FAST RADIUS, INC. This Quarterly Report on Form 10-Q contains statements that may constitute "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"), that involve substantial risks and uncertainties. All statements contained in this Quarterly Report other than statements of historical fact, including statements regarding our future results of operations and financial position, our business strategy and plans, and our objectives for future operations, are forward-looking statements. The words "believes," "expects," "intends," "estimates," "projects," "anticipates," "will," "plan," "may," "should," or similar language are intended to identify forward-looking statements. It is routine for our internal projections and expectations to change throughout the year, and any forward-looking statements based upon these projections or expectations may change prior to the end of the next quarter or year. Readers of this Quarterly Report are cautioned not to place undue reliance on any such forward-looking statements. As a result of a number of known and unknown risks and uncertainties, our actual results or performance may be materially different from those expressed or implied by these forward-looking statements. Risks and uncertainties are identified under "Risk Factors" in Item 1A herein and in our other filings with theSecurities and Exchange Commission (the "SEC"). Unless otherwise required by law, we do not undertake, and specifically disclaim, any obligation to update any forward-looking statement, whether as a result of new information, future events, or otherwise after the date of such statement. As used in this section, unless the context suggests otherwise, "we," "us," "our," "Company," "Fast Radius" refer toFast Radius, Inc. , aDelaware corporation (f/k/aECP Environmental Growth Opportunities Corp. ("ENNV")), collectively withFast Radius Operations, Inc. , aDelaware corporation ("LegacyFast Radius ") and its consolidated subsidiaries. You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited condensed consolidated financial statements and related notes included elsewhere in this Form 10-Q, and Legacy Fast Radius' audited consolidated financial statements and related notes for the year endedDecember 31, 2021 included in our Current Report on Form 8-K/A filed with theSEC onMarch 30, 2022 .
Overview
We are a cloud manufacturing and digital supply chain company. We are
headquartered in
We have built and are scaling a Cloud Manufacturing Platform which includes both physical infrastructure -Fast Radius micro-factories and third-party supplier factories - and a proprietary software layer. Our Cloud Manufacturing Platform supports engineers, product developers, and supply chain professionals across the product design and manufacturing lifecycle.
We offer a wide range of manufacturing technologies, including additive manufacturing (often referred to as 3D printing), CNC machining, injection molding, sheet metal, urethane casting, and other manufacturing methods. We offer these manufacturing capabilities through our own micro-factories as well as a network of curated third-party suppliers.
Recent Developments Voluntary Filing Under Chapter 11 OnNovember 7, 2022 , we filed the Bankruptcy Petitions under Chapter 11 of the Bankruptcy Code. The filing was made in theUnited States Bankruptcy Court for the District of Delaware . The Chapter 11 Cases are being jointly administered under the caption In reFast Radius, Inc. , et al., Case No. 22-11051 (the "Chapter 11 Cases"). Documents and other information related to the Chapter 11 proceedings is available free of charge online at https://cases.stretto.com/fastradius. We will continue our operations in the ordinary course of business as debtors-in-possession and pursue a structured sale of our assets pursuant to a competitive bidding and auction process. OnNovember 9, 2022 , theBankruptcy Court entered orders approving a variety of "first day" relief for the Debtors, including authority to: (a) continue using our existing cash management system, (b) pay prepetition wages, compensation and employee benefits, (c) use cash collateral, (d) maintain existing insurance policies and pay related obligations, (e) pay certain prepetition taxes, (f) provide adequate assurance of payment to our utility providers, and (g) pay certain prepetition claims of certain vendors. Subject to certain exceptions, under the Bankruptcy Code, the filing of the Bankruptcy Petitions automatically enjoined, or stayed, the continuation of most judicial or administrative proceedings or filing of other actions against us or our property to recover, collect or secure a claim arising prior to the date of the Bankruptcy Petitions. Accordingly, although the filing of the Bankruptcy Petitions triggered defaults on our debt obligations, creditors are stayed from taking any actions against us as a result of such defaults, subject to certain limited exceptions permitted by the Bankruptcy Code. Absent an order of theBankruptcy Court , substantially all of our pre-petition liabilities are subject to settlement under the Bankruptcy Code. 27 --------------------------------------------------------------------------------
The filing of the Bankruptcy Petitions constituted an event of default that accelerated certain of our debt obligations. However, under the Bankruptcy Code, the creditors under these debt agreements are stayed from taking any action against us as a result of the default.
For the duration of the Chapter 11 Cases, our operations are subject to the risks and uncertainties associated with the Chapter 11 process as described in Item 1A. "Risk Factors." As a result of these risks and uncertainties, the amount and composition of our assets and liabilities could be significantly different following the outcome of the Chapter 11 Cases, and the description of our operations, properties and liquidity and capital resources included in this Quarterly Report may not accurately reflect our operations, properties and liquidity and capital resources following the Chapter 11 Cases. Nasdaq Delisting OnNovember 9, 2022 , we received written notice (the "Delisting Notice") from the staff ofThe Nasdaq Stock Market LLC ("Nasdaq") notifying the Company that, as a result of the Bankruptcy Petitions and in accordance with Nasdaq Listing Rules 5101, 5110(b) and IM-5101-1, the staff of Nasdaq had determined that our Common Stock and warrants to purchase Common Stock (the "Securities") will be delisted from Nasdaq. In addition, as previously disclosed, onJune 9, 2022 , we received written notice (the "Bid Price Notice") from Nasdaq notifying the Company that it was not in compliance with the minimum bid price requirement set forth in Nasdaq Listing Rule 5450(a)(1) for continued listing. Nasdaq Listing Rule 5450(a)(1) requires listed securities to maintain a minimum bid price of$1.00 per share, and Listing Rule 5810(c)(3)(A) provides that a failure to meet the minimum bid price requirement exists if the deficiency continues for a period of 30 consecutive business days. In the Delisting Notice, the staff of Nasdaq referenced concerns about the Company's ability to sustain compliance with all requirements for continued listing on Nasdaq, specifically referencing that certain Bid Price Notice.
