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Related Party Transactions
 6 Months Ended
Jun. 30, 2023
Related Party Transactions [Abstract]  
Related Party Transactions Related Party Transactions
Related Party Notes Payable
The Company receives funding via notes payable from various parties, including related parties. These related parties include employees as well as affiliates of employees, affiliates, and other companies controlled or previously controlled by the Company’s founder and Chief Product and User Ecosystem Officer.
Related party notes payable consists of the following as of June 30, 2023:
(in thousands)Contractual
Maturity
Date		Contractual
Interest
Rates		Net
Carrying
Value
Related party notes – ChinaDecember 202312.0%$5,042 
Related party notes – Unsecured SPAOctober 2029
10% - 15%
7,777 
Related party notes – China various otherDue on Demand—%3,736 
16,555 
Less: Related party notes payable, current(8,778)
Total: Related party notes payable, less current$7,777 
Related party notes payable consists of the following as of December 31, 2022:
(in thousands)Contractual
Maturity
Date		Contractual
Interest
Rates		Net Carrying Value
Related party notes – ChinaDecember 31, 202312.0%$5,209 
Related party notes – China various otherDue on Demand—%3,755 
$8,964 
Unsecured SPA
MHL is the anchor investor in the Unsecured SPA Notes and has committed $80.0 million of such funding. MHL is a related party of the Company as MHL’s investors include a subsidiary of FF Global. FF Global has control over the Company’s management, business and operations. See Note 8, Notes Payable, for details on the Unsecured SPA.
The Company elected the fair value option afforded by ASC 825, Financial Instruments, with respect to the Unsecured SPA Notes because the notes include features, such as a contingently exercisable put option, which meet the definition of an embedded derivative. The Company expensed the original issue discount and transaction costs to Changes in fair value of notes payable and warrant liabilities in the unaudited Condensed Consolidated Statement of Operations and Comprehensive Loss for the three and six months ended June 30, 2023.
Subsequent to the issuance of the Unsecured SPA, MHL funded, net of original issue discounts, $19.8 million in exchange for the issuance of the Unsecured SPA Notes and related warrants. In connection with the Unsecured SPA, the Company issued MHL warrants to purchase 8,127,057 shares of the Company’s Class A Common Stock at an exercise price of $0.89 per share, subject to anti-dilution ratchet price protection, exercisable for seven years from the date of issuance (see Note 11, Stockholders' Equity and Note 8, Notes Payable). During the three months ended June 30, 2023 MHL converted $12.0 million of gross principal balances in exchange for 69,731,668 shares of the Company’s Class A Common Stock. In connection with the conversion of Unsecured SPA Notes, the Company recognized a $6.5 million Loss on settlement of related party notes payable, during the three and six months ended June 30, 2023, for the difference between the fair value of the shares issued and the fair value of the debt instrument.
Related party notes payable issued pursuant to the Unsecured SPA consist of the following as of June 30, 2023:
(in thousands)Contractual
Maturity Date		Contractual
Interest
Rates		Unpaid Principal
Balance		Fair Value
Measurement
Adjustments		Original Issue Discount and Proceeds Allocated to WarrantsNet
Carrying
Value
MHL - Unsecured SPA NoteVarious dates in 2029
10% - 15%
$9,957 $(446)$(1,734)$7,777 
Related Party Notes - China
As of April 1, 2023, the Company was in breach of its debt agreement with, and contractual obligation to make interest payments to, Chongqing Leshi Small Loan Co., Ltd., a related party, with an outstanding principal balance of $4.5 million. As a result of the default, the interest rate on the outstanding principal balance has increased to a rate of 18% per annum until the event of default is no longer applicable. The Company recorded $0.1 million in interest expense in related party interest expense during the three and six-months ended June 30, 2023.
Fair Value of Related Party Notes Payable Not Carried at Fair Value
The estimated fair value of the Company’s related party notes payable not carried at fair value approximated their carrying value as of June 30, 2023 and December 31, 2022, respectively.
Schedule of Principal Maturities of Related Party Notes Payable
The future scheduled principal maturities of related party notes payable as of June 30, 2023 were as follows:
(in thousands)
Due on demand$3,736 
20235,042 
20299,957 
$18,735 
FF Top Holding LLC (“FF Top”) Expense Reimbursements and Consulting Fees
On January 31, 2023, the Company entered into a supplemental agreement to a preliminary term sheet (the “Term Sheet” and with such supplemental agreement, the “Supplemental Agreement”) with FF Top, pursuant to which the parties agreed, due to the high amount of FF Top’s out-of-pocket legal fees and expenses incurred in connection with its financing efforts, to amend the Term Sheet to increase the cap for legal fees and expenses from $0.3 million to $0.7 million. The Company agreed to pay the remaining $0.4 million of the fees owed to FF Top as follows: (i) $0.2 million within one business day of execution of the Supplemental Agreement, and (ii) $0.2 million within one business day of consummation of new financing by the Company in an amount not less than $5.0 million or an earlier date approved by the Company’s Board of Directors (the “Board”). Pursuant to the Term Sheet, as amended by the Supplemental Agreement, the Company paid FF Top $0.2 million on each of February 1, 2023 and February 6, 2023. In addition, on April 8, 2023, the Company reimbursed FF Top for $0.2 million related to legal expenses incurred by FF Top in connection with the Sixth Secured SPA Amendment.
