Filed Pursuant to Rule 424(b)(3)
Registration Statement No. 333-268958
PROSPECTUS
![[MISSING IMAGE: lg_tempo-4c.jpg]](https://cdn.kscope.io/d3597c24b917efa123551010e8ac5233-lg_tempo-4c.jpg)
Tempo Automation Holdings, Inc.
18,099,987 Shares of Common Stock Issuable Upon Exercise of Warrants
26,393,705 Shares of Common Stock
6,600,000 Warrants
5,276,018 Shares of Common Stock
26,393,705 Shares of Common Stock
6,600,000 Warrants
5,276,018 Shares of Common Stock
This prospectus relates to the issuance by Tempo Automation Holdings, Inc. (“we,” “us,” “our,” the “Company,” “Registrant,” and “Tempo”) of an aggregate of up to 18,099,987 shares of our common stock, $0.0001 par value per share (“Common Stock”), which consists of (i) up to 6,600,000 shares of Common Stock that are issuable upon the exercise of 6,600,000 warrants (the “Private Placement Warrants”), originally issued in a private placement at a price of $1.00 per Private Placement Warrant in connection with the initial public offering (the “ACE IPO”) of ACE Convergence Acquisition Corp., a Delaware corporation (“ACE”), by the holders thereof, and (ii) up to 11,499,987 shares of Common Stock that are issuable upon the exercise of 11,499,987 warrants (the “Public Warrants” and, together with the Private Placement Warrants, the “Warrants”), originally issued in the ACE IPO as part of ACE’s units at a price of $10.00 per unit, with each unit consisting of one share of Common Stock and one-half of one Public Warrant, by the holders thereof. Each Warrant entitles the holder thereof to purchase one share of our Common Stock at a price of $11.50 per share.
This prospectus also relates to the offer and resale from time to time by the selling securityholders (including their transferees, donees, pledgees and other successors-in-interest) named in this prospectus (the “Selling Securityholders”) of (i) up to 26,393,705 shares of Common Stock, which consists of (a) up to 11,707,871 shares of Common Stock issued in connection with closing of the Business Combination (as defined herein) (the “Closing”) at an equity consideration value of $10.00 per share by certain of the Selling Securityholders named in this prospectus, (b) up to 3,050,000 shares of Common Stock issued in the PIPE Investment (as defined below) at an equity consideration value of $10.00 per share by certain of the Selling Securityholders named in this prospectus, (c) up to 6,600,000 shares of Common Stock that are issuable upon the exercise of the Private Placement Warrants at an exercise price of $11.50 per share, which were originally issued in a private placement at a price of $1.00 per Private Placement Warrant in connection with the ACE IPO by certain of the Selling Securityholders named in this prospectus, (d) up to 748,990 shares of Common Stock issued to Cantor Fitzgerald & Co. (“Cantor”) to settle the Company’s existing deferred underwriting commissions as of the Closing at an equity consideration value of $10.00 per share by Cantor, (e) up to 536,844 shares of Common Stock issued to certain of the Selling Securityholders in connection with the Closing or issuable to the Selling Securityholders hereafter to settle existing advisory fees owed to such persons as of the Closing at an equity consideration value of $10.00 per share by certain of the Selling Securityholders named in this prospectus and (f) up to 3,750,000 shares of Common Stock that were originally issued to ACE Convergence Acquisition LLC (the “Sponsor”) in the form of sponsor shares prior to the ACE IPO at a price of approximately $0.004 per share and (ii) up to 6,600,000 Private Placement Warrants originally issued in a private placement at a price of $1.00 per Private Placement Warrant in connection with the ACE IPO by certain of the Selling Securityholders named in this prospectus. Under the terms of the engagement letters with such advisors, the Company may be obligated to issue additional shares of Common Stock following the 12‑month anniversary of the Closing Date (as defined herein) in the event that the volume-weighted average price of a share of Common Stock for the 30 trading days ending on the 12-month anniversary of the Closing Date is less than the volume-weighted average price of a share of Common Stock for the 30 trading days ending 60 days after the Closing Date.
