Part I Key Information The company faces significant investment risks from its unproven model, intense competition, and funding needs Risk Factors Investment is speculative due to the company's unproven model, competition, and founder dependency - REE's limited operating history and unproven business model make it difficult to evaluate future prospects, increasing investment risk4853 - The company faces intense competition from established automotive manufacturers and new EV entrants with significantly greater resources5082 - REE is dependent on its founders, Daniel Barel and Ahishay Sardes, whose departure would significantly disadvantage the company50119 - The dual-class share structure concentrates approximately 85% of the voting power with the company's two founders, limiting shareholder influence52204 - The company faces a risk of being delisted from Nasdaq for failing to meet the minimum bid price requirement of $1.00 per share52156 - Political, economic, and military conditions in Israel, where REE is incorporated, could adversely affect the business52207 Information on the Company REE is an early-stage automotive technology company commercializing its modular EV platforms and REEcorner™ technology History and development of the company Incorporated in 2011, REE aims to provide foundational technology for zero-emission electric and autonomous vehicles - REE Automotive Ltd. was incorporated in Israel in 2011 and aims to provide the foundational technology for zero-emission electric and autonomous vehicles236239 Business Overview The business centers on proprietary REEcorner™ technology and an asset-light manufacturing model using Integration Centers - REE's core technology is the REEcorner™, a compact module integrating all critical vehicle components into the wheel arch276 - The company employs a capital-light manufacturing model, using Tier 1 suppliers and its own Integration Centers for assembly261286 - As of March 16, 2023, REE had 35 firm orders for its P7-B box truck and Proxima walk-in van, targeting initial deliveries in Q4 2023242266 - REE is establishing a U.S. dealership network and has a financing agreement with Mitsubishi HC Capital America to support dealer purchases240268269 - The company has a strong intellectual property portfolio with approximately 145 active or pending patent applications globally260290 Organizational Structure REE Automotive Ltd. is the parent company with five wholly-owned subsidiaries supporting its global operations REE Automotive Ltd. Subsidiaries | Name of Subsidiary | Country of Incorporation and Place of Business | |---|---| | REE Automotive UK Limited | United Kingdom | | REE Automotive USA Inc. | United States | | REE Automotive Holdings Inc. | United States | | REE Automotive GmbH | Germany | | REE Automotive Japan K.K. | Japan | Property, plants, and equipment The company operates key facilities in Israel for R&D, the UK for engineering, and a U.S. headquarters in Texas - Principal executive offices are located in Kibbutz Glil-Yam, Israel, under a lease expiring in 2026297 - A key facility in Coventry, UK, serves as the UK Engineering Centre and Launch Factory, under a lease expiring in 2032303 - The company has a testing facility at MIRA Technology Park in the UK, with a lease expiring in April 2025303 - A U.S. headquarters has been established in Austin, Texas, under a lease expiring in 2032, intended for future assembly operations303 Operating and Financial Review and Prospects The company narrowed its net loss to $107.4M while increasing operating spend and ending 2022 with $153.7M in cash Operating Results Net loss decreased to $107.4 million in 2022, driven by lower share-based compensation, while operating expenses grew Consolidated Operating Results (USD in thousands) | | Dec 31, 2022 | Dec 31, 2021 | % Change | |---|---|---|---| | Revenue | $0 | $6 | (100)% | | Gross loss | $(547) | $(989) | (45)% | | Research and development expenses, net | $78,225 | $252,424 | (69)% | | Selling, general and administrative expenses | $49,200 | $262,083 | (81)% | | Operating loss | $(127,972) | $(515,496) | (75)% | | Net loss | $(107,420) | $(505,330) | (79)% | - R&D expenses decreased by 69% to $78.2 million, mainly due to a sharp drop in share-based compensation; excluding this, R&D costs rose 50%319 - SG&A expenses fell 81% to $49.2 million, also driven by lower share-based compensation; excluding this, SG&A costs increased 74%320 - Income from warrants remeasurement was $17.9 million in 2022, an increase of 63% from 2021, reflecting fair value changes321 Liquidity and Capital Resources The company ended 2022 with $153.7 million in cash and investments, which it believes is sufficient for initial production Cash and Investments (USD in millions) | | Dec 31, 2022 | |---|---| | Cash and cash equivalents | $56.8 | | Short term investments | $96.9 | | Total | $153.7 | Summary of Cash Flows (USD in thousands) | | Dec 31, 2022 | Dec 31, 2021 | |---|---|---| | Net cash used in Operating activities | $(112,585) | $(59,139) | | Net cash used in Investing activities | $(106,835) | $(748) | | Net cash provided by Financing activities | $2,430 | $291,295 | - The company expects existing cash to be sufficient for initial P7 platform production but anticipates needing additional funding for future growth326 - In August 2022, REE established an "at-the-market" (ATM) equity program to sell up to $75.0 million of Class A Ordinary Shares328 Research and development, patents and licenses, etc. R&D activities are central to the company's strategy, accounting for 61% of total operating expenses in 2022 - In 2022, research and development costs constituted approximately 61% of the company's total operating expenses346 - As of March 16, 2023, REE's research and development department was comprised of approximately 216 employees and external consultants346 - The company is eligible for tax deductions for R&D expenditures under Israeli tax law and may apply for further benefits347348 Critical Accounting Estimates Key estimates involve significant management judgment regarding pre-production costs and impairment of long-lived assets - The company makes significant estimates regarding pre-production engineering and tooling costs with suppliers352 - REE reviews long-lived assets for impairment, a process involving subjective assumptions about future cash flows and market trends353 Directors, Senior Management and Employees The company is led by its co-founders, with a global workforce of 291 primarily focused on R&D in the UK and Israel Directors and Senior Management The leadership team is headed by co-founders Daniel Barel (CEO) and Ahishay Sardes (CTO) - The company is led by its co-founders: Daniel Barel (CEO) and Ahishay Sardes (CTO)356357 - Yaron Zaltsman was appointed as the new CFO effective March 29, 2023, replacing David Goldberg356359 Compensation Office holders received $5.5 million in cash and $6.4 million in share-based compensation in 2022 Office Holder Compensation for FY 2022 | Category | Amount (USD in millions) | |---|---| | Cash Compensation & Benefits | $5.5 | | Share-Based Compensation Expense | $6.4 | - As of December 31, 2022, office holders as a group held outstanding options to purchase 106,684,790 ordinary shares375 - The company has a 2021 Share Incentive Plan and an Employee Stock Purchase Plan (ESPP) to provide equity-based compensation398414 Board Practices The board operates under Israeli law and has opted out of certain Nasdaq requirements as a foreign private issuer - The board of directors must consist of no less than three and no more than eleven members433 - REE has elected to "opt out" of the Israeli Companies Law requirement to appoint external directors437 - The company's audit committee fell out of compliance with Nasdaq's three-member requirement and has one year to regain compliance441 - REE's compensation policy, governing executive and director pay, was approved for a five-year term452 Employees The company's global workforce of 291 is concentrated in the UK and Israel, with a majority in R&D Workforce by Location (as of Dec 31, 2022) | Location | Headcount | |---|---| | United Kingdom | 134 | | Israel | 133 | | United States | 18 | | Germany | 3 | | Other | 3 | | Total | 291 | Workforce by Function (as of Dec 31, 2022) | Category | Headcount | |---|---| | Research and development | 216 | | General and administrative | 59 | | Marketing | 16 | | Total | 291 | Major Shareholders and Related Party Transactions Co-founders control the company's voting power, and several related party agreements are in place Major Shareholders Co-founders Daniel Barel and Ahishay Sardes hold combined voting power of approximately 85% - Co-founders Daniel Barel and Ahishay Sardes each control approximately 42.5% of the company's total voting power, for a combined 85.0%, through Class B shares499504 Major Shareholders (Beneficial Ownership >5% of Class A Shares) | Shareholder | Percentage of Outstanding Class A Shares | |---|---| | The Phoenix Holdings Ltd. | 7.3% | | Gil Agmon | 6.6% | | Ziv Aviram | 6.3% | | M&G Investment Management Limited | 5.9% | | Clal Insurance | 5.3% | Related Party Transactions Key transactions include an Investors' Rights Agreement and business dealings with entities connected to the CEO - An Investors' Rights Agreement provides certain shareholders with demand and "piggyback" registration rights for their securities506 - The company entered into a license agreement with SpecterX, where REE's CEO is Chairman, paying $98,982 for services in 2022513 - Co-founders were each granted 39.4 million additional options as anti-dilution protection triggered by the Merger Agreement509 Financial Information The company faces a