Enovix (ENVX) - 2022 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) Presents unaudited condensed consolidated financial statements and notes detailing organization, accounting, business combination, and key financial elements Condensed Consolidated Balance Sheets The balance sheet reflects significant increases in cash, total assets, and stockholders' equity, primarily due to the Business Combination Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | Oct 3, 2021 | Dec 31, 2020 | Change (YoY) | | :-------------------------- | :---------- | :----------- | :----------- | | Cash and cash equivalents | $338,746 | $29,143 | +1062.4% | | Total current assets | $346,888 | $33,044 | +950.0% | | Total assets | $415,421 | $64,964 | +539.5% | | Total current liabilities | $15,495 | $10,868 | +42.6% | | Warrant liability | $64,440 | $15,995 | +302.9% | | Total liabilities | $91,715 | $28,748 | +219.0% | | Additional paid-in-capital | $572,276 | $243,484 | +134.2% | | Accumulated deficit | $(248,584) | $(207,278) | -20.0% | | Total stockholders' equity | $323,706 | $36,216 | +793.8% | - Common stock shares outstanding increased from 100,016,559 shares outstanding as of December 31, 2020, to 145,185,904 shares outstanding as of October 3, 2021[9] Condensed Consolidated Statements of Operations Increased operating expenses, especially R&D and SG&A, led to higher operating losses, with net loss varying by period due to warrant fair value changes Condensed Consolidated Statements of Operations Highlights (in thousands) | Metric | Q3 2021 | Q3 2020 | Change (YoY) | 39-Weeks 2021 | 9-Months 2020 | Change (YoY) | | :--------------------------------------------------------------------- | :----------- | :----------- | :----------- | :------------ | :------------ | :----------- | | Cost of revenue | $104 | $1,153 | -91.0% | $1,847 | $2,382 | -22.5% | | Research and development | $10,301 | $3,807 | +170.6% | $25,413 | $9,442 | +169.1% | | Selling, general and administrative | $8,791 | $1,486 | +491.6% | $17,500 | $3,766 | +364.7% | | Total operating expenses | $19,196 | $6,446 | +197.8% | $44,760 | $15,590 | +187.1% | | Loss from operations | $(19,196) | $(6,446) | +197.8% | $(44,760) | $(15,590) | +187.1% | | Change in fair value of convertible preferred stock warrants and common stock warrants | $8,460 | $(7,031) | N/M | $3,679 | $(6,756) | N/M | | Net loss | $(10,838) | $(13,476) | -19.6% | $(41,306) | $(26,308) | +57.0% | | Net loss per share, basic | $(0.08) | $(0.16) | -50.0% | $(0.38) | $(0.35) | +8.6% | | Net loss per share, diluted | $(0.14) | $(0.16) | -12.5% | $(0.45) | $(0.35) | +28.6% | Condensed Consolidated Statements of Changes in Convertible Preferred Stock and Stockholders' (Deficit) Equity Reflects significant equity changes from the reverse acquisition, including preferred stock conversion, common stock issuance, and increased paid-in capital - Total stockholders' equity increased from $36,216 thousand as of December 31, 2020, to $323,706 thousand as of October 3, 2021, primarily due to the Business Combination and PIPE financing[13] - Accumulated deficit increased from $(207,278) thousand as of December 31, 2020, to $(248,584) thousand as of October 3, 2021, reflecting ongoing net losses[13] Condensed Consolidated Statements of Cash Flows Operating cash flow remained negative, investing activities increased, and financing activities provided substantial cash from the Business Combination Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Metric | 39-Weeks 2021 | 9-Months 2020 | Change (YoY) | | :---------------------------------------- | :------------ | :------------ | :----------- | | Net cash used in operating activities | $(34,514) | $(15,531) | +122.2% | | Net cash used in investing activities | $(31,509) | $(18,923) | +66.5% | | Net cash provided by financing activities | $375,676 | $59,910 | +527.0% | | Change in cash, cash equivalents, and restricted cash | $309,653 | $25,456 | +1116.3% | | Cash and cash equivalents, end of period | $338,871 | $35,757 | +847.6% | - Non-cash supplemental data for 39-week period ended October 3, 2021 includes $73.4 million net liabilities assumed from Business Combination and $2.6 million accrued purchase of property and equipment[19] Notes to Condensed Consolidated Financial Statements Provides detailed explanations and disclosures for financial statements, covering organization, accounting policies, business combination, and key financial elements Note 1. Organization and Basis of Presentation Details Enovix's advanced battery business, lack of product revenue, the July 2021 Business Combination, and the change in fiscal year end - Enovix designs, develops, and manufactures advanced silicon-anode lithium-ion batteries using proprietary 3D cell architecture[22] - As of October 3, 2021, the Company has not generated product revenue from its planned principal business activities[23] - On July 14, 2021, Enovix Corporation (Legacy Enovix) consummated a Business Combination with Rodgers Silicon Valley Acquisition