What changed in this filing

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Item 4. Controls and Procedures

2023-11-13 compared with 2023-08-21 · 18 added, 23 removed, 86 unchanged (32% of the section changed)

2 unchanged sentences

FF’s disclosure controls and procedures are designed to ensure that information required to be disclosed by the issuer in the reports that FF files or submits under the Exchange Act, is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including its CEO and Interim CFO, as appropriate to allow timely decisions regarding required disclosure.

Based on an evaluation of FF’s disclosure controls and procedures (as defined in rules 13a-15(e) and 15d-15(e) of the Exchange Act), FF’s Global CEO and Chief Accounting Officer and Interim CFO (its principal executive officer and principal financial and accounting officer, respectively) have concluded that FF’s disclosure controls and procedures were not effective as of June 30, 2023, due to the material weaknesses in our internal control over financial reporting described below.

Based on an evaluation of FF’s disclosure controls and procedures (as defined in rules 13a-15(e) and 15d-15(e) of the Exchange Act), FF’s Global CEO and Chief Accounting Officer and Interim CFO (its principal executive officer and principal financial and accounting officer, respectively) have concluded that FF’s disclosure controls and procedures were not effective as of September 30, 2023, due to the material weaknesses in our internal control over financial reporting described below.

Material Weaknesses in Internal Control Over Financial Reporting

FF identified material weaknesses in FF’s internal control over financial reporting.

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of its annual Condensed Consolidated Financial Statements or interim unaudited Condensed Consolidated Financial Statements will not be prevented or detected on a timely basis.

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of its annual Condensed Consolidated Financial Statements or interim Condensed Consolidated Financial Statements will not be prevented or detected on a timely basis.

The material weaknesses are as follows:

2 unchanged sentences

Additionally, management did not establish formal reporting lines in pursuit of its objectives.

Further, the lack of a sufficient number of professionals resulted in an inability to consistently establish appropriate

authorities and responsibilities in pursuit of its financial reporting objectives, as demonstrated by, among other things, insufficient segregation of duties in its finance and accounting functions.

Further, the lack of a sufficient number of professionals resulted in an inability to consistently establish appropriate authorities and responsibilities in pursuit of its financial reporting objectives, as demonstrated by, among other things, insufficient segregation of duties in its finance and accounting functions.

• FF did not design and maintain effective controls in response to the risks of material misstatement.

4 unchanged sentences

• FF did not design and maintain effective controls to address the identification of and accounting for certain non-routine, unusual or complex transactions, including the proper application of GAAP to such transactions.

Specifically, FF did not design and maintain controls to timely identify and account for convertible notes under the fair value option, warrant liabilities, embedded derivatives related to convertible notes, impute interest on related party notes payable with interest rates below market rates, account for failed sale leaseback transactions, and account for warrant instruments.

party notes payable with interest rates below market rates, account for failed sale leaseback transactions, and account for warrant instruments.

• FF did not design and maintain formal accounting policies, procedures, and controls to achieve complete, accurate, and timely financial accounting, reporting, and disclosures, including controls over the period-end financial reporting process addressing areas including financial statement and footnote presentation and disclosures, account reconciliations and journal entries, including segregation of duties, assessing the reliability of reports and spreadsheets used in controls, and the timely identification and accounting for cut-off of expenditures.

3 unchanged sentences

Additionally, the material weakness related to accounting for warrant instruments resulted in the restatement of the previously issued financial statements as disclosed in Note 2 to PSAC’s Condensed Consolidated Financial Statements for the year ended December 31, 2020 within PSAC’s Annual Report on Form 10-K/A, of the entity acquired as part of the July 21, 2021 Merger Agreement related to warrant liabilities and equity.

Finally, these material weaknesses resulted in the restatement of the Company’s previously filed financial statements as of and for the year ended December 31, 2022 and for the quarterly periods ended March 31, 2023 and September 30, 2022 (see Note 2, Restatement , to the Form 10-K/A).

• FF did not design and maintain effective controls over information technology (“IT”) general controls for information systems that are relevant to the preparation of its financial statements, specifically, with respect to:

3 unchanged sentences

These IT deficiencies did not result in a material misstatement to the consolidated financial statements, however, the deficiencies, when aggregated, could result in material misstatements potentially impacting all financial statement accounts and disclosures.

In connection with the Special Committee investigation, and the completion of additional investigative and remedial work based on Special Committee findings, which were performed under the direction of the newly-appointed Executive Chairperson, reporting to the Audit Committee, additional material weaknesses were identified in FF’s internal control over financial reporting (as disclosed in Note 3 to FF’s consolidated financial statements for the years ended December 31, 2021 and

2020 included in FF’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021).

In connection with the Special Committee investigation, and the completion of additional investigative and remedial work based on Special Committee findings, which were performed under the direction of the newly-appointed Executive Chairperson, reporting to the Audit Committee, additional material weaknesses were identified in FF’s internal control over financial reporting (as disclosed in Note 3 to FF’s Consolidated Financial Statements for the years ended December 31, 2021 and 2020 included in FF’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021).

Specifically, in addition to the material weaknesses described above relating to management not establishing formal reporting lines in pursuit of its objectives as well as maintaining effective controls for communicating and sharing information between the legal, capital markets, and accounting and finance departments, the following material weaknesses were identified:

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• FF did not design and maintain effective controls related to the identification and disclosure of certain arrangements and transactions with related parties.