This prospectus also relates to the potential offer and sale from time to time by White Lion Capital, LLC (“White Lion”) of up to 5,276,018 shares of Common Stock that may be issued by us to White Lion pursuant to a Common Stock Purchase Agreement, dated as of November 21, 2022, by and between us and White Lion (the “Purchase Agreement”), in which White Lion
has committed to purchase from us, at our discretion, up to the lesser of (i) $100.0 million in aggregate gross purchase price of newly issued shares of Common Stock and (ii) the Exchange Cap (as defined herein), subject to the terms and conditions specified in the Purchase Agreement (the “Equity Subscription Line”).
We will not receive any proceeds from the sale of shares of Common Stock or Warrants by the Selling Securityholders pursuant to this prospectus. In addition, we will not receive any of the proceeds from the sale of our shares of Common Stock by White Lion pursuant to this prospectus. However, we may receive up to $100.0 million in aggregate gross proceeds from White Lion under the Purchase Agreement in connection with sales of our shares of Common Stock to White Lion that we may, in our discretion, elect to make, from time to time pursuant to the Purchase Agreement after the date of this prospectus. We will receive up to $208.15 million from the exercise of the Warrants for cash, but will not receive any proceeds from the sale of the shares of Common Stock issuable upon such exercise. Each Warrant entitles the holder thereof to purchase one share of Common Stock at a price of $11.50 per share. On May 2, 2023, the closing price for our Common Stock was $0.3225. If the price of our Common Stock remains below $11.50 per share, warrant holders will be unlikely to exercise their Warrants for cash, resulting in little or no cash proceeds to us from such exercises. We expect to use any such proceeds for general corporate and working capital purposes, which would increase our liquidity. In order to fund planned operations while meeting obligations as they come due, the Company will need to secure additional debt or equity financing if substantial cash proceeds from the exercise of the Warrants are not received.
In connection with shareholder votes to approve (i) the extension of the date by which ACE was required to complete an initial business combination and (ii) the Business Combination and related matters, holders of Class A ordinary shares of ACE elected to redeem an aggregate of 20,730,701 Class A ordinary shares, par value $0.0001 per share, of ACE initially sold in the ACE IPO. As a result, an aggregate of approximately $208.7 million was paid to such redeeming shareholders at or prior to the Closing out of the trust account established by ACE upon the closing of the ACE IPO. The Selling Securityholders can sell, under this prospectus, up to (a) 26,393,705 shares of Common Stock, constituting approximately 85.8% of our issued and outstanding shares of Common Stock as of May 2, 2023 and (b) 6,600,000 Warrants constituting approximately 36.5% of our issued and outstanding Warrants as of May 2, 2023. Sales of a substantial number of our shares of Common Stock and/or Warrants in the public market by the Selling Securityholders and/or by our other existing securityholders, or the perception that those sales might occur, could increase the volatility of and cause a significant decline in the market price of our securities and could impair our ability to raise capital through the sale of additional equity securities. See “Risk Factors — Sales of a substantial number of our securities in the public market by the Selling Securityholders and/or by our existing securityholders could cause the prices of our Common Stock and Warrants to fall.”
The sale of all or a portion of the securities being offered in this prospectus could result in a significant decline in the public trading pr ice of our securities. Despite such a decline in the public trading price, some of the Selling Securityholders may still experience a positive rate of return on the securities they purchased due to the price at which such Selling Securityholder initially purchased the securities. See “— Certain existing stockholders purchased, or may purchase, securities in the Company at a price below the current trading price of such securities, and may experience a positive rate of return based on the current trading price. Future investors in the Company may not experience a similar rate of return.”
We are registering the securities for resale pursuant to the Selling Securityholders’ registration rights under certain agreements between us, on the one hand, and White Lion and the Selling Securityholders, on the other hand. Our registration of the securities covered by this prospectus does not mean that White Lion or the Selling Securityholders will offer or sell any of the shares of Common Stock or Warrants.
The Selling Securityholders may offer, sell or distribute all or a portion of their shares of Common Stock or Warrants publicly or through private transactions at prevailing market prices or at negotiated prices. The Selling Securityholders will bear all commissions and discounts, if any, attributable to their sales of the shares of Common Stock.