Trading of the Securities will be suspended at the opening of business on
As a result, the Securities are expected to begin trading exclusively on the
over-the-counter ("OTC") market on November 18, 2022 . On the OTC market, shares
of the Company's Common Stock and warrants, which previously traded on the
Nasdaq under the symbols FSRD and FSRDW, respectively, are expected to trade
under the symbols FSRDQ and FSRDWQ, respectively.
Restructuring
InJune 2022 , our Board of Directors approved a cost optimization initiative that includes a workforce reduction of approximately 20% (including the elimination of open roles). InNovember 2022 , our Board of Directors approved an additional workforce reduction. The purpose of the workforce reductions was to streamline our operational structure, reducing our operating expenses and managing our cash flows. We commenced workforce reductions in the second quarter of 2022 and completed these actions in the fourth quarter of 2022. Related to these actions, we made one-time payments of approximately$2 million inNovember 2022 to remaining employees in order to retain and motivate these employees. We are also conducting a facility rationalization assessment and assessing other operational savings measures. In the nine months endedSeptember 30, 2022 , we incurred costs of$1.0 million related to these actions, of which approximately$343 thousand were related to non-cash asset impairments and the remainder were cash severance costs. We continue to pursue cost savings initiatives and, to the extent further cost savings opportunities are identified, we may incur additional restructuring and related charges in future periods. Business combination OnFebruary 4, 2022 ("the Closing Date"), the Company consummated a business combination with Legacy Fast Radius, pursuant to whichENNV Merger Sub, Inc. , a wholly owned subsidiary of the Company ("Merger Sub"), merged with and into Legacy Fast Radius, with Legacy Fast Radius surviving the Merger as a wholly owned subsidiary of the Company (the "Business Combination"). After giving effect to the Business Combination, the Company owns, directly or indirectly, all of the issued and outstanding equity interests of Legacy Fast Radius and its subsidiary and the equity holders of Legacy Fast Radius immediately prior to the Business Combination own a portion of the Company's common stock, par value$0.0001 per share ("Common Stock"). While the legal acquirer in the Business Combination was ENNV, for financial accounting and reporting purposes underU.S. GAAP ("GAAP"), Legacy Fast Radius was the accounting acquirer and the Business Combination was accounted for as a "reverse recapitalization." A reverse recapitalization (i.e., a capital transaction involving the issuance of stock by ENNV for Legacy Fast Radius' stock) does not result in a new basis of accounting, and the condensed consolidated financial statements of the combined entity represent the continuation of the condensed consolidated financial statements of Legacy Fast Radius in many respects. Accordingly, the consolidated assets, liabilities and results of operations of Legacy Fast Radius became the historical condensed consolidated financial statements of the combined company, and ENNV's assets, liabilities and results of operations were consolidated with those of LegacyFast Radius beginning on the acquisition date. Operations prior to the Business Combination are presented as those of Legacy Fast Radius. The net assets of ENNV were recognized at historical cost, with no goodwill or other intangible assets recorded. 28 -------------------------------------------------------------------------------- Concurrently with the execution of the Merger Agreement, ENNV entered into subscription agreements (collectively, the "Subscription Agreements"), with certain third-party investors, including, among others,UPS , Palantir and the Sponsor (the "PIPE Investors "), pursuant to which thePIPE Investors agreed to subscribe for and purchase, and ENNV agreed to issue and sell, to thePIPE Investors an aggregate of 7,500,000 shares of Common Stock (the "PIPE Shares") for a purchase price of$10.00 per share, or an aggregate purchase price of$75.0 million , in a private placement (the "PIPE Investment "). Under the Subscription Agreements, ENNV granted certain registration rights to thePIPE Investors with respect to the PIPE Shares. The PIPE Shares were issued concurrently with the closing of the Business Combination on the Closing Date. Upon consummation of the Business Combination, the closing of thePIPE Investment and payment of certain other amounts that were contingent on the closing of the Business Combination, the most significant change in our reported financial position was an increase in cash and cash equivalents of approximately$73 million , primarily due to$75.0 million in gross proceeds from thePIPE Investment and$29.6 million in proceeds from the Trust Account, partially offset by cash payments that were disbursed at the Closing which included$8.3 million of transaction expenses,$2.5 million in debt repayments,$8.2 million in directors' and officers' ("D&O") insurance premiums, and$12.8 million related to IT and other costs. In connection with the Business Combination, over 31.5 million ENNV shares were submitted for redemption. As a result, the condition toFast Radius' obligation to consummate the Business Combination that the amount of cash available in ENNV's trust account immediately prior to the effective time of the Business Combination, after deducting the amount required to satisfy payments to ENNV stockholders in connection with the redemptions, the payment of any deferred underwriting commissions being held in ENNV's trust account and the payment of certain transaction expenses, plus the gross proceeds from thePIPE Investment to be consummated in connection with the closing of the Business Combination, is equal to or greater than$175 million (such condition, the "Minimum Cash Condition") was not satisfied. Therefore, in connection with the closing of the Business Combination, we waived the Minimum Cash Condition. The reduction in available cash upon closing of the Business Combination due to those share redemptions reduced our ability to invest in our growth strategy. As our resources are insufficient to satisfy our cash requirements and future growth objectives, we need to seek additional equity or debt financing. If the needed financing is not available, or if the terms of financing are less desirable than we expect, we will be forced to make additional changes to our long-term growth strategy in the discretion of our management and the Board. These changes may include, but are not limited to, decreasing our level of investment in new product launches and related marketing initiatives and scaling back our existing operations, which could have an adverse impact on our business and financial prospects. In addition, as a consequence of the Business Combination, we became the successor to anSEC -registered and Nasdaq-listed company, which requires us to hire additional personnel and implement procedures and processes to address public company regulatory requirements and customary practices. We have incurred and will continue to incur additional annual expenses as a public company for, among other things, D&O liability insurance, director