significant lawsuit seeking over $2.6 billion and does not intend to pay dividends - In December 2022, OSR Group filed a lawsuit against REE alleging theft of trade secrets and seeking monetary damages of no less than $2.6 billion520 - The company has never declared or paid cash dividends and intends to retain future earnings to finance operations522 The Offer and Listing REE's Class A shares trade on Nasdaq under the symbol "REE," while its warrants were delisted in 2022 - Class A ordinary shares commenced trading on Nasdaq on July 23, 2021, under the symbol "REE"524 - The company's Class A warrants were removed from listing on Nasdaq on October 7, 2022524 Additional Information This section details material contracts, exchange controls, and key Israeli and U.S. tax considerations Taxation A significant risk exists that REE was a Passive Foreign Investment Company (PFIC) for the 2022 tax year - Israeli companies are generally subject to a corporate tax rate of 23%535 - There is a significant risk that REE was a Passive Foreign Investment Company (PFIC) for U.S. federal income tax purposes for 2022233601 - The company is not expected to be treated as a U.S. corporation for U.S. federal income tax purposes under Section 7874 of the Code578 Quantitative and Qualitative Disclosures About Market Risk The company is exposed to foreign currency, interest rate, and liquidity risks due to its global operations - The company is exposed to foreign currency risk as a majority of its operating expenses were denominated in Israeli Shekels (NIS) and British pounds (GBP)646 - A hypothetical 10% change in key foreign currencies against the USD would have impacted 2022 operating income by approximately 5.4%647 - The company faces liquidity risk due to its history of losses and the need to obtain additional financing for future operations650 Part II Controls and Procedures Management concluded that the company's disclosure controls and internal control over financial reporting were effective - Management concluded that as of December 31, 2022, the company's disclosure controls and procedures were effective658 - Based on the COSO framework, management concluded that the company's internal control over financial reporting was effective as of December 31, 2022661 - The annual report does not include an auditor's attestation report on internal control, as REE is exempt as an emerging growth company662 Corporate Governance and Other Matters The company follows Israeli governance practices in lieu of certain Nasdaq rules as a foreign private issuer Audit Committee Financial Expert The board has identified Michal Marom-Brikman as the audit committee financial expert - Michal Marom-Brikman has been identified by the board as the audit committee financial expert665 Code of Ethics REE has adopted a Code of Business Conduct and Ethics that applies to all company personnel - The company has a Code of Business Conduct and Ethics applicable to all personnel, available on its website666 Principal Accountant Fees and Services Total fees billed by the principal accountant were $771,000 in 2022, a decrease from $1,292,000 in 2021 Accountant Fees (USD in thousands) | Fee Category | Dec 31, 2022 | Dec 31, 2021 | |---|---|---| | Audit Fees | $500 | $450 | | Audit-Related Fees | $108 | $185 | | Tax Fees | $163 | $657 | | Total | $771 | $1,292 | Corporate Governance REE utilizes the foreign private issuer exemption to follow Israeli practices for quorum and director nominations - REE relies on the "foreign private issuer exemption" to follow Israeli corporate governance practices instead of certain Nasdaq rules675 - Exemptions are taken for shareholder report distribution, quorum requirements (25% for certain meetings), and director nomination procedures675 Part III Financial Statements Audited financial statements show a net loss of $107.4 million for 2022 and total assets of $215.0 million Consolidated Balance Sheet Highlights (USD in thousands) | | Dec 31, 2022 | Dec 31, 2021 | |---|---|---| | Total Assets | $215,013 | $292,936 | | Cash, cash equivalents & short-term investments | $153,619 | $275,772 | | Total Liabilities | $39,604 | $42,533 | | Total Shareholders' Equity | $175,409 | $250,403 | Consolidated Statement of Comprehensive Loss (USD in thousands) | | Year Ended Dec 31, 2022 | Year Ended Dec 31, 2021 | |---|---|---| | Gross loss | $(547) | $(989) | | Operating loss | $(127,972) | $(515,496) | | Net loss | $(107,420) | $(505,330) | | Basic and diluted net loss per share | $(0.37) | $(2.14) | - As of December 31, 2022, the company had net operating loss carryforwards of $142.2 million in Israel and $11.5 million in the UK872873 - In September 2022, the company completed an exchange offer for all outstanding warrants, eliminating the warrant liability from the balance sheet304877878
REE Automotive .(REE) - 2022 Q4 - Annual Report