Faraday Future(FFIE) - 2022 Q2 - Quarterly Report

Part I Financial Information Item 1. Condensed Consolidated Financial Statements (Unaudited) The company reports significant net losses and negative cash flows, raising substantial doubt about its going concern status Condensed Consolidated Balance Sheet Highlights (in thousands) | Balance Sheet Item | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Assets | | | | Cash | $120,585 | $505,091 | | Total current assets | $175,111 | $607,257 | | Total assets | $588,242 | $907,432 | | Liabilities & Stockholders' Equity | | | | Total current liabilities | $257,719 | $293,806 | | Total liabilities | $286,840 | $339,778 | | Accumulated deficit | $(3,219,308) | $(2,907,644) | | Total stockholders' equity | $268,502 | $567,654 | Statement of Operations Summary (in thousands) | Line Item | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Research and development | $98,015 | $8,673 | $212,950 | $15,394 | | Sales and marketing | $6,198 | $2,585 | $12,384 | $4,267 | | General and administrative | $33,253 | $16,430 | $61,133 | $27,423 | | Loss from operations | $(137,466) | $(27,688) | $(286,467) | $(47,084) | | Net loss | $(141,694) | $(52,775) | $(294,792) | $(128,300) | | Net loss per share | $(0.44) | $(0.32) | $(0.91) | $(0.79) | Cash Flow Summary (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | $(235,104) | $(52,311) | | Net cash used in investing activities | $(90,234) | $(1,386) | | Net cash (used in) provided by financing activities | $(85,840) | $111,525 | | Net (decrease) increase in cash and restricted cash | $(408,943) | $56,421 | - Going Concern: The company has concluded there is substantial doubt about its ability to continue as a going concern for one year, citing recurring losses and the need to raise additional funds by early September 2022 to continue operations[47][48] - Special Committee and SEC Investigations: A Special Committee investigation found inaccurate disclosures regarding vehicle reservations and the role of founder YT Jia, prompting a formal investigation by the SEC and a request for information from the U.S. Department of Justice[112][113][123] - Legal Proceedings: The company is facing a putative class action lawsuit and derivative lawsuits alleging violations of the Securities Exchange Act of 1934 and has accrued $14.8 million for potential losses[108][109][110] - Subsequent Events - New Financing: On August 14, 2022, the company entered into a Securities Purchase Agreement for $52 million in committed senior secured convertible notes, with the potential for an additional $248 million[152] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses rising operating losses, urgent capital needs, and going concern doubts for the pre-revenue company - The company is a development stage company that has not generated any revenue and expects to begin deliveries of its first vehicle, the FF 91, in Q3 or Q4 2022[206][209] - As of June 30, 2022, the company had 399 fully refundable, non-binding preorders for the FF 91[186] - The company projects it will require additional funds by early September 2022 to continue operations, raising substantial doubt about its ability to continue as a going concern[201][244] - A Special Committee Investigation found inaccurate disclosures regarding vehicle reservations and the role of founder YT Jia, leading to remedial actions and subsequent investigations by the SEC and DOJ[191][192][199] Comparison of Operating Expenses (in thousands) | Expense Category | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Research and development | $98,015 | $8,673 | $212,950 | $15,394 | | Sales and marketing | $6,198 | $2,585 | $12,384 | $4,267 | | General and administrative | $33,253 | $16,430 | $61,133 | $27,423 | | Total operating expenses | $137,466 | $27,688 | $286,467 | $47,084 | - The increase in R&D expense was primarily due to a $57.4 million increase in engineering, design, and testing (ED&T) services as the company progressed development of the FF 91[222] - The increase in General and Administrative expense was primarily due to a $12.3 million increase in professional services related to the Special Committee Investigation, financing efforts, and governance matters[223][224] - As of June 30, 2022, the company's principal source of liquidity was cash totaling $120.6 million[239] - The company projects it will require additional funds by early September 2022 to continue operations and is seeking to raise additional capital to support the FF 91 production ramp-up[240] - The company has concluded that there is substantial