fees and additional internal and external accounting, legal and administrative resources, including increased audit and legal fees. Our future results of operations and financial position will not be comparable to historical results as a result of the Business Combination. COVID-19 pandemic InMarch 2020 , theWorld Health Organization declared the outbreak of the new strain of the coronavirus ("COVID-19") to be a pandemic. The COVID-19 pandemic is having widespread, rapidly evolving, and unpredictable impacts on global society, economies, financial markets, and business practices. Federal, state and foreign governments have implemented measures in an effort to contain the virus, including social distancing, travel restrictions, border closures, limitations on public gatherings, work from home, supply chain logistical changes, and closure of non-essential businesses. To protect the health and well-being of its employees, suppliers, and customers, the Company previously made substantial modifications to employee travel policies, implemented office closures as employees were advised to work from home, and cancelled or shifted its conferences and other events to virtual-only. The COVID-19 pandemic has impacted and may continue to impact the Company's business operations, including its employees, customers, partners, and communities, and there is substantial uncertainty in the nature and degree of the pandemic's continued effects over time. In particular, the COVID-19 virus continues to surge in various parts of the world, includingChina , and such surges have impacts on the Company's suppliers and may cause supply chain issues, parts shortages and delayed shipping times. COVID-19 and other similar outbreaks, epidemics or pandemics could have a material adverse effect on the Company's business, financial condition, results of operations, cash flows and prospects as a result of any of the risks described above and other risks that the Company is not able to predict. If the COVID-19 pandemic continues for a prolonged duration, we or our customers may be unable to perform fully on our contracts, which will likely result in increases in costs and reductions in revenue. These cost increases may not be fully recoverable or adequately covered by insurance. The long-term effects of COVID-19 to the global economy and to us are difficult to assess or predict and may include a further decline in the market prices of our products, risks to employee health and safety, risks for the deployment of our 29 -------------------------------------------------------------------------------- products and services and reduced sales in geographic locations impacted. Any prolonged restrictive measures put in place in order to control COVID-19 or other adverse public health developments in any of our targeted markets may have a material and adverse effect on our business operations and results of operation. Results of Operations Three Months EndedSeptember 30, 2022 Compared with the Three Months EndedSeptember 30, 2021 The following table sets forth a summary of our consolidated results of operations, as well as the dollar and percentage change for the period: For the Three Months Ended September 30, (in thousands) 2022 2021 Change ($) Change (%) Revenues$ 7,072 $ 4,916 $ 2,156 44 % Cost of revenues (1) 6,372 7,049 (677 ) -10 % Gross Profit 700 (2,133 ) 2,833 n/m Operating expenses Sales and marketing (1) 3,674 6,583 (2,909 ) -44 % General and administrative (1) 15,162 6,006 9,156 152 % Research and development (1) 2,255 461 1,794 389 % Total operating expenses 21,091 13,050 8,041 62 % Loss from Operations (20,391 ) (15,183 ) (5,208 ) 34 % Change in fair value of warrants 690 (474 ) 1,164 n/m Change in fair value of derivatives - (195 ) 195 n/m Interest income and other income n/m (expense), net 126 (3 )
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Interest expense, including amortization of debt issuance costs (2,603 ) (1,238 ) (1,365 ) 110 % Loss before income taxes (22,178 ) (17,093 ) (5,085 ) 30 % Provision for income taxes - - - n/m Net Loss$ (22,178 ) $ (17,093 ) $ (5,085 ) 30 % (1) Includes stock-based compensation, as follows: Cost of Revenues $ 34$ 6 $ 28 467 % General and Administrative 1,771 185 1,586 857 % Selling and Marketing 232 26 206 792 % Research & Development 522 25 497 1988 % Total$ 2,559 $ 242 $ 2,317 957 % 30
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Revenues
Revenues increased 44% from$4.9 million to$7.1 million for the three months endedSeptember 30, 2022 compared to the prior-year period. The increase in 2022 was attributable to sales from new customers and an increase in revenue from existing customers. Cost of Revenues Cost of revenues decreased 10% from$7.0 million to$6.4 million for the three months endedSeptember 30, 2022 compared to the prior-year period. The decrease in cost of revenues was primarily attributable to costs incurred in the prior year for a contract that did not meet the requirements underU.S. GAAP to record the related revenue. Operating Expenses Sales and Marketing Sales and marketing expenses decreased 44% from$6.6 million to$3.7 million for the three months endedSeptember 30, 2022 compared to the prior-year period. The decrease in sales and marketing expenses in 2022 was attributable to decreased spend related to online advertising and marketing and promotional activities and a reduction in organizational headcount. General and Administrative General and administrative expenses increased 152% from$6.0 million to$15.2 million for the three months endedSeptember 30, 2022 compared to the prior-year period. The increase in general and administrative expense in 2022 was attributable to an expense of$2.0 million we recorded for our software subscription agreement with Palantir as well as higher stock compensation expense of$1.6 million . Additionally, we incurred incremental legal, consulting and accounting costs to support our growth, including costs related with being a publicly-traded company. Research and Development Research and development expenses increased 389% from$0.5 million to$2.3 million for the three months endedSeptember 30, 2022 compared to the prior-year period. The$2.3 million of research and development expenses for the three months endedSeptember 30, 2022 included$3.3 million of gross research and development expenses, primarily related to our Cloud Manufacturing Platform, that was offset by$1.0 million of internal-use software costs that were capitalized. The$0.5 million of research and development expenses for the three months endedSeptember 30, 2021 included$4.1 million of gross research and development expenses, primarily related to our Cloud Manufacturing Platform, that was offset by$3.6 million of internal-use software costs that were capitalized. The decrease in gross spend in 2022 is attributable to a reduction in organizational headcount. Change in fair value of warrants The income recorded in 2022 was attributable to mark to market adjustments on warrant liabilities and was attributable to a decrease in our enterprise valuation. Interest income and other income The increase in interest income was primarily attributable to an increase in our average money market account balance in 2022 as compared to 2021 due to the proceeds received from the Business Combination and higher interest rates.
