FARADAY FUTURE INTELLIGENT ELECTRIC INC. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS All references in this report to “FF,” the “Company,” “we,” “us,” or “our” mean Faraday Future Intelligent Electric Inc., together with its consolidated subsidiaries. Unless the context suggests otherwise, references to “Faraday Future Intelligent Electric Inc.” mean the parent company without its subsidiaries. The following discussion and analysis is intended to help the reader understand FF’s results of operations and financial condition. This discussion and analysis is provided as a supplement to, and should be read in conjunction with FF’s Unaudited Condensed Consolidated Financial Statements and Notes thereto included elsewhere in this quarterly report on Form 10-Q (this “Report” or the “Form 10-Q”). Some of the information contained in this discussion and analysis or set forth elsewhere in this Report, including information with respect to FF’s plans and strategy for FF’s business, includes forward-looking statements that involve risks and uncertainties. FF’s actual results may differ materially from management’s expectations as a result of various factors, including but not limited to those discussed in the sections entitled “Risk Factors” in the Company’s Annual Report on Form 10-K filed on May 28, 2024 (as amended, the “Form 10-K”), “Risk Factors” in this Report and “Cautionary Note Regarding Forward-Looking Statements” below. The objective of this section is to provide investors an understanding of the financial drivers and levers in FF’s business and describe the financial performance of the business. Cautionary Note Regarding Forward-Looking Statements This Report includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements can be identified by the use of forward-looking terminology, including the words “believes,” “estimates,” “anticipates,” “expects,” “intends,” “plans,” “may,” “will,” “potential,” “projects,” “predicts,” “continue,” or “should,” or, in each case, their negative or other variations or comparable terminology. There can be no assurance that actual results will not materially differ from expectations. Such statements include, but are not limited to, any statements relating to our financial and business performance, market acceptance and success of our business model, our ability to expand the scope of our offerings, and our ability to comply with the extensive, complex, and evolving regulatory requirements. These statements are based on management's current expectations, but actual results may differ materially due to various factors. The forward-looking statements contained in this Report are based on our current expectations and beliefs concerning future developments and their potential effects on us. Future developments affecting us may not be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control), and other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, those factors described under the section titled “ Risk Factors ” in the Form 10-K, as updated in this Report. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. We undertake no obligation (and expressly disclaim any obligation) to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws. These risks and others described under the section titled “ Risk Factors” in the Form 10-K, as updated in this Report, may not be exhaustive. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and developments in the industry in which we operate may differ materially from those made in or suggested by the forward-looking statements contained in this Report. In addition, even if our results or operations, financial condition and liquidity, and developments in the industry in which we operate are consistent with the forward-looking statements contained in this Report, those results or developments may not be indicative of results or developments in subsequent periods. Availability of Information We make available through our company website, free of charge, our company filings with the Securities and Exchange Commission (the “SEC”) as soon as reasonably practicable after we electronically file them with, or furnish them to, the SEC. The reports we make available include annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements, registration statements, and any amendments to those documents. The website link to our SEC filings is investors.ff.com/financial-information/sec-filings. We intend to use press releases, our Investor Relations website, investor.ff.com, and certain social media accounts as a means of disclosing information and observations about the Company and its business that may be of interest or material to our 44 investors, material, non-public information, and for complying with our disclosure obligations under Regulation FD: Instagram, Facebook, X, LinkedIn, YouTube, FF App, WeChat, Weibo, Toutiao, Douyin, and Futu. The information and observations we post through these social media channels may be deemed material. Accordingly, investors should monitor the Investor Relations website and these social media channels, in addition to following our press releases, filings with the SEC, public conference calls, presentations, and webcasts. The social media channels that we intend to use as a means of disclosing the information described above may be updated from time to time. The information contained on, or that may be accessed through, our website or social media channels, is not incorporated by reference into, and is not a part of, this Report or any other report or document filed with the SEC. Any reference to our website in this Report is intended to be an inactive textual reference only. Overview Overview The Company is a California-based, global, shared, intelligent, mobility ecosystem company founded in 2014 with a vision to disrupt the automotive industry. The Company’s Class A Common Stock and Public Warrants trade on The Nasdaq Capital Market (“Nasdaq”) under the ticker symbols “FFIE” and “FFIEW,” respectively. With headquarters in Los Angeles, California, FF designs and engineers next-generation intelligent, connected, electric vehicles. FF manufactures vehicles at its production facility in Hanford, California (the “FF ieFactory California”), with additional future production capacity needs addressed through a contract manufacturing agreement with Myoung Shin Co., Ltd. (“Myoung Shin”), an automotive manufacturer headquartered in South Korea. FF has additional engineering, sales, and operational capabilities in China and is exploring opportunities for potential manufacturing capabilities in China through a joint venture or other arrangements. Since its founding, FF has created major innovations in technology, products, and a user-centered business model. FF believes these innovations will enable FF to set new standards in luxury and performance that will redefine the future of intelligent mobility. We believe the following combination of capabilities of FF’s products, technology, the upgrade to FF Product and Technology Upgrade Generation 2.0 (PT Gen 2.0), team, and business model distinguish FF from its competitors: •  FF has designed and developed a breakthrough mobility platform — its proprietary Variable Platform Architecture (“VPA”). • FF’s propulsion system provides a competitive edge in acceleration and range, enabled by an expected industry-leading inverter design, and propulsion system. • FF’s advanced Internet Artificial Intelligence (“I.A.I.”) technology offers high-performance computing, high speed internet connectivity, Over-the-Air (“OTA”) updating, an open ecosystem for third-party application integration, and an advanced autonomous driving-ready system, in addition to several other proprietary innovations that enable FF to build an advanced, highly-personalized user experience. • Since inception, FF has developed a portfolio of intellectual property, established its supply chain, and assembled a global team of automotive and technology experts and innovators to achieve its goal of redefining the future of the automotive industry. As of March 31, 2024, FF has been granted approximately 