White Lion may offer, sell or distribute all or a portion of the shares of Common Stock hereby registered publicly or through private transactions at prevailing market prices or at negotiated prices. We will bear all costs, expenses and fees in connection with the registration of such shares of Common Stock, including with regard to compliance with state securities or “blue sky” laws. The timing and amount of any sale are within the sole discretion of White Lion. White Lion is an underwriter under the Securities Act of 1933, as amended (the “Securities Act”). Although White Lion is obligated to purchase shares of Common Stock under the terms of the Purchase Agreement, to the extent we choose to sell such shares of Common Stock to White Lion (subject to certain conditions), there can be no assurances that White Lion will sell any or all of the shares of Common Stock purchased under the Purchase Agreement pursuant to this prospectus. White Lion will bear all commissions and discounts, if any, attributable to its sale of the shares of Common Stock.
We provide more information about how the Selling Securityholders and White Lion may sell the shares of Common Stock or Warrants in the section titled “Plan of Distribution.”
We are an “emerging growth company” as defined in Section 2(a) of the Securities Act of 1933, as amended (the “Securities Act”), and are subject to reduced public company reporting requirements. This prospectus complies with the requirements that apply to an issuer that is an emerging growth company.
Our Common Stock and Warrants are listed on the Nasdaq Stock Market LLC (“Nasdaq”) under the symbols “TMPO” and “TMPOW,” respectively. On May 2, 2023, the closing price of our Common Stock was $0.3225 and the closing price for our Warrants was $0.0644.
Our business and investment in our securities involves significant risks. These risks are described in the section titled “Risk Factors” beginning on page 11 of this prospectus.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.
The date of this prospectus is May 15, 2023.
TABLE OF CONTENTS
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ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed with the U.S. Securities and Exchange Commission, (the “SEC”) using a “shelf” registration process. By using a shelf registration statement, we may issue an aggregate of up to 18,099,987 shares of our Common Stock, consisting of (i) up to 6,600,000 shares of Common Stock that are issuable upon the exercise of 6,600,000 Private Placement Warrants, originally issued in a private placement at a price of $1.00 per Private Placement Warrant in connection with the ACE IPO, by the holders thereof, and (ii) up to 11,499,987 shares of Common Stock that are issuable upon the exercise of 11,499,987 Public Warrants, originally issued in the ACE IPO as part of ACE’s units at a price of $10.00 per unit, with each unit consisting of one share of Common Stock and one-half of one Public Warrant, by the holders thereof. Each Warrant entitles the holder thereof to purchase one share of our Common Stock at a price of $11.50 per share.
This prospectus also relates to the offer and resale from time to time by the Selling Securityholders of (i) up to 26,393,705 shares of Common Stock, consisting of (a) up to 11,707,871 shares of Common Stock issued in connection with Closing at an equity consideration value of $10.00 per share by certain of the Selling Securityholders named in this prospectus, (b) up to 3,050,000 shares of Common Stock issued in the PIPE Investment at an equity consideration value of $10.00 per share by certain of the Selling Securityholders named in this prospectus, (c) up to 6,600,000 shares of Common Stock that are issuable upon the exercise of the Private Placement Warrants at an exercise price of $11.50 per share, which were originally issued in a private placement at a price of $1.00 per Private Placement Warrant in connection with the ACE IPO by certain of the Selling Securityholders named in this prospectus, (d) up to 748,990 shares of Common Stock issued to Cantor to settle the Company’s existing deferred underwriting commissions as of the Closing at an equity consideration value of $10.00 per share by Cantor, (e) up to 536,844 shares of Common Stock issued to certain of the Selling Securityholders in connection with the Closing or issuable to the Selling Securityholders hereafter to settle existing advisory fees owed to such persons as of the Closing at an equity consideration value of $10.00 per share by certain of the Selling Securityholders named in this prospectus and (f) up to 3,750,000 shares of Common Stock that were originally issued to the Sponsor in the form of sponsor shares prior to the IPO at a price of approximately $0.004 per share and (ii) up to 6,600,000 Private Placement Warrants originally issued in a private placement at a price of $1.00 per Private Placement Warrant in connection with the ACE IPO by certain of the Selling Securityholders named in this prospectus.