Interest expense, including amortization of debt issuance costs The increase in interest expense was primarily attributable to higher outstanding debt levels in 2022 compared to 2021 and higher interest rates associated with variable rate debt. Additionally, we expensed the remaining unamortized issuance costs associated with our debt obligation in 2022 as a result of the Bankruptcy Petitions. Refer to Note 5 for additional information related to indebtedness.
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Nine Months Ended
For the Nine Months Ended September 30,
(in thousands) 2022 2021 Change ($) Change (%)
Revenues $ 20,609 $ 13,579 $ 7,030 52 %
Cost of revenues (1) 19,016 14,077 4,939 35 %
Gross Profit 1,593 (498 ) 2,091 n/m
Operating expenses
Sales and marketing (1) 15,887 15,335 552 4 %
General and administrative (1) 68,104 22,501 45,603 203 %
Research and development (1) 7,484 3,148 4,336 138 %
Total operating expenses 91,475 40,984 50,491 123 %
Loss from Operations (89,882 ) (41,482 ) (48,400 ) 117 %
Change in fair value of warrants 7,311 (1,526 ) 8,837 n/m
Change in fair value of derivatives 30 (189 ) 219 n/m
Interest income and other income
(expense), net 156 - 156 n/m
Interest expense, including amortization
of debt issuance costs (6,580 ) (1,787 ) (4,793 ) 268 %
Loss before income taxes (88,965 ) (44,984 ) (43,981 ) 98 %
Provision for income taxes - - - n/m
Net Loss $ (88,965 ) $ (44,984 ) $ (43,981 ) 98 %
(1) Includes stock-based compensation,
as follows:
Cost of Revenues $ 176 $ 10 $ 166 1660 %
General and Administrative 21,150 555 20,595 3711 %
Selling and Marketing 1,611 63 1,548 2457 %
Research & Development 2,552 72 2,480 3444 %
Total $ 25,489 $ 700 $ 24,789 3541 %
Revenues
Revenues increased 52% from $13.6 million to $20.6 million for the nine months
ended September 30, 2022 compared to the prior-year period. The increase in 2022
was attributable to sales from new customers and an increase in revenue from
existing customers.
Cost of Revenues
Cost of revenues increased 35% from $14.1 million to $19.0 million for the nine
months ended September 30, 2022 compared to the prior-year period. The increase
in cost of revenues was primarily attributable to the increase in revenues.
Additionally, cost of revenues was impacted by an investment we made in a new
CNC manufacturing facility in 2021, which was running at low utilization.
Partially offsetting the current-year increase was costs incurred in the prior
year for a contract that did not meet the requirements under U.S. GAAP to record
the related revenue.
Operating Expenses
Sales and Marketing
Sales and marketing expenses increased 4% from $15.3 million to $15.9 million
for the nine months ended September 30, 2022 compared to the prior-year period.
The increase in sales and marketing expenses in 2022 was attributable to
increases in spend related to organizational headcount growth within the
function during the first six months of the year. Additionally, we recorded
incremental stock compensation expense in the first quarter of 2022 as our
outstanding restricted stock units ("RSUs") included a performance condition
that became probable upon the closing of the Business Combination. Partially
offsetting those increases was a reduction in spend related to online
advertising and marketing and promotional activities
General and Administrative
General and administrative expenses increased 203% from $22.5 million to $68.1
million for the nine months ended September 30, 2022 compared to the prior-year
period. The most significant increase in 2022 was attributable to incremental
stock compensation expense in the first quarter of 2022 as our outstanding RSUs
included a performance condition that became probable upon the closing of the
Business Combination and cash bonuses paid to certain employees that were
contingent on the closing of the Business Combination. Additionally, we recorded
expense of approximately $9.9 million in 2022 related to our software
subscription agreement with Palantir. We also recorded an expense of $452
thousand in 2022 associated with the commitment fee shares issued to Lincoln
Park as part of the
32
--------------------------------------------------------------------------------Purchase Agreement. Finally, we incurred incremental legal, consulting and accounting costs to support our growth, including costs related to the Business Combination, and new costs associated with being a publicly-traded company.
Research and Development Research and development expenses increased 138% from$3.1 million to$7.5 million for the nine months endedSeptember 30, 2022 compared to the prior-year period. The$7.5 million of research and development expenses for the nine months endedSeptember 30, 2022 included$10.6 million of gross research and development expenses, primarily related to our Cloud Manufacturing Platform, that was offset by$3.1 million of internal-use software costs that were capitalized. The$3.1 million of research and development expenses for the nine months endedSeptember 30, 2021 included$5.0 million of gross research and development expenses, primarily related to our Cloud Manufacturing Platform, that was offset by$1.9 million of internal-use software costs that were capitalized. The increase in gross spend in 2022 is attributable to our continued focus on developing the Cloud Manufacturing Platform. Additionally, we recorded incremental stock compensation expense in the first quarter of 2022 as our outstanding RSUs included a performance condition related to the closing of the Business Combination. Change in fair value of warrants The income recorded in 2022 was attributable to mark to market adjustments on warrant liabilities and was attributable to a decrease in our enterprise valuation. Change in fair value of Derivatives The income recorded in 2022 was attributable to mark to market adjustments on embedded derivatives associated with 2021 convertible debt issuances. All outstanding derivative liabilities, along with the related convertible debt instruments, were converted into Common Stock at the closing of the Business Combination. Refer to Note 5 and Note 13 of the consolidated financial statements included elsewhere in this Report for additional information on derivative liabilities. Interest income and other income The increase in interest income was primarily attributable to an increase in our average money market account balance in 2022 as compared to 2021 due to the proceeds received from the Business Combination and higher interest rates.