Corp (RSVAC), with Legacy Enovix being the accounting acquirer[24] - The fiscal year end was changed from December 31 to a fiscal year calendar typically consisting of four 13-week quarters, effective for the third quarter beginning July 1, 2021[25] Note 2. Summary of Significant Accounting Policies Outlines GAAP basis, reverse recapitalization accounting, ongoing losses, expected liquidity from the Business Combination, and key accounting policies including early lease adoption - The Business Combination was accounted for as a reverse recapitalization, with Legacy Enovix treated as the accounting acquirer[27] - The Company has incurred recurring operating losses and negative cash flows from operations since inception, with an accumulated deficit of $248.6 million as of October 3, 2021[29] - The Company raised approximately $373.7 million of net proceeds from the Business Combination in July 2021, which is expected to meet funding requirements for the next twelve months[29][30] - Early adopted ASU 2016-02 (Leases) on January 1, 2021, recognizing operating lease right-of-use assets of $6,873 thousand and operating lease liabilities, non-current of $8,551 thousand[43][44] Note 3. Business Combination Details the July 2021 reverse recapitalization with RSVAC, common stock issuance, PIPE Financing, and $373.7 million in net cash proceeds - Business Combination closed on July 14, 2021, with Legacy Enovix equity holders receiving 103,995,643 shares of Common Stock[45][46] - PIPE Financing raised $175.0 million through the sale of 12,500,000 shares of Common Stock at $14.00 per share[48] Net Cash Proceeds from Business Combination (in thousands) | Source | Amount | | :---------------------------------------------- | :----------- | | Cash - RSVAC Trust and cash, net of redemptions | $230,155 | | Cash - PIPE Financing | $175,000 | | Less: transaction costs and PIPE financing fees | $(31,410) | | Net cash contributions | $373,745 | Note 4. Fair Value Measurement Discusses recurring fair value measurement of liabilities, primarily Private Placement Warrants, using Level 3 inputs, valued at $64.44 million Fair Value Measurement of Liabilities (in thousands) | Liability | Oct 3, 2021 (Level 3) | Dec 31, 2020 (Level 3) | | :-------------------------- | :-------------------- | :--------------------- | | Private Placement Warrants | $64,440 | — | | Convertible preferred stock warrants | — | $15,995 | - The fair value of Private Placement Warrants was $10.74 per share as of October 3, 2021, with an exercise price of $11.50[57] Key Assumptions for Private Placement Warrants (as of Oct 3, 2021) | Assumption | Value | | :------------------------ | :------ | | Expected term (in years) | 4.8 | | Expected volatility | 50.0% | | Risk-free interest rate | 0.9% | | Expected dividend rate | 0.0% | Note 5. Property and Equipment Property and equipment, net, significantly increased to $61.6 million, driven by construction in progress for the first high-volume production line (Fab-1) Property and Equipment, Net (in thousands) | Category | Oct 3, 2021 | Dec 31, 2020 | Change (YoY) | | :------------------------- | :---------- | :----------- | :----------- | | Process equipment | $6,275 | $4,085 | +53.6% | | Construction in progress | $56,673 | $29,568 | +91.7% | | Total property and equipment | $65,867 | $35,008 | +88.1% | | Property and equipment, net | $61,596 | $31,290 | +96.9% | - The Company capitalized $2.0 million of development costs for Fab-1 as property and equipment, net, for the 39-week period ended October 3, 2021[61] Depreciation Expenses (in thousands) | Period | Q3 2021 | 39-Weeks 2021 | Q3 2020 | 9-Months 2020 | | :-------------------------- | :------ | :------------ | :------ | :------------ | | Depreciation expense | $299 | $674 | $147 | $436 | Note 6. Leases Details operating leases for Fremont facilities, with an 8.8-year weighted-average remaining lease term and a 6.8% discount rate - The Company leases headquarters and an office in Fremont, California, with lease terms extending to August 2030 and April 2026, respectively[62] Operating Lease Information (as of Oct 3, 2021) | Metric | Value | | :------------------------------------ | :-------- | | Weighted-average remaining lease term | 8.8 years | | Weighted-average discount rate | 6.8% | Maturities of Lease Liabilities (in thousands) | Year | Operating Lease | | :--------------------------------- | :-------------- | | 2021 (remaining three months) | $333 | | 2022 | $1,366 | | 2023 | $1,406 | | 2024 | $1,449 | | 2025 | $1,492 | | Thereafter | $7,265 | | Total | $13,311 | | Less: imputed interest | $(3,539) | | Present value of lease liabilities | $9,772 | Note 7. Debt Covers the repayment of a $15.0 million Secured Promissory Note, conversion of prior notes, PPP Loan forgiveness, and no outstanding debt - The $15.0 million Secured Promissory Note was repaid on July 14, 2021, including $0.2 million in interest for the 39-week period ended October 3, 2021[70][71] - All 2019 Convertible Promissory Notes (aggregate principal $5.7 million) were converted into Series P-2 preferred stock in March 2020, resulting in a $2.4 million change in fair value recognized as other income[73][74] - As of October 3, 2021, the Company had no outstanding debt[71][74] Note 8. Commitments and Contingencies Reports no noncancelable purchase commitments, dismissal of Business Combination lawsuits, and minimal indemnification obligations for officers and directors - No noncancelable purchase commitments existed as of October 3, 2021[75] - Two lawsuits (Michael Costello v. RSVAC and Derek Boxhorn v. RSVAC) challenging the Business Combination were voluntarily dismissed in August and October 2021, respectively[76][77] - The Company is not currently a party to any material legal proceedings and provides indemnification to officers and directors, with minimal estimated fair value[78][79][81] Note 9. Convertible Preferred Stock and Warrants Details the conversion of all preferred stock to common stock and the assumption of 17.5 million Common Stock Warrants post-Business Combination - All Legacy Enovix convertible preferred stock was converted into common stock immediately prior to the Business Combination, with no convertible preferred stock outstanding as of October 3, 2021[82] - The Company assumed 17,500,000 Common Stock Warrants (11,500,000 Public Warrants and 6,000,000 Private Placement Warrants) in connection with the Business Combination[88] - Public Warrants are exercisable at $11.50 per share, become exercisable 30 days after Business Combination completion or 12 months from RSVAC IPO closing, and expire five years after Business Combination[89] - Private Placement Warrants are identical to Public Warrants but are exercisable on a cashless basis and non-redeemable as long as held by initial purchasers or permitted transferees[96] Note 10. Net Loss per Share Net loss per share is computed using the two-class method, with anti-dilutive securities due to losses, and diluted EPS corrected for warrants - Due to net losses, all potentially dilutive securities (stock options, restricted stock units, public warrants) were anti-dilutive and excluded from diluted EPS calculation for the periods presented[99][101] Net Loss Per Share (in thousands, except per share amount) | Metric | Q3 2021 | Q3 2020 | 39-Weeks 2021 | 9-Months 2020 | | :-------------------------- | :-------- | :-------- | :------------ | :------------ | | Net loss | $(10,838) | $(13,476) | $(41,306) | $(26,308) | | Net loss per share, basic | $(0.08) | $(0.16) | $(0.38) | $(0.35) | | Net loss per share, diluted | $(0.14) | $(0.16) | $(0.45) | $(0.35) | - Diluted EPS for Q3 2021 and YTD 2021 was corrected to $(0.14) and $(0.45) respectively, to include the impact of Private Placement Warrants using the treasury stock method[393] Note 11. Stock-based Compensation Stock-based compensation expense significantly increased due to headcount, with $41.3 million unrecognized as of October 3, 2021 Total Stock-based Compensation Expense (in thousands) | Expense Category | Q3 2021 | Q3 2020 | 39-Weeks 2021 | 9-Months 2020 | | :-------------------------------- | :------ | :------ | :------------ | :------------ | | Cost of revenue | $0 | $21 | $274 | $51 | | Research and development | $1,290 | $52 | $4,197 | $123 | | Selling, general and administrative | $1,752 | $8 | $2,246 | $23 | | Total stock-based compensation expense | $3,042 | $81 | $6,717 | $197 | - As of October 3, 2021, $41.3 million of total unrecognized stock-based compensation expense is expected to be recognized over a weighted-average period of 3.7 years[105] Stock Option Activity (as of Oct 3, 2021) | Metric | Number of Options Outstanding | Weighted Average Exercise Price | | :-------------------------------- | :---------------------------- | :------------------------------ | | Balances as of January 1, 2021 | 1,428,980 | $0.11 | | Granted | 6,737,344 | $7.69 | | Exercised | (2,121,815) | $0.08 | | Balances as of October 3, 2021 | 5,852,759 | $8.67 | Note 12. Related Party Details Founder Shares and Private Placement Warrants received by the Sponsor, and the conversion or repayment of related party loans - The Sponsor, Rodgers Capital LLC, received 5,750,000 Founder Shares and 6,000,000 Private Placement Warrants[111][95] - Convertible promissory notes from existing shareholders (including board members and management) totaling $5.7 million principal and $0.1 million accrued interest were converted into Series P-2 preferred stock in 2020[114] - A $15.0 million Secured Promissory Note issued to a board member in May 2021 was fully repaid on July 14, 2021, with $15.2 million in principal and interest[115] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's discussion covers financial condition, operating results, COVID-19 impact, Business Combination effects, key trends, non-GAAP measures, liquidity, and EGC status Business Overview Enovix develops advanced silicon-anode lithium-ion batteries, focusing on R&D, consumer electronics, EV market, and building its first