660 patents globally. • FF believes that the FF 91 Futurist ( the “FF 91,” “FF 91 Futurist,” or “FF 91 2.0 Futurist Alliance”) is the first ultra-luxury electric vehicle to offer a highly-personalized, fully-connected user experience for driver and passengers. FF started production on the first FF 91 futurist and delivered the first FF 91 2.0 Futurist Alliance in 2023. • FF’s planned B2C passenger vehicle pipeline includes the FF91 series, the FF81 series, and the FF71 series. • Subject to future financing, FF plans to produce and deliver its second passenger vehicle, the FF 81, which is expected to be designed to be a premium, mass-market electric vehicle positioned to compete against the Tesla Model S, Tesla Model X, the BMW 5-series, the Range Rover Sport and similar vehicles. • Subject to future financing, FF plans to develop a mass-market passenger vehicle, the FF 71. FF expects to start production and deliveries of the FF 71 subsequent to production and deliveries of the FF 81. The FF 71 is expected to be designed to integrate full connectivity and advanced technology into a smaller vehicle size and is positioned to compete with vehicles such as the Tesla Model 3, Tesla Model Y, and the BMW 3-series. 45 • Subject to future financing, FF plans to develop a Smart Last Mile Delivery (“SLMD”) vehicle to address the high-growth, last-mile delivery opportunity, particularly in Europe, China and the U.S. FF’s modular VPA facilitates entry into the last-mile delivery segment, allowing FF to expand its total addressable market and avenues of growth. • FF has updated its corporate strategy to include a China-U.S. Automotive Bridge Strategy (the “Bridge Strategy”). The Bridge Strategy marks a return to FF’s earlier two-brand strategy, which seeks to distinguish between the spire segment (FF brand) and mass market segment (second brand) of the EV industry. FF intends to seek to establish a second mass market-focused brand by working with one or more China-based OEMs and parts suppliers (“Bridge Strategy Partners”) and to procure quasi-complete components and parts that FF would enhance by adding AI and Vehicle Software technology and product R&D found in its flagship FF 91 brand. This could create a compelling value proposition to consumers in the AI EV mass-market, which is a market that currently has limited offerings. Via the Bridge Strategy, there is the potential to materially accelerate the production timeline for a mass-market AI EV. While the mechanical platform of the mass-market product would be from Bridge Strategy Partners, FF intends to seek to utilize a component mix sufficient to reach part level duty by fulfilling the criteria for part supplier and manufacturing requirement. For a discussion of material risks relating to the Bridge Strategy, please see Item 1A., Risk Factors – “Our latest business strategy, which we refer to as the Bridge Strategy, is subject to numerous risks and uncertainties.” All FF vehicles are expected to be available for sale in the U.S., China and the Middle East, with potential expansion to European markets. Emerging Growth Company Status Section 102(b)(1) of the Jumpstart Our Business Startups Act (the “JOBS Act”) exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can choose not to take advantage of the extended transition period and comply with the requirements that apply to non-emerging growth companies. Any such election to not take advantage of the extended transition period is irrevocable. FF is an “emerging growth company” as defined in Section 2(a) of the Securities Act and has elected to take advantage of the benefits of the extended transition period for new or revised financial accounting standards. FF expects to continue to take advantage of the benefits of the extended transition period, although it may decide to early adopt such new or revised accounting standards to the extent permitted by such standards. This may make it difficult or impossible to compare our financial results with the financial results of another public company that is either not an emerging growth company or is an emerging growth company that has chosen not to take advantage of the extended transition period exemptions because of the potential differences in accounting standards used. Segment Information On February 26, 2023, after an assessment by the Board of the Company’s management structure, the Board approved Mr. Yueting Jia, FF’s founder and Chief Product and User Ecosystem Officer (alongside the then Chief Executive Officer, Mr. Xuefeng Chen) reporting directly to the Board, as well as FF’s product, mobility ecosystem, I.A.I., and advanced research and development (“R&D”) technology departments reporting directly to Mr. Jia. The Board also approved FF’s user ecosystem, capital markets, human resources and administration, corporate strategy and China departments reporting to both Mr. Jia and Mr. Chen, subject to processes and controls to be determined by the Board after consultation with the Company’s management. Based on the changes to his responsibilities within the Company, 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. On September 16, 2023, Mr. Chen notified the Company of his decision to resign from his position as Global Chief Executive Officer (“Global CEO”) and as a member of the Board effective September 29, 2023. On September 21, 2023, the Board appointed Mattias Aydt to succeed Mr. Chen as Global CEO and as a member of the Board, effective September 29, 2023. The Company has determined that its co-Chief Operating Decision Makers (“co-CODMs”) are both its Global CEO and its Chief Product and User Ecosystem Officer. The Company has determined that it operates in one operating segment and one reportable segment, as the co-CODMs review financial information presented on a consolidated basis for purposes of making operating decisions, allocating resources, and evaluating financial performance. Substantially all of the Company’s consolidated operating activities, including its long-lived assets, are located within the United States. Given the Company’s early-revenue operating stage, it currently has no concentration exposure to products, services or customers. 46 Recent Developments During the three months ended March 31, 2024, these additional milestones and events took place: • Hosted a Chinese automotive supplier delegation at Faraday Future HQ on January 3, 2024. Discussed strategic cooperation opportunities with the Chinese supply chain. • Announced, on January 21, 2024, the completion of nearly 1,600 over-the-air (OTA) upgrades and product enhancements on the FF 91 2.0, including many new features based on user R&D co-creation feedback. • Announced on February 25, 2024, an updated Master Plan 1.1 to strategically position the Company for growth in 2024. The plan includes next steps for the Company’s operations, product and technology, manufacturing/supply chain, and funding/finance. . • Effected, on February 29, 2024, a reverse stock split of the Company’s issued and outstanding common stock and a corresponding reduction in the total number of shares of common stock the Company is authorized to issue. • Filed a lawsuit against Ding Lei and affiliated companies of Human Horizons for infringement of trade secrets and unfair competition. In the period subsequent to March 31, 2024, these additional milestones and events took place: • As of April 1, 2024, the Company completed its voluntary recall in the United States through an OTA software update. • The Company announced, on April 9, 2024, the establishment of a Middle Eastern sales entity in Dubai, U.A.E. • On April 22, 2024, the Company announced Werner Wilhelm as Executive Launch Director. • On May 29, 2024, the Company announced plans to share the details of the Bridge Strategy in the following months. • In June 2024, the Company determined that the previously announced future FF 91 Alliance Edition users, Rem D Koolhaas and Emma Hernan, would not complete the acquisition of their respective FF cars, due to personal reasons. Recent Governance Developments • At a special meeting of the Company’s