Faraday Future Intelligent Electric Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Unaudited results. The company designs and develops electric vehicles, has not begun commercial production, and reported no revenue.
Financial performance and position
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | None | None | None | None |
| Operating expenses | $80.6 million | $185.7 million | $367.1 million | $232.7 million |
| Loss from operations | $80.6 million | $185.7 million | $367.1 million | $232.7 million |
| Net loss | $103.4 million | $303.9 million | $398.2 million | $432.2 million |
| Net loss per share | $0.30 | $1.06 | $1.20 | $2.12 |
| Cash used in operating activities | Not provided for the quarter | $355.1 million | $237.9 million |
- At September 30, cash was $31.8 million and restricted cash was $2.2 million, versus cash of $505.1 million and restricted cash of $25.4 million at December 31, 2021.
- Current assets were $102.2 million and current liabilities $177.3 million, implying negative working capital of approximately $75.1 million. Total assets were $540.7 million; total liabilities were $253.4 million; stockholders’ equity was $287.3 million. Accumulated deficit was $3.32 billion.
- Third-party notes payable had $56.2 million of unpaid principal; related-party notes payable totaled $12.3 million, including an $8.5 million note in default. The balance sheet also included $29.8 million of operating and finance lease liabilities.
- For the first nine months, investing cash outflow was $112.1 million, principally property and equipment purchases. Financing cash outflow was $40.9 million, including $87.3 million of note repayments, partly offset by $40.1 million of note proceeds and $9.5 million from option exercises.
- Margins are not meaningful because the company had no revenue.
Material changes versus comparable periods
- Q3 operating expenses fell 57% year over year, mainly because Q3 2021 included a $50 million platform license charge and a $62.3 million asset disposal loss. Q3 2022 R&D was $48.1 million, down from $79.8 million.
- Nine-month operating expenses increased 58%, with R&D rising to $260.2 million from $94.5 million, principally reflecting engineering, design and testing services and increased personnel costs. General and administrative expense rose 39% to $89.2 million, largely due to investigation, financing and other professional services.
- Nine-month net loss narrowed to $398.2 million from $432.2 million, despite higher operating expenses; the prior-year period included larger fair-value and debt settlement/extinguishment charges.
- Cash used in operations increased to $355.1 million from $237.9 million, while cash and restricted cash declined by $496.5 million during the first nine months.
- Class A shares outstanding increased to 345.8 million from 168.7 million at year-end 2021; 64.0 million Class B shares were also outstanding. Share issuance included conversions of notes and fulfillment of prior share commitments.
Outlook, liquidity, risks and unusual items
- Management concluded that recurring losses and operating cash outflows raise substantial doubt about the company’s ability to continue as a going concern for one year after issuance of the financial statements. It expects significant losses to continue and needs substantial additional funding.
- The company no longer expected FF 91 deliveries to begin in Q4 2022; first-delivery timing was uncertain and not expected in 2022. Launch depends on financing, cost reductions, supplier performance, parts availability and successful certification testing. Management provided no firm replacement launch date.
- Management revised projected cash use to approximately $55–$105 million for October 31–December 31, 2022, and $515–$565 million for full-year 2022, from earlier projections of $166 million and $708 million, respectively. These are forecasts, not reported actual results.
- After quarter-end, the company entered a standby equity purchase agreement for up to $200 million, with an option to increase the commitment to $350 million. Availability is conditional, including an effective resale registration statement; no shares had been drawn as of filing issuance. The company also reported conditional note-funding commitments and other financing arrangements. These sources do not remove the funding uncertainty.
- New convertible financing carries substantial dilution and conversion risks. The company reported that it lacked sufficient authorized shares to cover potential note conversions, warrants and share-settled interest make-whole amounts; a further share-authorization increase was contemplated. Subsequent note conversions issued substantial additional shares.
- Material weaknesses in internal control over financial reporting remained unremediated, and disclosure controls were deemed ineffective. The filing describes deficiencies in staffing, segregation of duties, complex-transaction accounting, related-party disclosure, information sharing and IT controls.
- The filing describes securities and shareholder litigation, SEC and DOJ inquiries, and an SEC subpoena concerning Senyun transactions. The company said outcomes and potential losses could not be reliably estimated. Accrued legal contingencies were $22.4 million at September 30.
- The company disclosed prior investigation findings concerning potentially inaccurate investor statements, including the characterization of 14,000 FF 91 reservations; only several hundred were paid reservations. Remedial governance and compliance actions were ongoing.
- Other risks include supplier concerns and threatened terminations related to late payments, inflation and supply-chain disruption, shareholder governance disputes, potential dilution, and Nasdaq’s notice that the share price did not meet its $1 minimum bid requirement. The filing cited an April 29, 2023 deadline to regain compliance.
Key facts for investors to verify
- Current cash, actual cash burn, and whether conditional financing was funded and usable after the reporting date.
- FF 91 production and delivery milestones, certification status, supplier commitments, and the cash required to reach launch and production ramp-up.
- Terms and dilution from convertible notes, warrants, equity-line draws, share conversions and any additional share-authorization actions.
- Progress in remediating material weaknesses, improving disclosure controls, and completing the SEC/DOJ inquiries and pending litigation.
- Nasdaq bid-price compliance and the outcome of governance changes and shareholder disputes.