production line (Fab-1) - Enovix designs, develops, and manufactures advanced silicon-anode lithium-ion batteries using proprietary 3D cell architecture to increase energy density and maintain high cycle life[117] - The company has focused on R&D, providing engineering samples to consumer electronics companies (smartwatches, AR/VR, smartphones) and pursuing the EV market[118] - Enovix is currently completing the build-out of its first high-volume manufacturing facility ("Fab-1") in Fremont, California[119] Impact of Coronavirus ("COVID-19") Monitors COVID-19's operational impact, with no impairment losses incurred, but acknowledges potential future disruptions to workforce and supply chain - The Company monitors COVID-19's impact but has not incurred impairment losses on assets[120] - Potential risks include workforce disruption, supply chain issues, and negative impacts on manufacturing plans, sales, and marketing activities[270][271] Change in Fiscal Year Effective July 1, 2021, the fiscal year end changed to a 13-week quarter system, with no retroactive adjustments to prior periods - Fiscal year end changed from December 31 to a 13-week quarter system, effective July 1, 2021[121] - The current fiscal year will end on January 2, 2022, and prior periods' operating results will not be adjusted[121] Business Combination and Public Company Costs The July 2021 Business Combination with RSVAC generated $373.7 million net proceeds, with Legacy Enovix as acquirer, and anticipates increased public company expenses - The Business Combination closed on July 14, 2021, with Enovix (Legacy Enovix) as the accounting acquirer in a reverse recapitalization[122][125] - The transaction generated approximately $373.7 million in net proceeds[122] - The company anticipates increased annual expenses as a public company for D&O insurance, director fees, and additional accounting, legal, and administrative resources[126] Comparability of Financial Information Future financial results and position may not be comparable to historical data due to the Business Combination - Future results of operations and financial position may not be comparable to historical results due to the Merger[127] Key Trends, Opportunities and Uncertainties Highlights revenue from engineering contracts, product development, Fab-1/Fab-2 commercialization, market focus, capital access, and regulatory landscape - Revenue is generated from Service Revenue contracts for battery technology development, with no product revenue to date[128][135] - The company is developing custom 3D silicon lithium-ion batteries for wearable, mobile computing, and communication devices[129] - Net proceeds from the Merger will fund Fab-1 completion and expansion, pursuit of a second manufacturing location (Fab-2), and accelerated R&D[130] - Initial market focus is consumer electronics, with plans to expand into the EV market[131] - Cash resources are expected to be sufficient for the next twelve months, but additional financing may be required for future expansion[132][176] Components of Results of Operations Details financial components: service revenue recognition, cost of revenue, increasing R&D and SG&A, fair value adjustments, and deferred tax asset valuation allowance - Service Revenue is recognized at the point in time the final contractual milestone is met (e.g., delivery of a final working prototype)[135] - Research and development expenses are expensed as incurred and are expected to increase significantly due to hiring scientists, engineers, and technicians, and investing in plant and equipment for product development[138][139] - Selling, general and administrative expenses are expected to increase significantly due to expanding personnel headcount to support commercial manufacturing and public company operations[141] - Other income and expenses primarily consist of fair value adjustments for warrants and convertible promissory notes, and interest expense[142] - The company maintains a valuation allowance against its U.S. federal and state net deferred tax assets[143] Results of Operations Compares operating results for Q3 and 39-week periods, detailing changes in revenue, R&D, SG&A, and the impact of fair value adjustments on net loss Comparison of Quarter Ended October 3, 2021 to Three Months Ended September 30, 2020 Q3 operating expenses rose 198% (R&D +171%, SG&A +492%), cost of revenue decreased 91%, and net loss decreased 20% due to warrant fair value Operating Results Comparison (Q3 2021 vs. Q3 2020, in thousands) | Metric | Q3 2021 | Q3 2020 | Change ($) | % Change | | :--------------------------------------------------------------------- | :----------- | :----------- | :----------- | :------- | | Cost of revenue | $104 | $1,153 | $(1,049) | (91%) | | Research and development | $10,301 | $3,807 | $6,494 | 171% | | Selling, general and administrative | $8,791 | $1,486 | $7,305 | 492% | | Total operating expenses | $19,196 | $6,446 | $12,750 | 198% | | Loss from operations | $(19,196) | $(6,446) | $(12,750) | 