitative and qualitative disclosures regarding market risk - The company is exempt from providing quantitative and qualitative disclosures about market risk as it qualifies as a 'smaller reporting company' under Item 305(e) of Regulation S-K[343] Item 4. Controls and Procedures This section details the evaluation of disclosure controls and procedures, identifying material weaknesses in internal control over financial reporting and outlining remediation plans Evaluation of Disclosure Controls and Procedures This section concludes that Faraday Future's disclosure controls and procedures were ineffective as of March 31, 2024, due to identified material weaknesses - As of March 31, 2024, the company's disclosure controls and procedures were deemed ineffective due to identified material weaknesses in internal control over financial reporting[345] Material Weaknesses in Internal Control Over Financial Reporting This section identifies specific material weaknesses in Faraday Future's internal control over financial reporting, including insufficient personnel, ineffective controls, and inadequate policies - Lack of sufficient professionals with appropriate accounting knowledge, training, and experience to timely and accurately analyze, record, and disclose accounting matters - Ineffective control environment, including insufficient segregation of duties in finance and accounting functions - Inadequate controls in response to risks of material misstatement, failing to adapt to business growth - Ineffective communication and information sharing between legal, capital markets, and accounting/finance departments, leading to incomplete transaction support - Failure to design and maintain effective controls for identifying and accounting for non-routine, unusual, or complex transactions (e.g., convertible notes, warrant liabilities, embedded derivatives) - Lack of formal accounting policies, procedures, and controls for complete, accurate, and timely financial accounting, reporting, and disclosures - Ineffective IT general controls for financial information systems, specifically regarding program change management, user access, and computer operations - Failure to maintain an effective control environment or demonstrate commitment to integrity and ethical values, resulting in inaccurate and incomplete disclosures of certain relationships and transactions - Ineffective controls related to the identification and disclosure of certain arrangements and transactions with related parties Remediation Plan for Material Weaknesses in Internal Control Over Financial Reporting This section outlines Faraday Future's plan to remediate identified material weaknesses, including personnel additions, policy development, and enhanced controls, with full remediation expected beyond 2024 - Adding finance and accounting personnel to strengthen teams and provide oversight - Developing new accounting policies and procedures and configuring IT systems to improve communication, structure, accountability, and segregation of duties - Implementing enhanced controls around related party transactions, including regular attestations, and adopting an Insider Investment Reporting Policy - Continuing to monitor segregation of responsibilities in user ecosystem, capital markets, human resources, administration, and FF China - Requiring Board or designated committee approval for financing agreements, hiring/promoting/terminating vice presidents, and adopting company-wide compensation policies - Reviewing the need for a Chief Compliance Officer and re-engaging external consulting resources for compliance and internal audit functions - Designing and implementing controls to identify and evaluate changes in business and their impact on internal controls, and for communicating information between departments - Developing formal processes, accounting policies, procedures, and controls for business processes and financial close, including balance sheet reconciliations and journal entry controls - Implementing IT general controls over change management, user access, critical batch jobs, and data backups - Full remediation is expected to extend beyond December 31, 2024, and will be time-consuming and costly, placing significant demands on financial and operational resources[361] PART II. OTHER INFORMATION This part provides additional information beyond the financial statements, covering legal proceedings, risk factors, equity sales, and other disclosures Item 1. Legal Proceedings This item refers to the detailed discussion of Faraday Future's legal proceedings, outlined in Note 9, which could materially impact the company's financial condition - The company is involved in various legal or governmental proceedings, the outcomes of which are uncertain but could have a material adverse effect on its business, financial condition, and results of operations[365] Item 1A. Risk Factors This item updates previously disclosed risk factors, focusing on Nasdaq non-compliance, potential delisting, increased costs, supply chain disruptions, and the new 'Bridge Strategy' - Nasdaq Delisting Risk: The company is not in compliance with Nasdaq's minimum bid price, filing requirements (Form 10-K and 10-Q), and the Low Priced Stocks Rule, leading to a delisting determination. A hearing panel granted an extension until August 31, 2024, to regain compliance[366][367][368][369][372][373][374] - Supply Chain and Cost Risks: Increases in costs, supply disruptions, or shortages of materials (especially lithium-ion cells or electronic components) could harm the business. New tariffs, such as those announced by the Biden administration on Chinese EV batteries, could exacerbate these issues[376][377] - Bridge Strategy Risks: The new China-U.S. Automotive Bridge Strategy faces numerous uncertainties, including insufficient demand for China-based EVs in the U.S., intense competition, lack of funding, existing tariff policies, high costs of building a new supply chain, and potential distraction from other business strategies[378] Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities This item details Faraday Future's unregistered sales of convertible notes to investors since December 31, 2023, and their potential conversion into Class A Common Stock, including anti-dilution provisions - Since December 31, 2023, the company sold approximately $28.70 million in principal amount of convertible notes (Secured SPA, Unsecured SPA, Unsecured Streeterville SPA, and Other Unsecured Notes) to investors under Section 4(a)(2) of the Securities Act[380] - Investors can purchase an additional $530.1 million in aggregate principal amount of convertible notes under these agreements[380] - As of July 30, 2024, the principal conversion price for these notes was $0.7332 per share, subject to full ratchet anti-dilution price protection, and the interest make-whole conversion price was $10.896 per share[381] Item 3. Defaults Upon Senior Securities This item confirms that there are no defaults upon senior securities to report for the period Item 4. Mine Safety Disclosures This item states that mine safety disclosures are not applicable to Faraday Future's operations Item 5. Other Information This item confirms that no director or officer entered into or terminated a 10b5-1 trading plan during Q1 2024 - No director or officer of the Company entered into or terminated a 10b5-1 or similar trading plan during the three months ended March 31, 2024[383] Item 6. Exhibits This item lists the exhibits filed with the Form 10-Q, including corporate amendments, a settlement agreement, and officer certifications - Exhibit 3.1: Third Amended and Restated Certificate of Incorporation - Exhibit 3.2: Certificate of Amendment to the Third Amended and Restated Certificate of Incorporation (February 7, 2024) - Exhibit 3.3: Second Certificate of Amendment to the Third Amended and Restated Certificate of Incorporation (February 26, 2024) - Exhibit 10.1: Settlement Agreement with Palantir Technologies, Inc., dated March 11, 2024 - Exhibit 31.1 & 31.2: Certifications of Principal Executive Officer and Principal Financial Officer - Exhibit 32.1 & 32.2: Certifications of Principal Executive Officer pursuant to 18 U.S.C. Section 1350 Signatures This section contains the signatures of the Global Chief Executive Officer and Interim Chief Financial Officer, certifying the report filing - The report is signed by Matthias Aydt, Global Chief Executive Officer (Principal Executive Officer), and Jonathan Maroko, Interim Chief Financial Officer (Principal Financial and Accounting Officer), on July 30, 2024[387][388]