Related Party Transactions

9 Months Ended

Sep. 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 September 30, 2023:

(in thousands)	Contractual Maturity Date	Contractual Interest Rates	Net Carrying Value
Related party notes – China	December 31, 2023	12.0%	$	5,071
Related party notes – Unsecured SPA	August 2029	10% - 15%	2,945
Related party notes – China various other	Due on Demand	—%	3,759
			11,775
Less: Related party notes payable, current			(8,830)
Total: Related party notes payable, less current			$	2,945

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 – China	December 31, 2023	12.0%	$	5,209
Related party notes – China various other	Due on Demand	—%	3,755
			$	8,964

Unsecured SPA

MHL is the anchor investor in the Unsecured SPA 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 Partners LLC (“FF Global”). FF Global has control over the Company’s management, business and operations. See Note 7, 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 related party notes payable and warrant liabilities in the Condensed Consolidated Statement of Operations and Comprehensive Loss.

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 101,588 shares of the Class A Common Stock at an exercise price of $71.40 per share, subject to anti-dilution ratchet price protection, exercisable for seven years from the date of issuance (see Note 10, Stockholders' Equity and Note 7, Notes Payable). During the nine months ended September 30, 2023 MHL converted $18.7 million of gross principal balances in exchange for 72,353,608 shares of the Class A Common Stock. In connection with the conversion of Unsecured SPA Notes, the Company recognized a $17.2 million Loss on settlement of related party notes payable, during the nine months ended September 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 September 30, 2023:

(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
MHL - Unsecured SPA Note	August 2029	10% - 15%	$	3,323	$	223	$	(601)	$	2,945

Related Party Notes - China

As of April 1, 2023, the Company has been 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 and $0.1 million in interest expense in related party interest expense during the three and nine months ended September 30, 2023, respectively.

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 September 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 September 30, 2023 were as follows:

(in thousands)
Due on demand	$	3,759
2023	5,071
2029	3,323
	$	12,153

FF Global Partners LLC (“FFGP”) 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 FFGP, pursuant to which the parties agreed, due to the high amount of FFGP’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 FFGP 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 Board. Pursuant to the Term Sheet, as amended by the Supplemental Agreement, the Company paid FFGP $0.2 million on each of February 1, 2023 and February 6, 2023. On April 8, 2023, the Company reimbursed FFGP for $0.2 million related to legal expenses incurred by FFGP in connection with the Sixth Secured SPA Amendment. In addition, on April 10, 2023 and May 31, 2023, the Company reimbursed FFGP for $0.1 million and $0.3 million related to legal expenses incurred by FFGP in connection with the Unsecured Financing.

In early February 2023, FFGP 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 Condensed Consolidated Financial Statements were issued. FFGP 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 an effective date of February 1, 2023 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 $0.9 million and $1.4 million, respectively, to FF Global during the three and nine months ended September 30, 2023, pursuant to the Consulting Services Agreement.

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 $7.0 million and $7.0 million as of September 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.

X-Butler previously known as 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 X-Butler from January 1, 2018 through March 31, 2022. X-Butler 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 X-Butler 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 nine months ended September 30, 2023 X-Butler invoiced the Company approximately $0.1 million, for rent and business development services rendered to the Company and its executives. In each of the three and nine months ended September 30, 2022 the Company paid to X-Butler less than $0.1 million, for rent and business development services rendered to the Company and its executives.

As part of its relationship with the Company, X-Butler also served as the conduit for certain loans from Ocean View, an entity formerly controlled by Mr. Jia and now wholly owned by the spouse of Mr. Ruokun Jia, who is the former Assistant Treasurer of the Company and Mr. Jia’s nephew. The loan principal was repaid to the Company in prior years and accrued interest on such loans remains outstanding as of September 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 September 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 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 9, 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 Mr. Jia, the Company’s founder and Chief Product and User Ecosystem Officer.

The Company owes a total of $0.4 million and $0.1 million to various related parties as of September 30, 2023 and December 31, 2022, respectively, which is included in Accounts Payable within the Condensed Consolidated Balance Sheets.