198% | | Change in fair value of convertible preferred stock warrants and common stock warrants | $8,460 | $(7,031) | $15,491 | (220%) | | Net loss | $(10,838) | $(13,476) | $2,638 | (20%) | - R&D increase was primarily due to a $3.5 million increase in salaries, employee benefits, and stock-based compensation, plus $3.0 million in facility, tooling, and materials costs[151] - SG&A increase was primarily due to a $4.2 million increase in salaries, employee benefits, and stock-based compensation, plus $0.9 million in professional fees and recruiting, $0.5 million in insurance, and $0.4 million in legal fees[152] Comparison of 39-Week Period Ended October 3, 2021 to Nine Months Ended September 30, 2020 39-week operating expenses increased 187% (R&D +169%, SG&A +365%), cost of revenue decreased 22%, and net loss increased 57% Operating Results Comparison (39-Weeks 2021 vs. 9-Months 2020, in thousands) | Metric | 39-Weeks 2021 | 9-Months 2020 | Change ($) | % Change | | :--------------------------------------------------------------------- | :------------ | :------------ | :----------- | :------- | | Cost of revenue | $1,847 | $2,382 | $(535) | (22%) | | Research and development | $25,413 | $9,442 | $15,971 | 169% | | Selling, general and administrative | $17,500 | $3,766 | $13,734 | 365% | | Total operating expenses | $44,760 | $15,590 | $29,170 | 187% | | Loss from operations | $(44,760) | $(15,590) | $(29,170) | 187% | | Change in fair value of convertible preferred stock warrants and common stock warrants | $3,679 | $(6,756) | $10,435 | (154%) | | Net loss | $(41,306) | $(26,308) | $(14,998) | 57% | - R&D increase was primarily due to a $10.7 million increase in salaries, employee benefits, and stock-based compensation, plus $5.3 million in facility, tooling, and materials costs[160][162] - SG&A increase was primarily due to a $6.6 million increase in salaries, employee benefits, and stock-based compensation, plus $3.0 million in professional fees and recruiting, and $1.5 million in legal fees[163] Non-GAAP Financial Measures Presents Non-GAAP measures (EBITDA, Adjusted EBITDA, Free Cash Flow) for performance evaluation, distinct from GAAP, used for internal planning - Non-GAAP measures (EBITDA, Adjusted EBITDA, Free Cash Flow) are used to evaluate financial and operational performance, excluding financing costs, certain non-cash, and non-operational expenses[167] - EBITDA is net loss adjusted for interest, taxes, depreciation, and amortization. Adjusted EBITDA further adjusts for stock-based compensation, changes in fair value of warrants/notes, and loss on early debt extinguishment[170] Non-GAAP EBITDA and Adjusted EBITDA (in thousands) | Metric | Q3 2021 | Q3 2020 | 39-Weeks 2021 | 9-Months 2020 | | :-------------- | :--------- | :--------- | :------------ | :------------ | | Net loss | $(10,838) | $(13,476) | $(41,306) | $(26,308) | | EBITDA | $(10,099) | $(13,329) | $(40,057) | $(25,765) | | Adjusted EBITDA | $(15,457) | $(6,217) | $(36,959) | $(14,914) | Free Cash Flow (in thousands) | Metric | 39-Weeks 2021 | 9-Months 2020 | | :------------------------------------ | :------------ | :------------ | | Net cash used in operating activities | $(34,514) | $(15,531) | | Capital (expenditures) | $(31,509) | $(18,923) | | Free Cash Flow | $(66,023) | $(34,454) | Liquidity and Capital Resources Details recurring losses, negative cash flows, $338.7 million cash, $331.4 million working capital from Business Combination, and future financing needs - As of October 3, 2021, the Company had $338.7 million in cash and cash equivalents and $331.4 million in working capital[175] - The Business Combination in July 2021 provided approximately $373.7 million in net proceeds[175] - Cash is expected to be sufficient to meet funding requirements over the next twelve months, but additional financing may be required for future operational expansion[176] Summary of Cash Flow Data (in thousands) | Metric | 39-Weeks 2021 | 9-Months 2020 | Change ($) | | :--------------------------------------------- | :------------ | :------------ | :----------- | | Net cash used in operating activities | $(34,514) | $(15,531) | $(18,983) | | Net cash used in investing activities | $(31,509) | $(18,923) | $(12,586) | | Net cash provided by financing activities | $375,676 | $59,910 | $315,766 | | Change in cash, cash equivalents and restricted cash | $309,653 | $25,456 | $284,197 | Contractual Obligations and Commitments Primary obligations are operating leases; vendor agreements are cancelable; a $15.0 million Secured Promissory Note was repaid - Primary contractual obligations are non-cancelable operating leases for headquarters and office space in Fremont, California[185] - Vendor agreements are generally cancelable, with payments due only for services provided or non-cancelable obligations up to cancellation date[187] - The $15.0 million Secured Promissory Note was repaid in full on July 14, 2021, using proceeds from the Business Combination[188] Off-Balance Sheet Arrangements The