stockholders held on February 5, 2024, the Company’s stockholders approved an increase in the authorized shares of Common stock from 154,437,500 to 1,389,937,500, increasing the total number of authorized shares of the Common stock and preferred stock 164,437,500 to 1,399,937,500. On February 5, 2024, the Company filed an amendment to the Company’s Third Amended and Restated Certificate of Incorporation, as amended, with the office of the Secretary of State of the State of Delaware to effect such increase. • Also at the special meeting of the Company’s stockholders held on February 5, 2024, the Company’s stockholders approved an amendment to the Company’s Third Amended and Restated Certificate of Incorporation, as amended, to effect a reverse stock split (the “Second Reverse Stock Split”) of the Common Stock by a ratio of 1-for-3, with such action to be effected at such time and date, if at all, as determined by the Board within one year after the conclusion of the special meeting and a corresponding reduction in the total number of shares of Common Stock the Company is authorized to issue. On February 23, 2024, the Board approved the implementation of the Second Reverse Stock Split and the Company filed a second amendment to the Company’s Third Amended and Restated Certificate of Incorporation, as amended, with the Secretary of State of the State of Delaware to effect the Second Reverse Stock Split and to set the number of authorized shares of Common Stock to 463,312,500 (which is 1,389,937,500 divided by 3). Pursuant to the Certificate of Amendment, effective as of 5:00 p.m., Eastern Time, on February 29, 2024 (the “Effective Time”), every three shares of the issued and outstanding Common Stock were automatically converted into one share of Common Stock, without any change in par value per share and the number of authorized shares of Common Stock was reduced to 463,312,500. 47 At the Effective Time, the number of shares of Common Stock reserved for issuance under the Company’s Amended and Restated 2021 Stock Incentive Plan, the Company’s Smart King Ltd. Equity Incentive Plan, and the Company’s Smart King Ltd. Special Talent Incentive Plan (collectively, the “Plans”), as well as the number of shares subject to the then-outstanding awards under each of the Plans, were proportionately adjusted, using the 1-for-3 ratio, rounded down to the nearest whole share. In addition, the exercise price of the then-outstanding options under each of the Plans was proportionately adjusted, using the 1-for-3 ratio, rounded up to the nearest whole cent. Proportionate adjustments were made to the number of shares of Common Stock issuable upon exercise or conversion of the Company’s outstanding warrants and convertible securities, as well as the applicable exercise or conversion prices. The Company’s Class A Common Stock began trading on The Nasdaq Capital Market on a split-adjusted basis at the opening of trading on March 1, 2024 under the symbol “FFIE” with a new CUSIP number (307359 703). The Class B Common Stock also has a new CUSIP number (307359 802). The Company’s publicly traded warrants continue to be traded on Nasdaq under the symbol “FFIEW” and the CUSIP number for the warrants remains unchanged. However, under the terms of the applicable warrant agreement, the number of shares of Class A Common Stock issuable on exercise of each warrant has been proportionately decreased. Specifically, following the effectiveness of the Second Reverse Stock Split, every three shares of Class A Common Stock that may be purchased pursuant to the exercise of public warrants now represents one share of Class A Common Stock that may be purchased pursuant to such warrants. Accordingly, for the Company’s warrants trading under the symbol “FFIEW”, every three warrants are now exercisable for one share of Class A Common Stock at an exercise price of $2,760.00 per share of Class A Common Stock. No fractional shares of Common Stock were issued as a result of the Second Reverse Stock Split. Stockholders who would otherwise receive a fractional share were instead issued a full share in lieu of such fractional share. The Second Reverse Stock Split affected all record holders of the Common Stock uniformly and did not affect any record holder’s percentage ownership interest in the Company, except for de minimis changes as a result of the elimination of fractional shares. Holders of Common Stock who hold in “street name” in their brokerage accounts did not have to take any action as a result of the Second Reverse Stock Split. Their accounts were automatically adjusted to reflect the number of shares owned. Stockholders of record received information from Continental Stock Transfer & Trust Company regarding their stock ownership following the Second Reverse Stock Split. • Effective February 26, 2024, Mr. Xuefeng Chen, transitioned from his role as China Chief Executive Officer to Senior Vice President and no longer served as a Section 16 officer of Faraday Future Intelligent Electric Inc. Mr. Chen subsequently resigned from the Company in March 2024. • On June 9, 2024, Li Han resigned as a director of the Company for personal reasons. Ms. Han also served as a member of the Nominating and Corporate Governance Committee. Components of FF’s Results of Operations Key Factors Affecting Operating Results FF’s performance and future success depend on several factors that present significant opportunities but also pose risks and challenges including those discussed below and in the section titled “ Risk Factors ” in the Form 10-K, as updated in this Report. Production and Operations FF expects to continue to incur significant operating costs that will impact its future profitability, including R&D expenses as it introduces new models and improves existing models; capital expenditures for the expansion of its manufacturing capacities; additional operating costs and expenses for production ramp-up; raw material procurement costs; general and administrative expenses as it scales its operations; interest expense from debt financing activities; and selling and distribution expenses as it builds its brand and markets its vehicles. FF may incur significant costs in connection with its services as it delivers at scale the FF 91 Futurist, including servicing and warranty costs. FF’s ability to become profitable in the future will depend on its ability to successfully market its vehicles and control its costs. Through March 31, 2024, FF has sold a total of four and leased six vehicles. As a result, FF will require substantial additional capital to develop products and fund operations for the foreseeable future. Until FF can generate sufficient revenue from product sales, FF will fund its ongoing operations through a combination of various funding and financing alternatives, including equipment financing of the FF ieFactory California, secured syndicated debt financing, convertible notes, working capital loans, and equity offerings, among other options. The particular funding mechanisms, terms, timing, and amounts are dependent on the Company’s assessment of opportunities available in the marketplace and the circumstances of the business at 48 the relevant time. Any delays in the successful completion of its FF ieFactory California will impact FF’s ability to generate revenue. For additional discussion of the substantial doubt about FF’s ability to continue as a going concern, see Note 2, Liquidity and Capital Resources and Going Concern in the notes to the Unaudited Condensed Consolidated Financial Statements and for further details on liquidity, see the “Liquidity and Capital Resources” section below. Revenue Recognition We began the production of our FF 91 Futurist in March 2023 and started making deliveries to customers in August 2023. We have sold and leased zero vehicles during the three months ended March 31, 2024. Automotive Sales Revenue Automotive sales revenue includes revenues related to deliveries of new vehicles, and specific other features and services including home charger, charger installation, 24/7 roadside assistance, OTA software