Faraday Future(US:FFIE)2023-05-11 16:00Part I - Financial Information Item 1. Condensed Consolidated Financial Statements (Unaudited) Faraday Future reported a $6.5 million net income for Q1 2023, primarily due to a fair value gain, despite ongoing significant cash consumption and substantial doubt about its going concern status Condensed Consolidated Balance Sheets As of March 31, 2023, total assets increased to $575.3 million, total liabilities decreased, and stockholders' equity improved to $256.4 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash | $31,769 | $16,968 | | Total current assets | $103,396 | $66,405 | | Property and equipment, net | $446,524 | $417,803 | | Total assets | $575,289 | $510,288 | | Liabilities & Equity | | | | Total current liabilities | $192,873 | $267,484 | | Total liabilities | $318,903 | $327,535 | | Total stockholders' equity | $256,386 | $182,753 | | Total liabilities and stockholders' equity | $575,289 | $510,288 | Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) The company reported a $6.5 million net income for Q1 2023, a significant improvement from a $153.1 million loss in Q1 2022, primarily due to a $94.9 million fair value gain and reduced operating expenses Statement of Operations Highlights (in thousands) | Account | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Research and development | $46,160 | $114,935 | | Total operating expenses | $83,027 | $149,001 | | Loss from operations | $(83,027) | $(149,001) | | Change in fair value measurements | $94,917 | $1,186 | | Net income (loss) | $6,487 | $(153,098) | | Basic EPS | $0.01 | $(0.48) | | Diluted EPS | $(0.07) | $(0.48) | Condensed Consolidated Statements of Cash Flows Net cash used in operating activities was $103.0 million in Q1 2023, but significant financing activities provided $134.4 million, resulting in a net increase in cash and restricted cash of $14.8 million Cash Flow Summary (in thousands) | Activity | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | $(102,980) | $(122,364) | | Net cash used in investing activities | $(16,873) | $(44,398) | | Net cash (used in) provided by financing activities | $134,443 | $(85,676) | | Net (decrease) increase in cash and restricted cash | $14,760 | $(253,091) | | Cash and restricted cash, end of period | $33,274 | $277,386 | Notes to the Condensed Consolidated Financial Statements The notes detail substantial doubt about the company's going concern status, the start of FF 91 production contingent on further financing, ongoing SEC investigation, and recent share authorization increases - The company has concluded there is substantial doubt about its ability to continue as a going concern for one year, citing recurring losses from operations, negative cash flows, and an accumulated deficit of $3.5 billion as of March 31, 20234647 - FF announced the start of production for the FF 91 Futurist on March 29, 2023, and has a three-phase delivery plan beginning at the end of May 2023, however, substantial additional financing is required to start the third phase of the delivery plan4849 - The company has been heavily reliant on financing through a Securities Purchase Agreement (SPA), receiving gross proceeds of $149.0 million from Tranche A, B, and C notes during the first quarter of 2023126 - The company is cooperating with a formal SEC investigation that commenced following a Special Committee review into allegations of inaccurate disclosures, with the outcome and potential loss from this investigation currently unpredictable164 - Stockholders approved an increase in authorized Class A Common Stock from 815 million to 1.69 billion shares on February 28, 2023, to support ongoing financing needs173 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the start of FF 91 production contingent on financing, a $6.5 million net income driven by a non-cash gain, critical liquidity, and ongoing substantial doubt about the company's ability to continue as a going concern - FF announced the start of production of the FF 91 Futurist on March 29, 2023, with the first vehicle coming off the line on April 14, 2023, and a three-phase delivery plan is in place, but substantial additional financing is needed for the third phase233265 - The company has obtained commitments totaling $267.0 million in convertible note financing since August 2022, with $220.3 million funded to date, though further funding is contingent on milestones and conditions, including an effective registration statement309 - A Special Committee investigation found that statements about 14,000 vehicle reservations were potentially misleading and that the involvement of founder Mr. Yueting Jia was more significant than represented to investors, leading to an ongoing SEC investigation253254264 - The company projects it will require additional funds to continue operations and support the production ramp-up of the FF 91, and management concludes there is substantial doubt about the company's ability to continue as a going concern for the next year316320322 Results of Operations Loss from operations narrowed to $83.0 million in Q1 2023, primarily due to a 60% decrease in R&D expenses, with a $94.9 million fair value gain driving a shift to $6.5 million net income Comparison of Operating Results (in thousands) | Account | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Research and development | $46,160 | $114,935 | $(68,775) | (60)% | | Sales and marketing | $5,585 | $6,186 | $(601) | (10)% | | General and administrative | $27,584 | $27,880 | $(296) | (1)% | | Loss from operations | $(83,027) | $(149,001) | $65,974 | 44% | | Change in fair value measurements | $94,917 | $1,186 | $93,731 | 7903% | | Net income (loss) | $6,487 | $(153,098) | $159,585 | 104% | Liquidity and Capital Resources The company's cash of $31.8 million is insufficient, requiring substantial additional financing for FF 91 production, leading to substantial doubt about its ability to continue as a going concern - The company's cash on hand was $31.8 million as of March 31, 2023306 - The company has a three-phase delivery plan for the FF 91 Futurist, but expects to need substantial additional financing to start the third phase307308 - On May 8, 2023, the company entered into an Unsecured SPA for up to $100.0 million in senior unsecured convertible notes, with the first $3.3 million received on May 10, 2023, and future funding subject to closing conditions, including delivery milestones311 - Management has concluded that there is substantial doubt about the company's ability to continue as a going concern for a period of one year from the issuance of the financial statements320322 Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were ineffective as of March 31, 2023, due to multiple material weaknesses in internal control over financial reporting, with a remediation plan in progress - The company's disclosure controls and procedures were determined to be not effective as of March 31, 2023347 - Multiple material weaknesses were identified, including an ineffective control environment, lack of sufficient professionals with appropriate accounting knowledge, and failure to design and maintain effective controls for complex transactions and related party disclosures347348353 - A remediation plan is in progress, which includes hiring additional finance personnel, implementing new accounting policies, and enhancing controls around related party transactions, however, full remediation is not expected before the end of 2023356360362 Part II - Other Information Item 1. Legal Proceedings The company is subject to various legal claims and disputes in the ordinary course of business, with significant ongoing matters detailed in Note 11 of the financial statements - The company is party to litigation and claims incident to the ordinary course of business, and for detailed information on significant legal matters, the report refers to Note 11, Commitments and Contingencies366 Item 1A. Risk Factors Key risks include limited operating history, critical need for substantial capital for FF 91 production, substantial doubt about going concern, Nasdaq non-compliance, and potential reverse stock split - The company has a limited operating history and faces significant barriers, with its three-phase delivery plan for the FF 91 Futurist being contingent on receiving substantial additional financing368369 - The company's recurring losses and cash needs raise substantial doubt about its ability to continue as a going concern, and failure to raise additional capital could force delays, asset liquidation, or bankruptcy408414417 - The company is not in compliance with Nasdaq's minimum bid price requirement of $1.00 per share, and after transferring to the Nasdaq Capital Market, it has until October 30, 2023, to regain compliance, failing which could result in delisting422423 - A reverse stock split has been approved by stockholders as a potential tool to regain Nasdaq compliance, but there is no assurance it will be implemented or be successful in maintaining the listing or improving stock liquidity424432 Item 6. Exhibits This section lists exhibits filed with the Form 10-Q report, including corporate amendments and certifications by principal officers