REE Automotive .(REE) - 2022 Q3 - Quarterly Report

Consolidated Financial Statements Consolidated Interim Balance Sheets Total assets decreased to $241.8 million from $292.9 million at year-end 2021, primarily due to reduced cash, with equity declining to $196.9 million from $250.4 million reflecting the net loss Consolidated Balance Sheet Highlights (in thousands USD) | Balance Sheet Item | September 30, 2022 (Unaudited) | December 31, 2021 (Audited) | | :--- | :--- | :--- | | Total Current Assets | $195,497 | $288,072 | | Cash and cash equivalents | $67,648 | $275,772 | | Short-term investments | $117,500 | $— | | Total Non-Current Assets | $46,265 | $4,864 | | TOTAL ASSETS | $241,762 | $292,936 | | Total Current Liabilities | $25,116 | $20,556 | | Total Non-Current Liabilities | $19,734 | $21,977 | | Warrants liability | $— | $21,034 | | TOTAL LIABILITIES | $44,850 | $42,533 | | Total Shareholders' Equity | $196,912 | $250,403 | | TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $241,762 | $292,936 | Consolidated Interim Statements of Comprehensive Loss Net loss significantly reduced to $80.2 million for the nine months ended September 30, 2022, from $458.7 million in 2021, driven by substantially lower operating expenses, particularly non-cash share-based compensation Statement of Comprehensive Loss (in thousands USD, except per share data) | Item | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | Revenues | — | $6 | | Gross loss | ($547) | ($333) | | Research and development expenses, net | $59,802 | $229,132 | | Selling, general and administrative expenses | $39,812 | $246,545 | | Operating loss | ($100,161) | ($476,010) | | Income from warrants remeasurement | ($17,929) | ($17,263) | | Net loss | ($80,161) | ($458,679) | | Basic and diluted net loss per share | ($0.27) | ($2.09) | Consolidated Interim Statement of Changes in Shareholders' Equity Shareholders' equity decreased from $250.4 million to $196.9 million as of September 30, 2022, primarily due to the $80.2 million net loss, partially offset by share-based compensation and warrant reclassification Changes in Shareholders' Equity (in thousands USD) | Description | Amount | | :--- | :--- | | Balance – January 1, 2022 | $250,403 | | Net loss | ($80,161) | | Share-based compensation | $21,172 | | Reclassification of warrant liability to equity | $3,104 | | Exercise of options | $2,393 | | Other | $1 | | Balance – September 30, 2022 | $196,912 | Consolidated Interim Statement of Cash Flows Cash, cash equivalents, and restricted cash decreased by $208.3 million to $68.6 million for the first nine months of 2022, primarily due to $84.8 million used in operations and $125.8 million in investing activities Cash Flow Summary (in thousands USD) | Cash Flow Activity | Nine months ended Sep 30, 2022 | Nine months ended Sep 30, 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | ($84,817) | ($40,669) | | Net cash provided by (used in) investing activities | ($125,797) | $239 | | Net cash provided by financing activities | $2,345 | $290,486 | | Decrease in cash, cash equivalents and restricted cash | ($208,269) | $250,056 | | Cash, cash equivalents and restricted cash at end of period | $68,646 | $295,563 | - The significant cash used in investing activities in 2022 was due to the purchase of $128.0 million in short-term investments, a new activity compared to 2021[12] - In contrast to 2022, financing activities in 2021 provided $290.5 million, largely from the SPAC merger and PIPE financing[12] Notes to the Interim Consolidated Financial Statements NOTE 1. GENERAL REE Automotive, a development-stage company, is preparing for commercial trials of its P7 Platform, with management asserting $185.1 million in cash and short-term investments are sufficient for the next 12 months - The company is a development-stage entity focused on its REEcorner technology and is preparing to start commercial trials of its P7 Platform[19] - REE became a publicly traded company on the Nasdaq Stock Exchange on July 23, 2021, via a SPAC merger[20][21] - As of September 30, 2022, the company's liquidity included $67.6 million in cash and $117.5 million in short-term investments, which it deems sufficient for the next 12 months of activity[22] NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Interim financial statements are prepared under U.S. GAAP, with the 2022 adoption of ASC 842 for leases and recognition of $943 thousand in deferred revenues from a strategic development agreement - The company adopted the new lease accounting standard, ASU No. 2016-02 (Topic 842), on January 1, 2022, recognizing initial right-of-use