updates, internet connectivity and destination fees. We recognize revenue on automotive sales upon delivery to the customer, which is when control of a vehicle transfers. Payments are typically received at the point control transfers or in accordance with payment terms customary to the business and as indicated in the sales contract. OTA software updates are provisioned upon transfer of control of a vehicle and recognized over time on a straight-line basis as we have a stand-ready obligation to deliver such services to the customer. For obligations related to automotive sales, we estimate standalone selling price by considering costs used to develop and deliver the good or service, third-party pricing of similar options and other information that may be available. The transaction price is allocated among the performance obligations in proportion to the standalone selling price of our performance obligations. Vehicle contracts do not contain a significant financing component. Revenue from immaterial promises are combined with the vehicle performance obligation and recognized when the product has been transferred. We accrue costs to transfer these immaterial goods and services regardless of whether they have been transferred. We provide customers with a residual value guarantee which may or may not be exercised in the future. The impact of such residual value guarantees was immaterial to the our Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2024. Co-creation Arrangements As part of our Futurist Product Officers (“FPO”) Co-Creation Delivery program that began in August 2023, we have entered into co-creation agreements with certain customers. The arrangement leverages some of our sales and leasing customers to provide valuable driving data, insights, marketing and brand awareness of the FF 91 vehicle. For the services performed, we compensate the respective customers through a monthly consulting fee payment or a discount on their monthly lease payment. Management examined in detail the services provided by each respective customer in accordance with the co-creation agreement, established various data points, and rationally assigned a dollar amount that was deemed representative of the fair value of the services. Co-creation payments that exceed the fair value of the distinct services performed by the customer are considered consideration paid to the customer and were treated as a reduction in revenue. Co-creation fees recorded as a reduction to revenue and also within research and development (“R&D”) expenses in the Unaudited Condensed Consolidated Financial Statements were immaterial for the three months ended March 31, 2024. We have entered into and may continue to enter into co-creator consulting agreements with our customers under which customers share feedback, driving data, ideas, and experiences with our engineers, social media posts and other promotions in exchange for specified fees. We consider these arrangements consideration payable to a customer. The consideration paid to the customer relates to marketing and R&D services that are distinct and could be purchased by us from a separate third party. We perform an analysis in which it maximizes the use of observable market inputs to ascribe a fair value to these services and record the fair value of these services to sales and marketing expense or R&D expense, as applicable. Any consideration payable to a customer that is above the fair value of the distinct services being provided is treated as a reduction of revenue. Automotive Leasing Revenue Operating Leasing Program We have outstanding leases under our vehicle operating leasing program in the United States. Qualifying customers are permitted to lease a vehicle for up to 36 months. At the end of the lease term, customers are generally required to return the vehicles to us. We account for these leasing transactions as operating leases. We record leasing revenues to automotive leasing revenue on a straight-line basis over the contractual term, and we record the depreciation of these vehicles to cost of automotive leasing revenue. Our policy is to exclude taxes collected from a customer from the transaction price of automotive contracts. 49 Sales-Type Leasing Program We have outstanding leases accounted for as sales-type leases under Accounting Standards Codification (“ASC”) 842, Leases (“ASC 842”). Customers have the right to purchase the vehicle at the end of the lease term, which is usually 36 months. A customer qualifies under this program if the purchase option is reasonably certain to be exercised, and we therefore expect the customer to take title to the vehicle at the end of the lease term after making all contractual payments. We recognize all revenue and costs associated with the sales-type lease as automotive leasing revenue and automotive leasing cost of revenue, respectively, upon delivery of the vehicle to the customer when collectability of lease payments is probable at lease commencement. If collectability of lease payments is not probable at commencement, we recognize the lease payments as deposit liability and do not derecognize the leased vehicle until such point that collectability of lease payments becomes probable. Customer Deposits and Deferred Revenue Our customers may reserve a vehicle and preorder certain services by making a customer deposit, which is fully refundable at any time. Refundable deposits, for vehicle reservations and services, received from customers prior to an executed vehicle purchase agreement are recorded as customer deposits within Accrued expenses and other current liabilities on our Consolidated Balance Sheet. Customer deposits were $3.2 million as of March 31, 2024 and December 31, 2023. When vehicle purchase agreements are executed, the consideration for the vehicle and any accompanying products and services must be paid in advance prior to the transfer of products or services by us. Such advance payments are considered non-refundable, and we defer revenue related to any products or services that are not yet transferred. Deferred revenue is equivalent to the total transaction price allocated to the performance obligations that are unsatisfied, or partially unsatisfied, as of the balance sheet date. Deferred revenue related to products and services w as immaterial a s of March 31, 2024 and December 31, 2023. Warranties We provide a manufacturer’s warranty on all vehicles sold. The warranty covers the rectification of reported defects via repair, replacement, or adjustment of faulty parts or components. The warranty does not cover any item where failure is due to normal wear and tear. This assurance-type warranty does not create a performance obligation separate from the vehicle. Management tracks warranty claims by vehicle ID, owner, and date. As we continue to manufacture and sell more vehicles, we will reassess and evaluate our warranty claims for purposes of our warranty accrual. Cost of Automotive Sales Revenue Cost of revenue includes direct and indirect materials, labor costs, manufacturing overhead, including depreciation costs of tooling and machinery, shipping and logistic costs, vehicle connectivity costs, and reserves for estimated warranty expenses. Cost of automotive sales revenues also includes adjustments to warranty expense. Cost of services and other revenue includes costs associated with providing non-warranty after-sales services, costs for retail merchandise, and costs to provide vehicle insurance. Cost of services and other revenue also includes direct parts and material. Cost of Automotive Leasing Program Cost of automotive leasing revenue includes the depreciation of operating lease vehicles, cost of goods sold associated with direct sales-type leases and warranty expense related to leased vehicles. Operating Expenses Research and Development Research and Development (“R&D”) activities represent a significant part of our business. Our R&D efforts focus on the design and development of our electric vehicles and continuing to prepare its prototype electric vehicles to exceed industry standards for compliance, innovation, and performance. R&D expenses consist of personnel-related costs (including salaries, bonuses, benefits, and stock-based compensation) for our employees focused on R&D activities, other related costs, depreciation, R&D services provided by co-creators, and an allocation of overhead. We expect R&D expenses to decrease in the near future as we substantially completed R&D activities related to the FF 91 in late 2023. 