Interest expense, including amortization of debt issuance costs The increase in interest expense was primarily attributable to higher outstanding debt levels in 2022 compared to 2021 and higher interest rates associated with variable rate debt. Additionally, we expensed the remaining unamortized issuance costs associated with our debt obligation in 2022 as a result of the Bankruptcy Petitions. Refer to Note 5 for additional information related to indebtedness.
Non-GAAP Financial Measures In addition to our results determined in accordance with GAAP, we believe the below non-GAAP financial measures are useful in evaluating our operational performance. We use this non-GAAP financial information to evaluate our ongoing operations and for internal planning and forecasting purposes. We believe that this non-GAAP financial information, when taken collectively, may be helpful to investors in assessing our operating performance.
We define "EBITDA" as net loss plus interest expense, income tax expense, depreciation and amortization expense.
We define "Adjusted EBITDA" as EBITDA adjusted for stock-based compensation, changes in the fair value of warrant liability, changes in the fair value of derivative liabilities, and transaction and related costs.
To provide investors with additional information regarding our financial results, we are presenting EBITDA and Adjusted EBITDA, non-GAAP financial measures, in the table below along with a reconciliation to net loss, the most directly comparable measure calculated and presented in accordance with GAAP.
Adjusted EBITDA We consider Adjusted EBITDA to be an important measure because it helps illustrate underlying trends in our business and our historical operating performance on a more consistent basis.
Our definition of Adjusted EBITDA may differ from that used by other companies and therefore comparability may be limited. In addition, other companies may not present Adjusted EBITDA or similar metrics. Thus, our adjusted EBITDA should be considered in addition to, not as a substitute for, or in isolation from, measures prepared in accordance with GAAP, such as net loss.
In addition, Adjusted EBITDA has limitations as an analytical tool, including:
33
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although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted EBITDA does not reflect cash used for capital expenditures for such replacements or for new capital expenditures;
•
Adjusted EBITDA does not include the dilution that results from stock-based compensation or any cash outflows included in stock-based compensation, including from our purchases of shares of outstanding common stock;
•
Adjusted EBITDA does not reflect tax payments that may represent a reduction in cash available to us; and other companies may calculate Adjusted EBITDA differently, which reduces its usefulness as a comparative measure.
We provide investors and other users of our financial information with a reconciliation of Adjusted EBITDA to net loss. We encourage investors and others to review our financial information in its entirety, not to rely on any single financial measure and to view Adjusted EBITDA in conjunction with net loss. Stock compensation expense is a non-cash expense relating to stock-based awards issued to executive officers, employees, and outside directors, consisting of options and restricted stock units. We exclude this expense because it is a non-cash expense and we assess our internal operations excluding this expense, and we believe it facilitates comparisons to the performance of other companies in our industry. Change in the fair value of warrant liability is a non-cash gain or loss impacted by the fair value of the issued liability-classified warrants. We believe the assessment of our operations excluding this activity is relevant to our assessment of internal operations and to comparisons with the performance of other companies in our industry. Change in the fair value of derivative liabilities is a non-cash gain or loss impacted by the fair value of the derivative liabilities. We believe the assessment of our operations excluding this activity is relevant to our assessment of internal operations and to comparisons with the performance of other companies in our industry. Common stock commitment fee is a non-cash expense related to the issuance of Common Stock in exchange for the Purchase Agreement entered into withLincoln Park as described in Note 7 to the condensed consolidated financial statements. We believe the assessment of our operations excluding this activity is relevant to our assessment of internal operations and to comparisons with the performance of other companies in our industry.
Restructuring costs are non-recurring expenses associated with our cost optimization initiative that includes a workforce reduction of approximately 20% and other related expenses.
Transaction costs are non-recurring costs for advisory, consulting, accounting and legal expenses in connection with the Business Combination as well as certain bonuses to employees that were contingent on the closing of the Business Combination. Additionally, we have incurred additional non-recurring expenses in the third quarter of 2022 related to our efforts to secure additional capital to fund our operations.