doubt about its ability to continue as a going concern for a period of one year[244] Contractual Obligations as of June 30, 2022 (in thousands) | Obligation Type | Total | 2022 (6 months) | 2023 - 2024 | 2025 - 2026 | Thereafter | | :--- | :--- | :--- | :--- | :--- | :--- | | Operating lease obligations | $33,946 | $2,672 | $9,910 | $9,560 | $11,804 | | Finance lease obligations | $10,694 | $1,287 | $3,923 | $3,620 | $1,864 | | Notes payable | $79,214 | $45,297 | $33,917 | $0 | $0 | | Related party notes payable | $12,962 | $12,962 | $0 | $0 | $0 | | Palantir license | $41,667 | $2,667 | $19,500 | $19,500 | $0 | | Total | $191,647 | $78,049 | $67,250 | $32,680 | $13,668 | Item 3. Quantitative and Qualitative Disclosures About Market Risk The company is exempt from market risk disclosures as a "smaller reporting company" - Pursuant to Item 305(e) of Regulation S-K, FF is not required to provide the information required by this Item as it is a "smaller reporting company"[274] Item 4. Controls and Procedures Management concluded disclosure controls were ineffective due to multiple material weaknesses in internal financial reporting controls - The CEO and CFO concluded that the company's disclosure controls and procedures were not effective as of June 30, 2022, due to material weaknesses in internal control over financial reporting[276] - Material weaknesses identified include: an ineffective control environment lacking sufficient accounting professionals and proper segregation of duties; ineffective controls for identifying and accounting for complex transactions; and lack of formal accounting policies and procedures[276][279][280] - Additional material weaknesses were identified from the Special Committee Investigation, including a failure to maintain a commitment to integrity and ethical values and ineffective controls over related-party transactions[283][285] - A remediation plan is in progress, which includes hiring more finance personnel, implementing new policies, appointing an interim CFO, and enhancing controls around related-party transactions[287][288] Part II Other Information Item 1. Legal Proceedings The company faces a class action and derivative lawsuits related to allegations from the Special Committee investigation - The company is a defendant in a putative class action lawsuit and consolidated derivative lawsuits alleging violations of the Securities Exchange Act of 1934 and other claims[108][109] - For a detailed description of legal matters, the report refers to Note 11 of the Condensed Consolidated Financial Statements[293] Item 1A. Risk Factors Key risks include going concern doubts, FF 91 launch delays, reliance on non-binding pre-orders, and internal control weaknesses - Going Concern and Capital Needs: The company has recurring losses and needs to raise additional capital in the near term to launch the FF 91 and continue operations, projecting a need for more funds by early September 2022[303][307][316] - Operational Risks: The FF 91 launch may be delayed beyond Q3/Q4 2022 due to capital shortages or supply chain issues, and as of June 30, 2022, the company only had 399 non-binding, fully refundable pre-orders[311][312][314] - Governance and Key Person Risk: Founder YT Jia's public image and past legal issues in China could adversely impact the company, and his influence through FF Global may not align with company interests[325][334][340] - Internal Controls: The company has identified multiple material weaknesses in its internal control over financial reporting, which could prevent it from accurately reporting its financial condition[342][344] - Dilution Risk: The conversion of outstanding and newly issued convertible notes will cause substantial dilution to existing stockholders' ownership interests[364][365][368] - China Regulatory Risk: The company faces challenges from the evolving and uncertain regulatory environment in China regarding cybersecurity, data security, and personal information protection[368][370][378] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during the period - None[380] Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities during the period - None[381] Item 4. Mine Safety Disclosures This item is not applicable to the company - Not applicable[381] Item 5. Other Information The company reported no other information for the period - None[381] Item 6. Exhibits This section lists filed exhibits, including required CEO and CFO certifications under the Sarbanes-Oxley Act - Exhibits filed include CEO and CFO certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act[383]