50 Sales and Marketing Sales and marketing expenses consist primarily of personnel-related costs (including salaries, bonuses, benefits, and stock-based compensation) for our employees focused on sales and marketing, costs associated with sales and marketing activities, marketing services provided by co-creators, and an allocation of overhead. Marketing activities are those related to introducing our brand and our electric vehicle prototypes to the market. We expect selling and marketing expenses to continue to increase as we brings its electric vehicles to market and seeks to generate sales. General and Administrative General and administrative expenses consist primarily of personnel-related costs (including salaries, bonuses, benefits, and stock-based compensation) for our employees associated with administrative services such as legal, human resources, information technology, accounting and finance, other related costs, and legal loss contingency expenses, which are our estimates of future legal settlements. These expenses also include certain third-party consulting services, certain facilities costs, and any corporate overhead costs not allocated to other expense categories. We expect our general and administrative expenses to increase as we continues to grow our business. Loss on Disposal of Property, Plant and Equipment Loss on disposal of property, plant and equipment relates to the abandonment of certain FF 91 Futurist program construction in progress assets, primarily vendor tooling, machinery, and equipment, due to the redesign of the related FF 91 components and implementation of our cost reduction program. Charges associated with disposals are recognized within operating expenses in the Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss. Change in Fair Value of Earnout Liability Legacy FF stockholders, as of the July 21, 2021 closing date of the Business Combination (as defined in Note 9, Commitments and Contingencies in the notes to the Unaudited Condensed Consolidated Financial Statements) until our fifth anniversary, are entitled to contingent consideration of up to 104,167 additional shares of Class A Common Stock in the aggregate in two equal tranches upon the occurrence of each earnout triggering event (“Earnout Shares”). We recognized the Earnout Shares at fair value upon the closing of the Business Combination and classified them in Stockholders’ Equity since the Earnout Shares were determined to be indexed to our own stock and meet the requirements for equity classification in accordance with ASC 815-40, Derivatives and Hedging - Contracts in Entity’s Own Equity . From time to time subsequent to the closing of the Business Combination, the Earnout Shares may be classified as derivative liabilities under ASC 815, Derivatives and Hedging , due to us having insufficient authorized shares to fully settle the equity-linked financial instruments in shares. The Earnout Shares reclassified as derivative instruments are recognized at fair value with changes in fair value recognized in earnings until such time as the conditions giving rise to such derivative liability classification are settled or we have sufficient authorized, unissued shares to settle such contracts with shares. Non-operating Expenses Change in Fair Value of (Related Party and Third Party) Notes Payable and Warrant Liabilities Change in fair value measurements consists of the losses and gains as a result of fair value measurements of certain notes payable and warrant liabilities that we record at fair value. Loss on Settlement of (Related Party and Third Party) Notes Payable Loss on settlement of notes payable consists of losses resulting from the settlement of notes payable as part of our ongoing financing activities and losses incurred on modifications of our notes payable that qualify as an extinguishment pursuant to ASC 470-50, Debt–Modifications and Extinguishments . Related Party Interest Expense Related party interest expense consists of interest expense on notes payable with related parties. Interest Expense Interest expense primarily consists of interest on outstanding notes payable not marked to fair value, capital leases, certain supplier payables, and vendor payables in trust. Other Expense, net 51 Other expense, net consists of foreign currency transaction gains and losses and other expenses such as bank fees and late charges. Foreign currency transaction gains and losses are generated by revaluation of debt and the settlements of invoices denominated in currencies other than the functional currency. We expect other expense to fluctuate as we continue to transact internationally. Results of Operations Three Months Ended March 31, (in thousands) 2024 2023 Unaudited Condensed Consolidated Statements of Operations Revenue $ 2 $ — Cost of revenues 20,687 — Gross Profit (20,685) — Operating expenses Research and development 6,688 57,808 Sales and marketing 2,474 5,065 General and administrative 13,848 26,513 (Gain)/Loss on disposal on property, plant and equipment (87) 3,698 Change in fair value of earnout liability — 2,764 Total operating expenses 22,923 95,848 Loss from operations (43,608) (95,848) Change in fair value of notes payable and warrant liabilities 27,885 48,135 Change in fair value of related party notes payable and related party warrant liabilities (7) — Loss on settlement of notes payable (11,403) (98,136) Loss on related party notes payable (14,295) — Interest expense (2,225) (292) Related party interest expense (5,094) — Other expense, net 530 1,168 Loss before income taxes (48,217) (144,973) Income tax provision — — Net loss $ (48,217) $ (144,973) Revenues Three Months Ended March 31, Change (in thousands) 2024 2023 Amount % Revenue $ 2 $ — $ 2 NM* *NM = not meaningful. Automotive sales revenue was $2.0 thousand for the three months ended March 31, 2024. We began vehicle deliveries to our customers during the third quarter of 2023 and have had minimal revenue activity. Cost of Revenues Three Months Ended March 31, Change (in thousands) 2024 2023 Amount % Cost of revenues $ 20,687 $ — $ 20,687 NM* *NM = not meaningful. Cost of revenue was $20.7 million for the three months ended March 31, 2024. Given we began vehicle deliveries to our customers during the third quarter of 2023, we have no Cost of revenue for the three months ended March 31, 2023. 52 Research and Development Three Months Ended March 31, Change (in thousands) 2024 2023 Amount % Research and development $ 6,688 $ 57,808 $ (51,120) (88) % The decrease in R&D expense is primarily due to the reduction in engineering, design and testing services, General expenses and Information technology of $26.4 million, $1.5 million, and $2.8 million, respectively, as we substantially completed R&D activities related to the FF91 in late 2023 and moved into production. In addition, there was a decrease in personnel and compensation expenses of $14.7 million due to a decrease in headcount resulting from both the substantial completion of R&D and cost saving measures implemented by us in light of our financial position, as well as a decrease in stock-based compensation expense of $6.0 million resulting from the same reduction in headcount and revaluation of stock-based compensation resulting from the transition of stock compensation from liability to equity classification. Sales and Marketing Three Months Ended March 31, Change (in thousands) 2024 2023 Amount % Sales and marketing $ 2,474 $ 5,065 $ (2,591) (51) % The decrease in sales and mark eting expense is primarily due to a decrease in personnel and compensation expenses of $1.7 million due to a decrease in headcount as part of cost saving measures implemented by us in light of our