assets and corresponding liabilities of $8,860 thousand[33][53] - As an "emerging growth company," REE has elected to use the extended transition period under the JOBS Act for adopting new accounting standards[52] - As of September 30, 2022, the company had deferred revenues of $943 thousand related to a strategic development agreement to develop and supply REE platform prototypes[48][49] NOTE 3. INVESTMENTS As of September 30, 2022, the company held $117.5 million in short-term investments, all classified as held-to-maturity, comprising investment-grade securities maturing within one year with no impairments recognized Short-Term Investments as of September 30, 2022 (in thousands USD) | Investment Type | Amortized Cost Basis | Fair Value | | :--- | :--- | :--- | | Bank deposits | $36,651 | $36,651 | | Agency bonds | $46,141 | $45,797 | | Municipal bonds | $507 | $503 | | Commercial paper | $29,722 | $29,722 | | Treasury bills | $4,479 | $4,475 | | Total | $117,500 | $117,148 | - All investments are classified as held-to-maturity, are investment grade, and have maturities of one year or less[58][61] NOTE 4. OTHER ACCOUNTS RECEIVABLE AND PREPAID EXPENSES Other accounts receivable and prepaid expenses totaled $10.3 million as of September 30, 2022, a decrease from $12.2 million at year-end 2021, primarily consisting of prepaid expenses and advances to suppliers Other Accounts Receivable and Prepaid Expenses (in thousands USD) | Item | September 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Government authorities | $753 | $897 | | Prepaid expenses | $5,558 | $5,151 | | Advances to suppliers | $3,393 | $5,734 | | Other receivables | $634 | $380 | | Total | $10,338 | $12,162 | NOTE 5. LEASES The company's operating leases for global offices and cars resulted in a present value of lease liabilities of $20.6 million as of September 30, 2022, with a weighted average remaining lease term of 8.3 years - Leases include worldwide office facilities and cars, all classified as operating leases[64] Maturities of Lease Liabilities as of Sep 30, 2022 (in thousands USD) | Period | Undiscounted Lease Payments | | :--- | :--- | | 2022 (remainder) | $639 | | 2023 | $3,445 | | 2024 | $3,509 | | 2025 | $3,486 | | 2026 and thereafter | $16,461 | | Total undiscounted lease payments | $27,540 | | Less: Imputed interest | ($6,891) | | Present value of lease liabilities | $20,649 | NOTE 6. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES As of September 30, 2022, accrued expenses and other current liabilities increased to $19.1 million from $16.0 million at year-end 2021, primarily due to employee and payroll accruals, non-recurring engineering costs, and professional fees Accrued Expenses and Other Current Liabilities (in thousands USD) | Item | September 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Employees and payroll accruals | $6,570 | $8,262 | | Professional fees | $2,797 | $600 | | Non recurring engineering | $3,963 | $4,800 | | Government authorities | $2,040 | $648 | | Other payables | $3,708 | $1,708 | | Total | $19,078 | $16,018 | NOTE 7. COMMITMENTS AND CONTINGENT LIABILITIES REE had purchase commitments of $6.3 million as of September 30, 2022, with contingent royalty obligations totaling $726 thousand to the IIA and $433 thousand to the BIRD Foundation, payable only upon sales of specific products Purchase Commitments Schedule (in thousands USD) | Period | Amount | | :--- | :--- | | 2022 | $5,773 | | 2023 | $513 | | Total | $6,286 | - The company has a remaining contingent obligation of $726 thousand to the IIA and $433 thousand to BIRD, which are royalty-bearing grants for the Softwheel products technology, payable only upon generating sales from those products[75][77] NOTE 8. SHAREHOLDERS' EQUITY The company's capital structure includes dual-class shares, with share-based compensation expense significantly decreasing to $21.2 million in the nine months ended September 30, 2022, from $434.0 million in the prior-year period due to SPAC merger-related transactions - The company has a dual-class share structure: Class A shares have one vote, while Class B shares, held by founders, have ten votes per share[81][82] Share-Based Compensation Expense (in thousands USD) | Expense Category | Nine months ended Sep 30, 2022 | Nine months ended Sep 30, 2021 | | :--- | :--- | :--- | | Cost of sales | $72 | $309 | | Research and development | $10,261 | $203,376 | | Selling, general and administrative | $10,839 | $230,277 | | Total | $21,172 | $433,962 | - The report details the capital restructuring, SPAC merger, and PIPE financing that occurred in 2021, which