The following table provides a reconciliation of net loss, the most closely comparable GAAP financial measure, to EBITDA and Adjusted EBITDA:
For the Three Months Ended For the Nine Months Ended September
September 30, 30,
(in thousands) 2022 2021 2022 2021
Net loss $ (22,178 ) $ (17,093 ) $ (88,965 ) $ (44,984 )
Interest expense 2,603 1,238 6,580 1,787
Income tax expense (benefit),
net - - - -
Depreciation and amortization 682 496 2,050 1,029
EBITDA (18,893 ) (15,359 ) (80,335 ) (42,168 )
Stock compensation expense 2,559 242 25,489 700
Change in fair value of
warrant liability (690 ) 474 (7,311 ) 1,526
Change in fair value of
derivative liability - 195 (30 ) 189
Common stock commitment fee - - 452 -
Restructuring costs 450 - 1,048 -
Transaction costs 1,581 365
7,145 3,914
Adjusted EBITDA (14,993 ) (14,083 ) (53,542 ) (35,839 )
34-------------------------------------------------------------------------------- Liquidity and Capital Resources We measure liquidity in terms of our ability to fund the cash requirements of our business operations, including working capital and capital expenditure needs, contractual obligations, including debt and other liabilities, and other commitments, with cash flows from operations and other sources of funding. Our current liquidity needs include the working capital to support the purchase of custom component parts from our third-party supplier partners on behalf of our customers. In many cases, we pay our suppliers prior to being paid by our customers, resulting in a need for working capital. We also consume cash through other initiatives, including sales and marketing expenses and development of our Cloud Manufacturing Platform. Additionally, we consume cash for additional expenses as a public company for, among other things, D&O liability insurance, director fees and additional internal and external accounting, legal and administrative resources, including increased audit and legal fees. InNovember 2022 , we purchased an additional D&O insurance policy for approximately$5.2 million . We had$21 million in cash and cash equivalents as ofSeptember 30, 2022 . OnNovember 7, 2022 , we filed the Bankruptcy Petitions under Chapter 11 of the Bankruptcy Code. The filing was made in theUnited States Bankruptcy Court for the District of Delaware . The Chapter 11 Cases are being jointly administered under the caption In reFast Radius, Inc. , et al., Case No. 22-11051 (the "Chapter 11 Cases"). Documents and other information related to the Chapter 11 proceedings is available free of charge online at https://cases.stretto.com/fastradius. We will continue our operations in the ordinary course of business as debtors-in-possession and pursue a structured sale of our assets pursuant to a competitive bidding and auction process. OnNovember 9, 2022 , theBankruptcy Court entered orders approving a variety of "first day" relief for the Debtors, including authority to: (a) continue using our existing cash management system, (b) pay prepetition wages, compensation and employee benefits, (c) use cash collateral, (d) maintain existing insurance policies and pay related obligations, (e) pay certain prepetition taxes, (f) provide adequate assurance of payment to our utility providers, and (g) pay certain prepetition claims of certain vendors. Subject to certain exceptions, under the Bankruptcy Code, the filing of the Bankruptcy Petitions automatically enjoined, or stayed, the continuation of most judicial or administrative proceedings or filing of other actions against us or our property to recover, collect or secure a claim arising prior to the date of the Bankruptcy Petitions. Accordingly, although the filing of the Bankruptcy Petitions triggered defaults on our debt obligations, creditors are stayed from taking any actions against us as a result of such defaults, subject to certain limited exceptions permitted by the Bankruptcy Code. Absent an order of theBankruptcy Court , substantially all of our pre-petition liabilities are subject to settlement under the Bankruptcy Code.
The filing of the Bankruptcy Petitions constituted an event of default that accelerated certain of our debt obligations. However, under the Bankruptcy Code, the creditors under these debt agreements are stayed from taking any action against us as a result of the default.
For the duration of the Chapter 11 Cases, our operations are subject to the risks and uncertainties associated with the Chapter 11 process as described in Item 1A. "Risk Factors." As a result of these risks and uncertainties, the amount and composition of our assets and liabilities could be significantly different following the outcome of the Chapter 11 Cases, and the description of our operations, properties and liquidity and capital resources included in this Quarterly Report may not accurately reflect our operations, properties and liquidity and capital resources following the Chapter 11 Cases.
Projected Revenue and Net Loss
Prior to the Business Combination, Legacy Fast Radius provided certain prospective financial information to ENNV for fiscal years 2021, 2022, 2023, 2024 and 2025 in connection with ENNV's evaluation of the Business Combination. The prospective financial information was prepared using a number of assumptions, including assumptions about the level of redemptions, which were assumed to be significantly lower, and net cash proceeds resulting from the consummation of the Business Combination, which were assumed to be significantly higher. The prospective financial information included projected revenues and net loss for the year endedDecember 31, 2021 , of$23 million and$41 million , respectively. Similarly, the prospective financial information included projected revenues and net loss for the year endedDecember 31, 2022 , of$104 million and$64 million , respectively. For the year endedDecember 31, 2021 , we recognized$20.0 million in revenue, which was lower than our projected revenue of$23 million primarily due to a significant customer order initially included in our projections for which we later determined that revenue could not be recognized as we were not able to assert that collection from the customer was probable under the requirements of ASC 606. For the year endedDecember 31, 2021 , we had net losses of approximately$67.9 million , which were greater than our projected net loss of$41 million primarily due to certain items that could not be forecasted at the time the projections were presented including mark to market adjustments on outstanding warrant and derivative liabilities, transaction costs related to our Business Combination and interest expense related to indebtedness that had not yet been issued. Additionally, our operating expenses were higher than initially projected as we hired additional personnel to support our growth. Our actual revenue being lower than projected revenue and our net 35 -------------------------------------------------------------------------------- operating losses being higher than projected net operating losses for the year endedDecember 31, 2021 , had a negative impact on our cash and cash equivalents position. For the nine months endedSeptember 30, 2022 , we recognized$20.6 million in revenue, and had net losses of approximately$89.0 million . Extrapolating these results for the remainder of fiscal year 2022, we expect that our revenue for fiscal year 2022 will be less than our projected$104 million and our net loss for fiscal year 2022 will be greater than our projected$64 million that we provided to ENNV in connection with ENNV's evaluation of the Business Combination. The anticipated lower revenue, and anticipated higher net operating loss, for fiscal year 2022 is expected to have a negative impact on our cash and cash equivalents position. As this trend was also applicable to our results earlier in the year, in connection with announcing the Company's financial results for the quarter endedJune 30, 2022 , we revised our outlook for the year endedDecember 31, 2022 . The anticipated lower revenue for fiscal year 2022 is due to the combination of receiving lower proceeds than anticipated from the Business Combination, the delay in the closing of the Business Combination untilFebruary 4, 2022 , and the increased customer acquisition spend of our competitors. We expected to receive higher proceeds from the Business Combination, which we planned to invest in acquiring new customers, expanding our manufacturing capability, expanding our Cloud Manufacturing Platform and making strategic acquisitions. As the proceeds from the Business Combination were significantly lower than expected, and received later than expected, we had to reduce, delay or cancel our investments in these growth initiatives. The impact of these reductions in our planned growth investments in the nine months endedSeptember 30, 2022 , coupled with the increased cost associated with acquiring customers as a result of our competitors' increased customer acquisition spend, had a direct impact to our revenue, which is reflected by our results for the nine months endedSeptember 30, 2022 . If we had obtained significantly higher proceeds from the Business Combination sooner, we believe we would have been able to further accelerate our growth investments in the nine months endedSeptember 30, 2022 , and throughout 2022, which we believe would have enabled us to achieve higher revenue for fiscal year 2022. The anticipated higher net operating loss for fiscal year 2022 is due to the reduction in anticipated revenues as discussed above, partially offset by the reduction in anticipated expenses that would have been incurred to generate those revenues, and higher stock-based compensation expenses that were not included in our projections due to uncertainty around the timing for consummating the Business Combination and modifications to certain awards that impacted their valuation. Additionally, we are incurring higher costs than anticipated as a public company.