financial position and a decrease of $0.7 million in stock-based compensation expense driven by reductions in headcount and the revaluation of stock-based compensation resulting from the transition of stock compensation from liability to equity classification. General and Administrative Three Months Ended March 31, Change (in thousands) 2024 2023 Amount % General and administrative $ 13,848 $ 26,513 $ (12,665) (48) % The decrease in gener al and administrative expense was primarily due to the decrease in personnel and compensation expenses of $16.3 million due to a decrease in headcount as part of cost saving measures implemented by us in light of our financial position offset by an increase in professional services expenses that resulted from the effects of an insurance payment received during the three months ended March 31, 2023. Loss on Disposal of Property, Plant and Equipment Three Months Ended March 31, Change (in thousands) 2024 2023 Amount % (Gain)/Loss on disposal on property, plant and equipment $ (87) $ 3,698 $ (3,785) (102) % The change in loss on disposal of property, plant and equipment was primarily due to the non-recurring write-off of $3.7 million during the three months ended March 31, 2023 of certain construction in process assets that are not expected to be used as part of start of production. Change in Fair Value of Earnout Liability Three Months Ended March 31, Change (in thousands) 2024 2023 Amount % Change in fair value of earnout liability $ — $ 2,764 $ (2,764) (100) % As of December 31, 2022, we had reclassified our earnout obligation from equity classification to liability classification as a result of us having insufficient authorized shares to share-settle the earnout, which was previously determined to be equity classified under ASC 815-40, Derivatives and Hedging - Contracts in Entity’s Own Equity . On February 28, 2023, upon stockholder approval to increase our authorized shares, we had sufficient authorized shares to fully settle all outstanding equity-linked financial instruments. Accordingly, we reclassified the fair value of the Earnout liability of $5.0 million into Additional paid-in capital. The $2.8 million increase in the Earnout liability from December 31, 2022 to February 28, 2023 was recognized as an expense in the Change in fair value of earnout liability during the three months ended March 31, 2023. There is no comparable transaction during the three months ended March 31, 2024. 53 Change in Fair Value of Notes Payable and Warrant Liabilities Three Months Ended March 31, Change (in thousands) 2024 2023 Amount % Change in fair value of notes payable and warrant liabilities $ 27,885 $ 48,135 $ (20,250) (42) % The decrease in change in the fair value of notes payable and warrant liabilities is due to the fluctuations year over year in the underlying SPA Note and SPA Warrant instruments (as each term is defined in Note 7, Notes Payable in the notes to the Unaudited Condensed Consolidated Financial Statements). There was a significant reduction in the volume of outstanding notes payable accounted for at fair value as of March 31, 2024 when compared with March 31, 2023. As of March 31, 2024 there was approximately $104.2 million of gross principal balance outstanding and measured at fair value, compared with $165.0 million as of March 31, 2023. Additionally, our SPA Warrants had a larger decline in fair value during the three months ended March 31, 2023 compared with the three months ended March 31, 2024. The fluctuation in fair value of our SPA Warrants has declined due to the reductions in exercise price that occurred as a result of the full ratchet anti-dilution price protections embedded in the SPA Warrants. The reductions in exercise price have brought the exercise price of the SPA Warrants closer in line with our stock prices. These impacts are partially offset by a larger decline in fair value per dollar of debt principal outstanding during the three months ended March 31, 2024 compared with the three months ended March 31, 2023. The decreased fair value of our notes payable is due to pricing inputs that use the market price of the Common Stock and debt discount rate, which have experienced a decline. Change in Fair Value of Related Party Notes Payable and Related Party Warrant Liabilities Three Months Ended March 31, Change (in thousands) 2024 2023 Amount % Change in fair value of related party notes payable and related party warrant liabilities $ (7) $ — $ (7) NM* *NM = not meaningful. We did not have any related party notes payable or warrants that were re-measured at fair value during the three months ended March 31, 2023. Loss on Settlement of Notes Payable Three Months Ended March 31, Change (in thousands) 2024 2023 Amount % Loss on settlement of notes payable $ (11,403) $ (98,136) $ 86,733 (88) % The decrease in the Loss on settlement of notes payable during the three months ended March 31, 2024 is driven by a lower conversion volume during the period combined with a reduced loss on settlement per dollar of principal. During the three months ended March 31, 2024 note holders converted $18.3 million of notes payable compared to $61.6 million in the prior period. The decrease in the loss on settlement per dollar of principal is driven full ratchet anti-dilution price protection bringing the conversion price closer to the fair value of our Class A Common Stock. Loss on Settlement of Related Party Notes Payable Three Months Ended March 31, Change (in thousands) 2024 2023 Amount % Loss on related party notes payable $ (14,295) $ — $ (14,295) NM* *NM = not meaningful. We did not have any related party notes payable that settled during the three months ended March 31, 2023. In May 2023, we entered into Unsecured SPA Notes (as defined in Note 7, Notes Payable in the notes to the Unaudited Condensed Consolidated Financial Statements) with Metaverse Horizon Limited, who is a related party, and V W Investment Holding Limited. During the three months ended March 31, 2024, related party note holders converted $0.7 million of related party notes payable, the remaining outstanding balance, in exchange for 1,324,292 shares of Class A Common Stock and we recognized a Loss on settlement of related party notes payable for the difference between the fair value of the shares issued and the fair value of the debt instrument. In addition, as discussed in Note 8, Related Party Transactions, we also recognized a loss on related party 54 notes from the recognition of interest and penalties and the increase of principal due to our breach of the agreement with Chongquing Leshi Small Loan Co., Ltd. Interest Expense Three Months Ended March 31, Change (in thousands) 2024 2023 Amount % Interest expense $ (2,225) $ (292) $ (1,933) (662) % The increase in Interest expense was primarily due to the Financial obligation on sale and leaseback transaction that did not exist in Q1 2023. Related Party Interest Expense Three Months Ended March 31, Change (in thousands) 2024 2023 Amount % Related party interest expense $ (5,094) $ — $ (5,094) NM* *NM = not meaningful. The increase in Related party interest expense was due to our default on the Chongquing Leshi Small Loan Co., Ltd note, which resulted in a substantial increase in our interest rate along with additional interest expense and penalties. As discussed in Note 8, Related Party Transactions, w e had previously negotiated with a related party to partially forgive debt and interest on its related note, in exchange for the promise to make payments on a scheduled basis. The interest related to this note was reinstated for Q1 2024 due to our default on the underlying note. Other (Expense) Income, Net Three Months Ended March 31, Change (in thousands) 2024 2023 Amount % Other expense, net $ 530 $ 1,168 $ (638) (55) % The change in Other expense, net was primarily due to a an change in foreign currency transaction of $1.5 million resulting from the revaluation of transactions denominated in currencies other than U.S. Dollars that are remeasured at the end of each period partially offset by one time expenses incurred in Q1 2023 of $0.9 