This prospectus also relates to the potential offer and sale from time to time by White Lion of up to 5,276,018 shares of Common Stock that may be issued by us to White Lion pursuant to the Purchase Agreement, pursuant to which White Lion has committed to purchase from us, at our discretion, up to the lesser of (i) $100.0 million in aggregate gross purchase price of newly issued shares of Common Stock and (ii) the Exchange Cap, subject to the terms and conditions specified in the Purchase Agreement.
We will not receive any proceeds from the sale of shares of Common Stock or Warrants by the Selling Securityholders pursuant to this prospectus. In addition, we will not receive any of the proceeds from the sale of our shares of Common Stock by White Lion pursuant to this prospectus. However, we may receive up to $100.0 million in aggregate gross proceeds from White Lion under the Purchase Agreement in connection with sales of our shares of Common Stock to White Lion that we may, in our discretion, elect to make, from time to time pursuant to the Purchase Agreement after the date of this prospectus. We will receive up to $208.15 million from the exercise of the Warrants for cash, but will not receive any proceeds from the sale of the shares of Common Stock issuable upon such exercise. Each Warrant entitles the holder thereof to purchase one share of Common Stock at a price of $11.50 per share. On May 2, 2023, the closing price for our Common Stock was $0.3225. If the price of our Common Stock remains below $11.50 per share, warrant holders will be unlikely to exercise their Warrants for cash, resulting in little or no cash proceeds to us from such exercises. We expect to use any such proceeds for general corporate and working capital purposes, which would increase our liquidity. In order to fund planned operations while meeting obligations as they come due, the Company will need to secure additional debt or equity financing if substantial cash proceeds from the exercise of the Warrants are not received.
We may also file a prospectus supplement or post-effective amendment to the registration statement of which this prospectus forms a part that may contain material information relating to these offerings. The prospectus supplement or post-effective amendment may also add, update or change information contained
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in this prospectus with respect to that offering. If there is any inconsistency between the information in this prospectus and the applicable prospectus supplement or post-effective amendment, you should rely on the prospectus supplement or post-effective amendment, as applicable. Before purchasing any securities, you should carefully read this prospectus, any post-effective amendment, and any applicable prospectus supplement, together with the additional information described under the heading “Where You Can Find More Information.”
None of us, the Selling Securityholders or White Lion have authorized anyone to provide you with any information or to make any representations other than those contained in this prospectus, any post-effective amendment, or any applicable prospectus supplement prepared by or on behalf of us or to which we have referred you. We, the Selling Securityholders and White Lion take no responsibility for and can provide no assurance as to the reliability of any other information that others may give you. We, the Selling Securityholders and White Lion will not make an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus, any post-effective amendment and any applicable prospectus supplement to this prospectus is accurate only as of the date on its respective cover. Our business, financial condition, results of operations and prospects may have changed since those dates. This prospectus contains, and any post-effective amendment or any prospectus supplement may contain, market data and industry statistics and forecasts that are based on independent industry publications and other publicly available information. Although we believe these sources are reliable, we do not guarantee the accuracy or completeness of this information and we have not independently verified this information. In addition, the market and industry data and forecasts that may be included in this prospectus, any post-effective amendment or any prospectus supplement may involve estimates, assumptions and other risks and uncertainties and are subject to change based on various factors, including those discussed under the heading “Risk Factors” contained in this prospectus, any post-effective amendment and the applicable prospectus supplement. Accordingly, investors should not place undue reliance on this information.
We own or have rights to trademarks, trade names and service marks that we use in connection with the operation of our business. In addition, our name, logos and website name and address are our trademarks or service marks. Solely for convenience, in some cases, the trademarks, trade names and service marks referred to in this prospectus are listed without the applicable ®, ™ and SM symbols, but we will assert, to the fullest extent under applicable law, our rights to these trademarks, trade names and service marks. Other trademarks, trade names and service marks appearing in this prospectus are the property of their respective owners.
As used in this prospectus, unless otherwise indicated or the context otherwise requires, references to “we,” “us,” “our,” the “Company,” “Registrant,” and “Tempo” refer to the consolidated operations of Tempo Automation Holdings, Inc. and its subsidiaries. References to “ACE” refer to the Company prior to the consummation of the Business Combination and references to “Legacy Tempo” refer to Tempo Automation, Inc. prior to the consummation of the Business Combination.