company reported no off-balance sheet arrangements as of October 3, 2021, and December 31, 2020 - The Company had no off-balance sheet arrangements as of October 3, 2021, and December 31, 2020[189] Emerging Growth Company Status Qualifies as an EGC under the JOBS Act, utilizing exemptions for disclosure, auditor attestation, and an extended transition period for accounting standards - The Company is an "emerging growth company" (EGC) as defined in the Jumpstart Our Business Startups Act of 2012 (the "JOBS Act")[190] - As an EGC, the company is exempt from auditor attestation on internal controls, certain executive compensation disclosures, and can delay adopting new accounting standards[191][193] - The company has elected to use the extended transition period for complying with new or revised accounting standards[193] Item 3. Quantitative and Qualitative Disclosure about Market Risks As a smaller reporting company, Enovix is exempt from quantitative and qualitative market risk disclosures - As a smaller reporting company, Enovix is exempt from quantitative and qualitative disclosures about market risks[195] Item 4. Controls and Procedures Disclosure controls were ineffective due to material weaknesses in internal control, with ongoing remediation efforts including personnel hires and ERP implementation - Disclosure controls and procedures were not effective as of October 3, 2021, due to material weaknesses in internal control over financial reporting[198] - Material weaknesses include a lack of independent review of technical accounting matters and insufficient qualified personnel for complex accounting issues and timely financial reporting[199][277] - Remediation actions are ongoing, including hiring a CFO, recruiting additional personnel, implementing an ERP tool, and establishing more robust review processes for complex transactions and reconciliations[200][279] - Management is not required to evaluate the effectiveness of internal control over financial reporting until after the filing of the Annual Report on Form 10-K for the year ended January 2, 2022[201] PART II. OTHER INFORMATION Item 1. Legal Proceedings Two lawsuits related to the Business Combination were voluntarily dismissed, and the company is not currently involved in other material legal proceedings - Two lawsuits (Michael Costello v. RSVAC and Derek Boxhorn v. RSVAC) challenging the Business Combination were voluntarily dismissed on August 24, 2021, and October 19, 2021, respectively[203][204] - The Company is not currently a party to any material legal proceedings[205] Item 1A. Risk Factors Outlines investment risks including manufacturing, customer dependencies, business operations, capital needs, IP protection, regulatory compliance, and stock ownership Summary of Risk Factors Summarizes key risks: energy density, manufacturing complexity, capacity, supply chain, costs, product performance, safety, competition, talent, losses, IP, and internal controls - Risks include the need to improve energy density, reliance on a new and complex manufacturing process, and insufficient manufacturing capacity to meet demand[209][210] - Challenges involve sourcing components, controlling operational costs, ensuring battery performance, and managing safety risks in manufacturing[211][212] - The company faces a highly competitive and evolving battery market, difficulties in attracting and retaining key employees, and a history of financial losses with expected future losses[213][214][250] - Other risks include potential product liability claims, adverse effects from the COVID-19 pandemic, inadequate funds for future manufacturing facilities, and material weaknesses in internal control over financial reporting[214][215][216] Risks Related to Our Manufacturing and Scale-Up Highlights risks in improving energy density, scaling complex manufacturing, insufficient capacity, supply chain dependencies, and controlling manufacturing costs - Improving energy density requires optimizing cell designs, materials, and manufacturing techniques, which may take longer or be more difficult than expected[218][219] - The manufacturing process is new and complex, not yet qualified to operate at large-scale manufacturing volumes, leading to risks of delays, equipment malfunctions, and unpredictable operational performance and costs[220][221][223] - The current Fremont facility has limited capacity, and the company lacks an additional manufacturing facility to meet expected demand, with no guarantee of securing one on reasonable terms or scaling production[224][225] - Reliance on third-party suppliers for key components (anode, cathode, separator materials) poses risks of supply disruptions, increased costs due to fluctuating raw material prices, and potential delays in product introduction[227][228][229] - Inability to adequately control costs associated with operations and components, or failure to achieve targeted throughput, yield, and automation rates, could adversely affect margins and profitability[232][233][234] Customer