M. Liquidity and Capital Resources Going Concern We have evaluated whether there are certain conditions and events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern within one year after the date that the Unaudited Condensed Consolidated Financial Statements are issued. Based on our recurring losses from operations since inception and continued cash outflows from operating activities (all as described below), we have concluded that there is substantial doubt about our ability to continue as a going concern for a period of one year from the date that these Unaudited Condensed Consolidated Financial Statements were issued. The Unaudited Condensed Consolidated Financial Statements do not include any adjustments that might result from the outcome of this uncertainty. Accordingly, the Unaudited Condensed Consolidated Financial Statements have been prepared on a basis that assumes we will continue as a going concern and that contemplates the realization of assets and satisfaction of liabilities and commitments in the ordinary course of business. We have and will continue to devote substantial effort and, to the extent available, capital resources, to strategic planning, engineering, design, and development of its electric vehicle platform, development of vehicle models, finalizing the build out of the FF ieFactory California manufacturing facility, and capital raising. We incurred cumulative losses from operations, negative cash flows from operating activities, and have an accumulated deficit of $4,006.7 million, an unrestricted cash balance of $0.4 million and a negative working capital position of $175.2 million, excluding restricted cash, as of March 31, 2024. During 2023, we delivered our first vehicles but expects to continue generating significant operating losses for the foreseeable future. We have funded our operations and capital needs primarily through the issuance of related party notes payable and notes payable (see Note 7, Notes Payable and Note 8, Related Party Transactions ), convertible notes, and the sale of common stock. 55 Pursuant to the Secured SPA, the Unsecured SPA, the Unsecured Streeterville SPA, the FFVV Joinder, and the Senyun Joinder (collectively the “SPA Commitments”) (see Note 7, Notes Payable and Note 8, Related Party Transactions ), we obtained commitments from several investors. At March 31, 2024, the SPA Commitments totaled $554.5 million, of which $343.2 million was funded, $211.3 million remained to be funded, and $93.6 million in principal was outstanding. At March 31, 2024, Optional Commitments under the SPA Commitments totaled $366.0 million, of which $40.6 million was funded, $325.4 million remained to be funded, and $3.0 million was outstanding. The remaining amounts to be funded as of March 31, 2024, are subject to the achievement of delivery milestones, satisfaction of closing conditions, resolution of disputes with investors, and satisfaction or waiver of other conditions, including for a portion of such financing an effective registration statement for the shares underlying the applicable notes. We may be unable to satisfy the closing conditions under the SPA Commitments or obtain additional incremental convertible senior secured note purchasers under the SPA Commitments or other debt or equity financing in a timely manner, on acceptable terms, or at all. On November 11, 2022, we entered into a three-year Standby Equity Purchase Agreement (the “SEPA”) with YA II PN LTD. (“Yorkville”). Under terms of the SEPA, we may, at our option, issue and sell from time to time up to $200.0 million (which can be increased up to $350.0 million in the aggregate under our option) of Class A Common Stock to an affiliate of Yorkville Advisors, subject to certain limitations. As of March 31, 2024, we had the right to issue and sell up to an additional $192.5 million, or $342.5 million if we exercise our option under the SEPA, of Class A Common Stock under the SEPA. In addition, on September 26, 2023, we entered into a sales agreement with Stifel, Nicolaus & Company, Incorporated, B. Riley Securities, Inc., A.G.P./Alliance Global Partners, Wedbush Securities Inc. and Maxim Group LLC, as sales agents, to sell shares of Class A Common Stock, from time to time, with aggregate gross sales proceeds of up to $90.0 million pursuant to the Registration Statement as an “at-the-market” offering under the Securities Act (the “ATM Program”). The ATM Program has been the primary source of liquidity for us since September 2023. Under applicable SEC rules and regulations, because we failed to timely file our Form 10-K and this Form 10-Q, we are not S-3 eligible and cannot access the ATM Program. Our ability to issue and sell additional shares of common stock or warrants under the SEPA is constrained by the number of authorized shares of our common stock. We must consider shares issuable under convertible debt, warrants or other obligations with equity rights. In addition, equity issuances can potentially trigger provisions under the SPA Commitments that increase the number of shares to be issued upon conversion and reduce the strike price of related warrants. This could result in us having inadequate authorized shares to meet our outstanding commitments. We project that we will require substantial additional funds to continue operations and support production of the FF 91. If we are unable to find additional sources of capital, we will not have sufficient resources to fund our outstanding obligations and continue operations and we will likely have to file for bankruptcy protection and our assets will likely be liquidated. Our equity holders would likely not receive any recovery at all in a bankruptcy scenario. We continue to explore various funding and financing alternatives to fund our ongoing operations and to ramp up production. The particular funding and financing mechanisms, terms, timing, and amounts depend on our assessment of opportunities available in the marketplace and the circumstances of the business at the relevant time. However, there have been delays in securing additional funding commitments, which have exacerbated supply chain pressures, among other things. If our ongoing capital raising efforts are unsuccessful or significantly delayed, or if we experience prolonged material adverse trends in our business, production will be delayed or decreased, and actual use of cash, production volume and revenue for 2024 will vary from our previously disclosed forecasts, and such variances may be material. While we are actively engaged in negotiations with potential financing sources, we may be unable to raise additional capital on terms acceptable to us or at all. In addition to the risk that our assumptions and analyses may prove incorrect, the projections may underestimate the professional fees and other costs to be incurred related to the pursuit of various financing options currently being considered and ongoing legal risks. Capital needs to fund development of our remaining product portfolio will highly depend on the market success and profitability of the FF 91 and our ability to accurately estimate and control costs. Apart from the FF 91 series, substantial additional capital would be required to fund operations, research, development, and design efforts for future vehicles. As of and since March 31, 2024, we were and have been in default on the SPA Commitments and we are presenting the related notes as current. Since April 2023, we had been in default on, and since January 1, 2024, have been in breach of, our debt agreement with Chongqing Leshi Small Loan Co., Ltd., a related party, with an outstanding principal balance of $7.6 million and interest payable of $17.4 million as of March 31, 2024. Sources of Liquidity As of March 31, 2024, our principal source of liquidity was unrestricted cash on hand totaling $0.4 million, which was held for working capital and general corporate purposes. We also have access to various sources of additional capital, including 56 the SEPA, the ATM Program, the SPA Commitments and other unsecured convertible notes. Our ability to access these