In early February 2023, FF Top requested from the Company legal expense reimbursement of $6.5 million for costs incurred related to the governance changes at the Company, which was not approved by the Board as of the date the unaudited Condensed Consolidated Financial Statements were issued. FF Top may in the future continue to request additional expense reimbursements and indemnification from the Company.
On March 6, 2023, the Company entered into a consulting service agreement with FF Global (the “Consulting Services Agreement”), according to which the Company agreed to pay a monthly consulting fee of $0.2 million to FF Global for the following services:
•Assistance in developing its funding strategy.
•Assistance in developing its value return and management strategy.
•Consultation on and integration of stockholder relations and stockholder resources.
•Supporting communications regarding stockholders meetings.
•Developing existing stockholder financing strategy, including with respect to retail investors and others.
•Assistance in risk management strategy.
•Assistance in capability build up and operation strategy.
Either party may terminate the Consulting Services Agreement upon one month prior written notice to the other party. Upon any termination of the Consulting Services Agreement, the Company shall promptly pay FF Global any accrued but unpaid fees hereunder and shall reimburse FF Global for any unreimbursed expenses that are reimbursable hereunder. In addition, FF Global is entitled to reimbursement for all reasonable and documented out-of-pocket travel, legal, and other out-of-pocket expenses incurred in connection with their services, which expenses shall not exceed $0.1 million without the prior written consent of the Company. The Company paid $0.6 million and $0.8 million, respectively, to FF Global during the three and six months ended June 30, 2023, pursuant to the Consulting Services Agreement.
In addition, the Company settled $0.4 million of fees incurred by FF Global concurrently with the funding of related party notes payable in the three months ended June 30, 2023.
Advertising Services Payable to Leshi Information Technology Co., Ltd. (“LeTV”)
The Company has recorded a payable to LeTV within Accrued expenses and other current liabilities in the amount of $6.9 million and $7.0 million as of June 30, 2023 and December 31, 2022, respectively, in connection with advertising services provided to the Company in prior years. LeTV is a Shanghai Stock Exchange-listed public company founded and controlled by Mr. Yueting Jia, the Company’s founder and Chief Product and User Ecosystem Officer.
Warm Time Inc. (“Warm Time”) and Ocean View Drive Inc. (“Ocean View”) Transactions
The Company leased two real properties, located in Rancho Palos Verdes, California (the “Rancho Palos Verdes Properties”), from Warm Time from January 1, 2018 through March 31, 2022. Warm Time in turn leased the Rancho Palos Verdes Properties from Mr. Jia. The Rancho Palos Verdes Properties were used by the Company to provide long-term or temporary housing to employees of the Company (including Dr. Carsten Breitfeld, former Global Chief Executive Officer
(“CEO”) of the Company). According to the agreement between the parties, the Company paid Warm Time for rent and certain services, including catering, room services and organization of meetings, external gatherings and events, for the Rancho Palos Verdes Properties.
In each of the three and six months ended June 30, 2023 the Company paid to Warm Time less than $0.1 million, respectively, for rent and business development services rendered to the Company and its executives. In each of the three and six months ended June 30, 2022 the Company paid to Warm Time less than $0.1 million, respectively, for rent and business development services rendered to the Company and its executives.
As part of its relationship with the Company, Warm Time also served as the conduit for certain loans from Ocean View, an entity formerly controlled by Mr. Yueting Jia and now wholly owned by the spouse of Ruokun Jia, who is the former Assistant Treasurer of the Company and Mr. Yueting Jia’s nephew. The loan principal was repaid to the Company in prior years and accrued interest on such loans remains outstanding as of June 30, 2023 and December 31, 2022 in the amount of $0.2 million and $0.2 million, respectively.
In prior years, the Company advanced funding to Ocean View for various real estate purchases, including the Rancho Palos Verdes Properties, and related expenses. As of June 30, 2023 and December 31, 2022, the Company had a receivable in the amount of $0.9 million and $0.9 million, respectively, due from Ocean View recorded in Deposits in the unaudited Condensed Consolidated Balance Sheets.
On February 9, 2023, the Company made a payment of approximately $0.2 million on behalf of Ocean View, an indemnified co-defendant, in connection with a seizure of funds related to the outstanding judgment in ongoing litigation, also involving Han’s San Jose Hospitality, LLC. Ocean View fulfilled its payment obligation under the settlement arrangement of such litigation, but the Company did not make its payment on the outstanding judgment which caused such seizure of funds of Ocean View. See Note 10, Commitments and Contingencies, for more information. Following such seizure, the Company paid the outstanding judgment and all accrued interest. The Company received the return of such indemnification payment in April 2023.
Other Related Party Transactions
The Company pays for a vehicle lease totaling less than $0.1 million annually on behalf of the Company’s founder and Chief Product and User Ecosystem Officer.
The Company owes a total of $0.3 million and $0.1 million to various related parties as of June 30, 2023 and December 31, 2022, respectively, which is included in Accounts Payable within the unaudited Condensed Consolidated Balance Sheets.