Risks Covers risks from long customer refresh cycles, technology adoption reluctance, exclusive rights, product failures, enterprise sales challenges, and inaccurate demand forecasts - Customer product refresh cycles are long, and missing qualification timing can significantly impact production, revenue, and profits[237] - There is customer reluctance to adopt new battery technologies due to historical safety concerns (e.g., Samsung Galaxy Note incidents)[237] - Exclusive rights granted to a customer in the augmented reality and virtual reality space through 2024 may limit market growth in that segment[238] - Product defects or unexpected failures could lead to recalls, significant warranty costs, brand damage, and inability to secure new business[239][240] - Future growth depends on effectively selling to large enterprise customers, which entails longer sales cycles, budget constraints, multiple approvals, and greater demands on vendors[241][242] - Inaccurate estimation of future supply and demand for batteries could result in manufacturing inefficiencies, delays in shipments, and increased costs[243][246][247] Our Business Risks Details risks of financial losses, operational safety, intense market competition, evolving technologies, and the need to maintain competitive energy density improvements - The company is an early-stage company with a history of financial losses, reporting an accumulated deficit of $248.6 million as of October 3, 2021, and expects significant future losses[250][251][252] - Operational problems with manufacturing equipment pose safety risks (personal injury, death, equipment loss, facility damage, environmental damage), which could materially adversely affect the business[253][254] - The lithium-ion battery market is highly competitive, with risks from competitors' greater resources, faster energy density improvements, and potential state-sponsored competition from foreign governments (e.g., PRC) leading to artificially lower costs[259][260][264][265] - Failure to keep up with rapid technological changes, evolving industry standards, or to improve energy density faster than the industry average (4-5% annually) could render batteries obsolete and erode competitive advantage[262][266][267] Risks Related to Our Need for Additional Capital Highlights the need for significant additional capital for Fab-2 and operations, going concern doubts, and risks of R&D delays or stockholder dilution - The design, manufacture, and sale of batteries is a capital-intensive business, requiring significant additional capital for future manufacturing facilities (Fab-2) and operations[294][295] - Management has concluded that there is substantial doubt about the company's ability to continue as a going concern, citing incurred losses and an accumulated deficit of $248.6 million as of October 3, 2021[298][299] - Failure to raise additional capital when needed or on acceptable terms could force delays or reductions in R&D and commercialization efforts[299] - Raising additional funds through equity or convertible debt could result in substantial dilution to existing stockholders or impose restrictive covenants[301][302] Our Intellectual Property Risks Details IP risks from unauthorized use, global protection challenges, infringement claims, and the uncertainty of patent issuance or enforceability - Inability to prevent unauthorized use or design-arounds of intellectual property could harm the business and competitive position[303][304] - Protecting IP is difficult and costly, especially in foreign countries with less effective enforcement, and failure to do so could lead to loss of competitive advantage[304][305] - The company may need to defend against intellectual property infringement claims from third parties, which could result in substantial costs, damages, or the need to cease sales, redesign products, or obtain licenses[306][307] - Patent applications may not result in issued patents, or existing patents may be contested, invalidated, or limited in scope, affecting the ability to prevent competitors from exploiting similar products[310][311][312] Our Regulatory Risks Covers regulatory approval delays, compliance costs with evolving environmental and safety regulations, and the importance of foreign trade zone qualification - Regulatory approval difficulties and unanticipated failure modes for new, high-energy-density batteries could delay product launches[313][314] - The company is subject to substantial and evolving international, federal, state, and local environmental and safety regulations, including export control laws and UN 38.3 for battery transport[315][316][320][322] - Non-compliance with regulations could lead to fines, damages, increased costs, operational disruptions, or mandates to halt production[317][321][326] - Maintaining foreign trade zone qualification for the Fremont manufacturing facility is critical for reduced duties and tariffs; loss of this status would increase costs[327][328] Risks Related to Ownership of Our