sources of capital and further information on amounts available is discussed in Note 2, Liquidity and Capital Resources and Going Concern in the notes to the Unaudited Condensed Consolidated Financial Statements. Significant Related Party Notes Payable and Notes Payable Facilities We have been significantly funded by notes payable from related parties and third parties. The related parties include employees as well as affiliates of employees and affiliates and other companies controlled or previously controlled by our founder and Chief Product and User Ecosystem Officer. For more information on the outstanding related party notes payable and notes payable as well as the related schedules of maturities, see Note 7, Notes Payable , and Note 8, Related Party Transactions , of the notes to the Unaudited Consolidated Financial Statements. Related party notes payable consists of the following as of March 31, 2024: (in thousands) Contractual Maturity Date Contractual Interest Rates Net Carrying Value Related party notes – China December 2023 18.0% $ 7,612 Related party notes – Unsecured Other Convertible April 8, 2024 0.0427 1,632 Related party notes – China various other Due on Demand —% 3,759 Related party notes – Convertible FFGP May 2024 4.27% $ 250 Related party notes – FFGP Various 2024 4.27% - 5.27% $ 1,576 14,829 Less: Related party notes payable, current (14,829) Total: Related party notes payable, less current $ — We have entered into notes payable agreements with third parties, which consist of the following as of March 31, 2024: (in thousands) Contractual Maturity Date Contractual Interest Rates Unpaid Principal Balance Fair Value Measurement Adjustments Original Issue Discount and Proceeds Allocated to Warrants Net Carrying Value Secured SPA Notes Various 10%-15% $ 83,387 $ (33,603) $ (7,896) $ 41,888 Unsecured SPA Notes * Various dates in 2029 10%-15% 13,219 (1,626) (2,543) 9,050 Unsecured Convertible Notes Various dates in 2024 4.27% 9,080 414 — 9,494 Notes payable – China other Due on Demand —% 4,897 — — 4,897 Auto loans October 2026 6.99% 72 — — 72 $ 110,655 $ (34,815) $ (10,439) 65,401 Less: Related party notes payable $ (1,632) Less: Notes payable, current portion (63,769) Total: Notes payable, less current portion $ — * includes amounts attributed to the Unsecured Streeterville SPA All notes are classified as current as of March 31, 2024. 57 Cash Flow Analysis Presented below is a summary of FF’s cash flows for the periods indicated: (in thousands) Three Months Ended March 31, 2024 2023 Net cash provided by (used in): Operating activities $ (14,719) $ (102,980) Investing activities (12) (16,873) Financing activities 12,013 134,443 Effect of exchange rate changes on cash and restricted cash (2) 170 Operating Activities We continue to experience negative cash flows from operations as we design and develop our vehicles and build our infrastructure both in the United States and China. Our cash flows from operating activities are significantly affected by our cash investments to support the growth of our business in areas such as R&D associated with our electric vehicles, corporate planning, and general and administrative functions. Our operating cash flows are also affected by our working capital needs to support growth and fluctuations in personnel-related expenditures, accounts payable, accrued interest, other current liabilities, deposits, and other current assets. Net cash used in operating activities was $14.7 million for the three months ended March 31, 2024 as compared to $103.0 million for the three months ended March 31, 2023. Cash used in operating activities is primarily made up of Net loss, depreciation expense, changes in fair value of and settlements on notes and related party notes payable and changes in working capital. The change was primarily driven by the large decrease to net loss, to losses on settlement notes payable, and to changes in fair value of notes payable and warrant liabilities, an increase in depreciation expense and loss on related party notes payable, and a decrease in cash outflows from operating activities, offset by reductions in settlements on notes payable, changes in the fair value of related party notes and a reduction of stock compensation expense. Investing Activities Net cash used in investing activities was $0.0 million and $16.9 million for the three months ended March 31, 2024 and 2023, respectively, and is related to the significant decrease in the acquisition of fixed assets due to the reduction of liquidity. Financing Activities Net cash provided by financing activities was $12.0 million and $134.4 million for the three months ended March 31, 2024 and March 31, 2023, respectively. Net cash provided by financing activities during the three months ended March 31, 2024, primarily consists of $9.0 million in proceeds from notes payable, net of original issue discount, and $3.0 million in proceeds from related party notes payable. Net cash provided by financing activities during the three months ended March 31, 2023 primarily consists of $131.8 million in proceeds from notes payable, net of original issue discount and $4.1 million in proceeds from the exercise of warrants offset by $1.1 million of notes payable transaction costs. Effect of Exchange Rate Changes on Cash and Restricted Cash The effects of exchange rate changes on cash and restricted cash was $— million and $0.2 million for the three months ended March 31, 2024 and 2023, respectively. The effects of exchange rate changes on cash and restricted cash result from fluctuations in the translation of assets and liabilities denominated in foreign currencies, primarily Chinese Renminbi. Fluctuations in exchange rates against the U.S. Dollar may positively or negatively affect our operating results. Off-Balance Sheet Arrangements We did not have any material relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating 58 off-balance sheet arrangements or other contractually narrow or limited purposes. Thus, we did not have any off-balance sheet arrangements as of March 31, 2024 and December 31, 2023. Critical Accounting Estimates The preparation of our Unaudited Condensed Consolidated Financial Statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent liabilities, and the reported amounts of expenses during the reporting period. Management has based its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Changes in the accounting estimates are reasonably likely to occur from period to period. Accordingly, actual results could differ significantly from the estimates made by our management. To the extent that there are material differences between these estimates and actual results, future financial statement presentation, financial condition, results of operations, and cash flows will be affected. Given the global economic climate, estimates are subject to additional volatility. Critical accounting estimates are defined as estimates made in accordance with GAAP that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition or results of operations. For a description of our critical accounting estimates, refer to the section titled “Critical Accounting Estimates” in Management’s Discussion and Analysis of Financial Condition and Results of Operations, set forth in Part II, Item 7, of the Form 10-K. As of the date of this report, there have been no changes to our critical accounting estimates described in the Form 10-K that have had a material impact on our Unaudited Condensed Consolidated Financial Statements and related footnotes. Recent Accounting Pronouncements See the section titled “ Recent Accounting Pronouncements” in Note 1, Nature of Business and Organization and Basis of Presentation in our Unaudited Condensed Consolidated Financial Statements included elsewhere in this Form 10-Q for a discussion about recent accounting pronouncements that are determined to be applicable to us. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Pursuant to Item 305(e) of Regulation S-K, FF is not required to provide the information required by this Item as it is a “smaller reporting company.”