Indebtedness and Effect of Resales
As of
OnFebruary 4, 2022 , the 2021 SVB Loan was amended to extend the maturity date from the Closing Date toApril 3, 2023 and required payment of$2.0 million of the$20.0 million outstanding principal balance upon consummation of the Business Combination. This amendment also added the original$0.8 million fee due at the SPAC closing to the amended loan's outstanding principal balance, deferring its repayment until maturity. In exchange for the extension of the loan, we will pay an additional fee of$2.1 million due at maturity. We made six interest-only monthly payments beginningMarch 1, 2022 and paid$2.4 million in monthly principal plus interest onSeptember 1, 2022 andOctober 1, 2022 . OnOctober 31, 2022 , we entered into (i) a Third Amendment to Loan and Security Agreement (the "SVB Amendment") withSilicon Valley Bank ("SVB"), which, among other things, amended that certain Loan and Security Agreement, dated as ofDecember 29, 2020 (as amended, the "SVB Credit Agreement"), by and between Legacy Fast Radius and SVB and (ii) a Third Amendment to Loan and Security Agreement (the "SVB Capital Amendment" and, together with the SVB Amendment, the "Amendments") withSVB Innovation Credit Fund VIII, L.P. ("SVB Capital " and, together with SVB, the "Lenders"), which, among other things, amended that certain Loan and Security Agreement, dated as ofSeptember 10, 2021 (as amended, the "SVB Capital Credit Agreement" and, together with the SVB Credit Agreement, the "Credit Agreements"), by and betweenLegacy Fast Radius and SVB Capital . The Amendments amended the Credit Agreements to, among other things, defer the payment of principal otherwise due under the Credit Agreements onNovember 1, 2022 , in the aggregate amount of$2.6 million .
The filing of the Bankruptcy Petitions constituted an event of default that accelerated certain of our debt obligations. However, under the Bankruptcy Code, the creditors under these debt agreements are stayed from taking any action against us as a result of the default.
Additionally, on
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15,516,639 ENNV liability-classified warrants were also assumed as part of the
Business Combination with a carrying and fair value of $0.5 million as of
September 30, 2022 . Finally, certain other transaction costs associated with,
and liabilities assumed as a result of, the Business Combination totaling
approximately $11 million were unpaid and recognized as liabilities on our
condensed consolidated balance sheet as of September 30, 2022 . In advance of the
filing of the Chapter 11 Cases, counterparties agreed to waive these fees.
On October 25, 2022 , Legacy Fast Radius and UPS entered into a Termination
Agreement (the "Termination Agreement") pursuant to which the parties mutually
agreed to terminate that certain Amended and Restated Discount Agreement, dated
as of March 21, 2019 , by and between Legacy Fast Radius and UPS (as amended, the
"Discount Agreement"), with such termination effective as of October 25, 2022 .
Under the Discount Agreement, Legacy Fast Radius had agreed to compensate UPS in
the form of equity royalties or a quarterly cash payment equal to six percent
(6%) of Legacy Fast Radius' gross revenues up to an aggregate cumulative maximum
of approximately $7.6 million in exchange for UPS agreeing to exclusively
promote Legacy Fast Radius in its sales and marketing efforts as UPS's exclusive
on-demand manufacturing partner. UPS also owns in excess of 10% of the Company's
outstanding Common Stock. As of September 30, 2022 , the Company recognized $3.7
million as a related party accrued liability on its condensed consolidated
balance sheet in respect of the Discount Agreement.
Pursuant to the Termination Agreement and in settlement of all past and future
liabilities that would have been owed under the Discount Agreement, Legacy Fast
Radius will transfer and convey to UPS an amount equal to $1.5 million within
three days after the consummation of any sale of (i) all or a majority of the
equity of Legacy Fast Radius or (ii) all or a majority of Legacy Fast Radius'
assets. The Termination Agreement also included a mutual release, pursuant to
which Legacy Fast Radius and UPS each released the other from any claims and
liabilities under the Discount Agreement.
The shares of Common Stock registered for potential resale pursuant to the
prospectus we filed with the SEC on July 22, 2022 (File No. 333-264427) by the
selling securityholders thereunder represented approximately 74.8% of shares
outstanding on a fully diluted basis as of June 1, 2022 . Given the substantial
number of shares of Common Stock registered for potential resale by selling
securityholders pursuant to such prospectus, the sale of shares by the selling
securityholders thereunder, or the perception in the market that the selling
securityholders intend to sell shares, could increase the volatility of the
market price of our Common Stock or result in a significant decline in the
public trading price of our Common Stock. These sales, or the possibility that
these sales may occur, and any related volatility or decrease in market price of
our Common Stock, might make it more difficult for us to sell equity securities
in the future at a time and at a price that we deem appropriate.