Securities Details risks to security prices from market volatility, dilution from future sales/warrants, liquidity concerns, EGC status impact, and exclusive forum provisions - The market price of securities may decline if Business Combination benefits do not meet expectations, or due to market volatility, competitor success, or changes in analyst recommendations[329][330][334][335][337] - Future sales of shares by existing stockholders and the exercise of warrants could lead to substantial dilution and depress the market price of common stock[338][342][344][354] - There is no guarantee of a sustained active trading market for securities, and delisting from Nasdaq could severely impact liquidity and trading activity[346][347] - The company's EGC status allows exemptions from auditor attestation and reduced disclosure, which might make its securities less attractive to investors[358][361][362] - Exclusive forum provisions in the amended and restated certificate of incorporation designate Delaware courts and federal district courts as exclusive forums for certain disputes, potentially limiting stockholders' choice of judicial forum[363][364][365][368] - Warrants may expire worthless if not "in the money" when exercisable, and their terms can be amended with 50% holder approval, potentially adversely affecting holders[350][351][352] General Risk Factors Covers legal proceedings, product liability, cybersecurity, natural disasters, economic crises, NOL limitations, compliance with anti-corruption laws, and insurance adequacy - Involvement in legal proceedings and commercial disputes, including warranty claims and intellectual property matters, could adversely impact profitability and financial position[369][370] - Product liability claims, particularly for unproven lithium-ion batteries, pose inherent risks of substantial monetary awards, negative publicity, and commercialization hurdles, potentially exceeding insurance coverage[371][372] - Information security incidents, system disruptions, or data handling violations could result in liability, reputational damage, and operational interruptions[373][374][375] - Natural disasters (e.g., earthquakes in Fremont), health epidemics (COVID-19), and other catastrophic events could damage facilities, disrupt operations, and cause data loss[378] - Economic crises may negatively impact demand for batteries and the ability to raise capital[379][380] - The ability to utilize net operating losses (NOLs) and other tax attributes to offset future taxable income may be limited by "ownership changes" (Sections 382 and 383 of the Code) or changes in tax law[381][382][383] - Non-compliance with anti-corruption, anti-bribery, anti-money laundering, and financial/economic sanctions laws could lead to severe administrative, civil, and criminal penalties, and reputational harm[384][385][388] - Insurance coverage may not be adequate to protect against all business risks, potentially leading to substantial uninsured losses[389] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds from Registered Securities Details the RSVAC IPO on December 1, 2020, generating $230 million gross proceeds, used for manufacturing, R&D, and general corporate purposes - The RSVAC IPO on December 1, 2020, generated approximately $230 million in gross proceeds[390] - Net proceeds are being used to build out manufacturing facilities, expand R&D and other capabilities, and for general corporate purposes[390] Item 3. Defaults Upon Senior Securities No defaults upon senior securities were reported - No defaults upon senior securities were reported[391] Item 4. Mine Safety Disclosures No mine safety disclosures were reported - No mine safety disclosures were reported[392] Item 5. Other Information Q3 2021 financial results included a correction to diluted EPS for Q3 and YTD 2021 to properly account for Private Placement Warrants - Q3 2021 and year-to-date diluted EPS were corrected from $(0.08) and $(0.38) to $(0.14) and $(0.45), respectively[393] - The correction was made to properly include the impact of Private Placement Warrants using the treasury stock method[393] Item 6. Exhibits Lists exhibits filed with Form 10-Q, including merger agreements, corporate documents, equity plans, and certifications - The exhibits include key corporate documents such as the Agreement and Plan of Merger, Amended and Restated Certificate of Incorporation, Amended and Restated Bylaws, and Warrant Agreements[396] - Equity-related documents like the 2021 Equity Incentive Plan, Stock Option Agreements, and Restricted Stock Unit Award Agreements are also filed[396] - Certifications of the Chief Executive Officer and Chief Financial Officer are furnished pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act[397][399] Signatures The report is duly signed by Harrold Rust, President and CEO, and Steffen Pietzke, CFO, on behalf of Enovix Corporation - The report is signed by Harrold Rust, President and Chief Executive Officer, and Steffen Pietzke, Chief Financial Officer[402]