The material weaknesses identified in connection with the Special Committee investigation resulted in the revision of the Company’s previously filed financial statements as of and for the period ended December 31, 2020 (as disclosed in Note 9 to FF’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021) and for the periods ended March 31, 2021 (as disclosed in Note 1 to FFIE’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2022) and June 30, 2021 (as disclosed in Note 1 to FFIE’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2022) related to notes payable, related party notes payable, accrued interest, related party accrued interest, interest expense, and related party interest expense.

The material weaknesses identified in connection with the Special Committee investigation resulted in the revision of the Company’s previously filed financial statements as of and for the period ended December 31, 2020 (as disclosed in Note 9 to FF’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021) and for the periods ended March 31, 2021 (as disclosed in Note 1 to FF’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2022) and June 30, 2021 (as disclosed in Note 1 to FF’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2022) related to notes

payable, related party notes payable, accrued interest, related party accrued interest, interest expense, and related party interest expense.

Additionally, each of the material weaknesses described above could result in a material misstatement to substantially all of our accounts or disclosures.

14 unchanged sentences

• FF removed Mr.

Yueting Jia, FF’s founder, as an executive officer, although he continued in his position as Chief Product and User Ecosystem Officer of FFIE, reporting to the Chairperson with his role limited to focusing on (a) product and mobility ecosystem and (b) I.A.I., and advanced R&D technology (however, as of February 26, 2023, this remedial measure is no longer being implemented as further discussed below);

Jia, FF’s founder, as an executive officer, although he continued in his position as Chief Product and User Ecosystem Officer of FF, reporting to the Chairperson with his role limited to focusing on (a) product and mobility ecosystem and (b) I.A.I., and advanced R&D technology (however, as of February 26, 2023, this remedial measure is no longer being implemented as further discussed below);

• Functions previously dual-reporting to Mr.

5 unchanged sentences

Breitfeld and currently Mr.

Xuefeng Chen) indefinitely while the Board continues to evaluate the appropriate FF

management reporting lines) (however, as of February 26, 2023, this remedial measure is no longer being implemented as further discussed below);

Aydt) indefinitely while the Board continues to evaluate the appropriate FF management reporting lines) (however, as of February 26, 2023, this remedial measure is no longer being implemented as further discussed below);

• FF adopted an Insider Investment Reporting Policy to enhance internal reporting of related party transactions.

Our remediation activities are continuing during 2023, although certain of the remedial efforts described above are no longer applicable given recent developments.

For instance, Ms.

Swenson resigned from the Board on October 3, 2022.

Our remediation activities are continuing during 2023, although certain of the remedial efforts described above are no longer applicable given recent developments and resignations.

There have also been substantial changes to the composition of the Board as a result of the governance settlement entered into between FF and FF Global, as well as substantial turnover in key management personnel, including legal and compliance personnel, which could impact our ability to implement the above described remedial measures.

In addition, effective on February 26, 2023, certain departments within the Company report to both Mr.

Xuefeng Chen, including the Company’s user ecosystem, capital markets, human resources and administration, corporate strategy and China departments, subject to processes and controls to be determined by the Board after consultation with the Company’s management.

The Company’s product, mobility ecosystem, I.A.I., and advanced R&D technology departments report directly to Mr.

Jia, while the remaining departments continue to report to Mr.

Xuefeng Chen.

In addition, as of February 26, 2023, certain departments within the Company report to both Mr.

Chen, including the Company’s user ecosystem, capital markets, human resources and administration, corporate strategy and China departments, subject to processes and controls to be determined by the Board after consultation with the Company’s management.

Further, based on the changes to his responsibilities within FF, the Board determined that Mr.

Jia is an “officer” of the Company within the meaning of Section 16 of the Exchange Act, and an “executive officer” of the Company under Rule 3b-7 under the Exchange Act.

Jia is an “officer” of the Company within the meaning of Section 16 of the Exchange Act, and an “executive officer” of the Company under Rule

3b-7 under the Exchange Act.

FF has or is planning to put in place processes and controls to mitigate the risks associated with the changes in Mr.

2 unchanged sentences

• requiring the Board, or a designated committee of the Board, to approve the signing of financing agreements, the hiring, promoting or terminating vice presidents of the Company and above (including additional Section 16 officers), and the adopting of Company-wide compensation policies;

• hiring of a Compliance Officer with the title of Deputy General Counsel (hired in March 2023), who will report on a dotted line to the Chair of the Audit committee;

• hiring of a Compliance Officer with the title of Deputy General Counsel (hired in March 2023), who reports on a dotted line to the Chair of the Audit committee;

• engaging an external consulting firm in April 2023 to work in the capacity of an internal audit function who will report on a dotted line to the Chair of the Audit Committee.

22 unchanged sentences

Changes in Internal Control Over Financial Reporting

Other than as described in the preceding paragraphs, there have been no changes in internal control over financial reporting during the quarter ended June 30, 2023, that have materially affected, or are reasonably likely to materially affect, FF’s internal control over financial reporting.

Other than as described in the preceding paragraphs, there have been no changes in internal control over financial reporting during the quarter ended September 30, 2023, that have materially affected, or are reasonably likely to materially affect, FF’s internal control over financial reporting.

PART II—OTHER INFORMATION

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 4. Controls and Procedures