Warrant Proceeds
We would receive the proceeds from any exercise of any Warrants that are exercised for cash pursuant to their terms. However, we will only receive such proceeds if and when the Warrant holders exercise the Warrants. The exercise of the Warrants, and any proceeds we may receive from their exercise, are highly dependent on the price of our Common Stock and the spread between the exercise price of the Warrant and the price of our Common Stock at the time of exercise. There is no assurance that the holders of the Warrants will elect to exercise for cash any or all of such Warrants, and we believe that any such exercise currently is unlikely to occur as described below. As of the date of this Quarterly Report on Form 10-Q, we have neither included nor intend to include any potential cash proceeds from the exercise of our Warrants in our short-term or long-term liquidity projections. We will continue to evaluate the probability of warrant exercise over the life of our Warrants and the merit of including potential cash proceeds from the exercise thereof in our liquidity projections. We do not expect to rely on the cash exercise of Warrants to fund our operations. Instead, we intend to rely on our primary sources of cash discussed above to continue to support our operations. The exercise price of the Warrants is$11.50 per share and the closing price of our Common Stock was$0.10 as ofNovember 9, 2022 . Additionally, as discussed above, trading of our Securities will be suspended at the opening of business onNovember 18, 2022 and a Form 25-NSE will be filed with theSEC , which will remove our Securities from listing on Nasdaq. As a result, the Securities are expected to begin trading exclusively on the over-the-counter ("OTC") market onNovember 18, 2022 . Accordingly, we believe that it is currently unlikely that holders of the Warrants will exercise their Warrants. The likelihood that Warrant holders will exercise the Warrants, and therefore the amount of cash proceeds that we would receive, is dependent upon the trading price of our Common Stock. If the trading price for our Common Stock remains less than$11.50 per share, we believe holders of the Warrants will be unlikely to exercise their Warrants. There is no guarantee that the Warrants will be in the money following the time they become exercisable and prior to their expiration, and as such, the Warrants may expire worthless and we may not receive any proceeds from the exercise of the Warrants. To the extent that any of the Warrants are exercised on a "cashless basis," the amount of cash we would receive from the exercise of the Warrants will decrease.
Other commitments
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In May 2021 , we entered into a master subscription agreement with Palantir for
access to Palantir's proprietary software for a six-year period for a total of
$45.0 million . The non-cancellable future minimum payments due on this firm
purchase agreement are $10.1 million after taking into account the $9.4 million
payment made to Palantir at Close. Refer to Note 6 of the consolidated financial
statements included elsewhere in this Report for additional information on our
agreement with Palantir.
Cash Flows
The following table sets forth a summary of cash flows for the nine months ended
September 30, 2022 and 2021:
For the Nine Months Ended September
30,
(in thousands) 2022 2021
Net cash used by operating activities $ (72,367 ) $ (34,306 )
Net cash used by investing activities $ (3,730 ) $ (6,437 )
Net cash generated by financing activities $ 88,786 $ 33,702
Net increase (decrease) in cash flows $ 12,689 $ (7,041 )
Operating Activities
Cash used in operating activities for the nine months ended September 30, 2022
and 2021 was $72.4 million and $34.3 million , respectively. The increase in
operating cash outflows in 2022 was partly due to higher operating losses in the
current year. Additionally, we used a portion of the proceeds from the Business
Combination described below in Financing Activities to make cash payments
related to various transaction and other costs that became due as a result of
the Business Combination.
Investing Activities
Cash used in investing activities for the nine months ended September 30, 2022
and 2021 was $3.7 million and $6.4 million , respectively. The decrease was
attributable to new equipment purchased in the prior year coupled with the sale
of certain equipment in the current year.
Financing Activities
Cash provided by financing activities for the nine months ended September 30,
2022 and 2021 was $88.8 million and $33.7 million , respectively.
In 2022, we received proceeds from the Business Combination of approximately
$97.5 million , net of transaction costs. A portion of those proceeds were used
to settle debt obligations of $7.6 million and to pay various transaction and
other expenses included in Operating Activities above. Additionally, we made
payments of approximately $1.4 million related to deferred underwriting fees
associated with the ENNV IPO in 2021 that were assumed as a result of the
Business Combination. Refer to Note 3 of the condensed consolidated financial
statements included elsewhere in this Report for additional information on the
Business Combination.
In 2021, we received proceeds of $24.5 million from the issuance of term loans
and $10.6 million from the issuance of convertible notes and warrants to related
parties that was partially offset by the repayment of outstanding indebtedness
of $0.8 million .
Contractual Obligations
Our contractual obligations consist primarily of debt liabilities and operating
leases which impact our short-term and long-term liquidity and capital needs.
The table below is presented as of September 30, 2022 and reflects interest
rates as of that date.
Payments Due By Period
More than 5
(in thousands) Total 2022 2023-2024 2025-2026 yearsContractual obligations Operating leases$ 3,892 $ 545 $ 2,477 $ 870 $ - Debt 26,752 26,752 - - - Interest on debt 492 492 - - - Purchase commitments 10,125 5,625 2,250 2,250 -
Total contractual obligations
$ 3,120 $ - Off-Balance Sheet Arrangements As ofSeptember 30, 2022 andDecember 31, 2021 , we did not have any off-balance sheet arrangements, as defined in Regulation S-K, Item 303(a)(4)(ii).
Critical Accounting Policies and Estimates
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The preparation of consolidated financial statements, in conformity with GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Our most significant estimates and judgements involve valuation of our equity, including assumptions made in the fair value of stock-based compensation. Such policies are summarized in the Management's Discussion and Analysis of Financial Condition and Results of Operations section in our Current Report on Form 8-K/A filed with theSEC onMarch 30, 2022 . Although we regularly assess these estimates, actual results could differ materially from these estimates. Changes in estimates are recorded in the period in which they become known. We base our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from management's estimates if these results differ from historical experience or other assumptions prove not to be substantially accurate, even if such assumptions are reasonable when made.
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