significantly impacted the equity structure and related expenses in that period[88][93][96] NOTE 9. INCOME TAXES For the nine months ended September 30, 2022, the company recorded an income tax expense of $1.7 million despite a pre-tax loss, primarily due to non-recognition of tax benefits from net operating losses, with unrecognized tax benefits increasing to $1.8 million - The company's effective tax rate for the nine months ended September 30, 2022 was (2.15)%[103] - The main reason for the difference between the statutory and effective tax rates is the non-recognition of tax benefits from accumulated net operating loss carryforwards due to uncertainty of realization[100] Reconciliation of Unrecognized Tax Benefits (in thousands USD) | Description | Amount | | :--- | :--- | | Opening balance (Dec 31, 2021) | $856 | | Tax positions reversed in current year | ($266) | | Tax positions taken in current year | $1,089 | | Accrued interest | $73 | | Ending balance (Sep 30, 2022) | $1,752 | NOTE 10. WARRANT LIABILITIES In September 2022, REE eliminated all outstanding warrants through voluntary and mandatory exchanges for Class A shares, reclassifying the $3.1 million warrant liability to additional paid-in capital - On September 22, 2022, the company completed a registered exchange offer for its 15.56 million outstanding warrants[109] - The company exchanged 13.0 million tendered warrants for 2.6 million Class A shares and mandatorily exchanged the remaining 2.5 million warrants for 0.46 million Class A shares[109][110] - The fair value of the warrant liability as of the exchange date, $3.1 million, was reclassified to additional paid-in capital, eliminating the liability from the balance sheet[111] NOTE 11. FAIR VALUE MEASUREMENTS As of September 30, 2022, the company's assets measured at fair value included $30.8 million in money market funds (Level 1) and $117.1 million in short-term investments (Level 2), with the warrant liability completely eliminated after the exchange Assets at Fair Value as of Sep 30, 2022 (in thousands USD) | Asset Type | Level 1 | Level 2 | Level 3 | | :--- | :--- | :--- | :--- | | Money market fund | $30,765 | $— | $— | | Short-term investments | $— | $117,148 | $— | | Total | $30,765 | $117,148 | $— | Reconciliation of Level 3 Liabilities (in thousands USD) | Description | Amount | | :--- | :--- | | Balance – December 31, 2021 | $10,670 | | Change in fair value of Private Placement Warrant liability | ($9,512) | | Transfer of Private Placement Warrants to Public Warrants | ($699) | | Reclassification of warrant liability to equity | ($459) | | Balance – September 30, 2022 | $— | NOTE 12. FINANCIAL INCOME, NET For the nine months ended September 30, 2022, the company reported net financial income of $3.7 million, comprising $1.7 million in interest income and bank fees, and $2.0 million in favorable foreign currency translation adjustments Financial Income, Net (in thousands USD) | Item | Nine months ended Sep 30, 2022 | Nine months ended Sep 30, 2021 | | :--- | :--- | :--- | | Interest income and bank fees, net | ($1,731) | ($202) | | Foreign currency translation adjustments - expense (income) | ($2,007) | $76 | | Financial income, net | ($3,738) | ($126) | NOTE 13. BASIC AND DILUTED NET LOSS PER SHARE For the nine months ended September 30, 2022, basic and diluted net loss per share was $0.27, calculated on a net loss of $80.2 million and 292.1 million weighted average shares, with all potentially dilutive securities excluded due to anti-dilutive effect Net Loss Per Share Calculation (in thousands USD) | Item | Nine months ended Sep 30, 2022 | Nine months ended Sep 30, 2021 | | :--- | :--- | :--- | | Net loss (in thousands USD) | ($80,161) | ($458,679) | | Weighted average shares | 292,058,962 | 219,207,053 | | Basic and diluted net loss per share | ($0.27) | ($2.09) | - A total of 73.6 million weighted average shares from outstanding options and warrants were excluded from the diluted loss per share calculation for the nine months ended September 30, 2022, due to their anti-dilutive effect[122] NOTE 14. SUBSEQUENT EVENTS Subsequent to the reporting period, REE received a Nasdaq non-compliance notice for its Class A ordinary shares falling below the $1.00 minimum bid price, with a 180-day period to regain compliance by May 8, 2023 - On November 7, 2022, the company was notified by Nasdaq of non-compliance with the minimum bid price rule of $1.00 per share[124] - The company has a 180-day compliance period, ending May 8, 2023, to regain compliance by having its closing bid price at or above $1.00 for at least ten consecutive business days[124]