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. All statements other than statements of historical facts contained in this prospectus, including statements concerning possible or assumed future actions, business strategies, events or results of operations, and any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.
In some cases, you can identify forward-looking statements by terms such as “may,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential” or “continue” or the negative of these terms or other similar expressions. The forward-looking statements in this prospectus are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements speak only as of the date of this prospectus and are subject to a number of important factors that could cause actual results to differ materially from those in the forward-looking statements, including the risks, uncertainties and assumptions described under the section in this prospectus titled “Risk Factors.” These forward-looking statements are subject to numerous risks, including, without limitation, the following:
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the projected financial information, business and operating metrics, anticipated growth rate, and market opportunity of Tempo;
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the ability to maintain the listing of Tempo common stock and Tempo warrants on Nasdaq;
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our public securities’ potential liquidity and trading;
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our ability to raise financing in the future;
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our success in retaining or recruiting, or changes required in, officers, key employees or directors;
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the impact of the regulatory environment and complexities with compliance related to such environment;
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the impact of the ongoing COVID-19 pandemic;
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the success of strategic relationships with third parties;
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our ability to execute our business strategy;
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our estimates regarding expenses, future revenue, capital requirements and needs for additional financing;
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our financial performance;
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our ability to expand or maintain our existing customer base; and
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other factors detailed under the section titled “Risk Factors.”
Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified and some of which are beyond our control, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur, and actual results could differ materially from those projected in the forward-looking statements. Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties. As a result of these factors, we cannot assure you that the forward-looking statements in this prospectus will prove to be accurate. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances, or otherwise.
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You should read this prospectus completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.
v
PROSPECTUS SUMMARY
This summary highlights, and is qualified in its entirety by, the more detailed information and financial statements included elsewhere in this prospectus. This summary does not contain all of the information that may be important to you in making your investment decision. You should read this entire prospectus carefully, especially the “Risk Factors” section beginning on page 8 and our consolidated financial statements and the related notes appearing at the end of this prospectus, before deciding to invest in our Common Stock or Warrants.
Overview
Tempo is a leading software-accelerated electronics manufacturer that aims to transform the product development process for the world’s innovators. We believe that our proprietary software platform redefines the customer journey and accelerates time-to-market. Our profit, growth, and strong margins are unlocked by a differentiated customer experience and software-enabled efficiencies. We anticipate that our growth and data accrual will be accelerated via mergers and acquisitions that will benefit from our technology in our highly fragmented industry.
Founded in 2013, Tempo is headquartered in San Francisco, California and serves more than 100 customers out of our single manufacturing facility.
We work with companies across industries, including space, semiconductor, aviation and defense, medical device, as well as industrials and e-commerce. Our customers include hardware engineers, engineering program managers, and procurement and supply chain personnel from businesses of a variety of sizes, ranging from Fortune 500 companies to start-ups. The electronics within their products are most often manufactured as Printed Circuit Board Assemblies (“PCBAs”). The PCBA manufacturing process typically takes two inputs: 1) electronic components, and 2) a printed circuit board (“PCB”), which is the substrate that the components are attached to and electrical connections that complete the circuit(s). The assembly process typically consists of attaching the electronic components to the PCB using solder paste, then curing the paste in an oven such that an electrical and mechanical bond is formed. Given the varied requirements of different products, customers typically will design different, custom PCBAs for each of their products.
During the initial phases of product development, up until a product is deemed production ready, customers generally prefer quick turnaround times and the highest quality from their vendors to ensure they are able to meet their timelines. Based on IPC’s 2012 - 2013, 2018, and 2019 Annual Reports and Forecasts for the North American Electronics Manufacturing Services (“EMS”) Industry, the estimated size of this electronics prototyping and on-demand production market in the United States is approximately $290 billion. Most of these electronics have historically been produced by small manufacturers who have been largely ignored by software and therefore struggle to consistently satisfy customer demands manually.
Tempo has developed a technology-enabled manufacturing platform to streamline this electronic product realization process, thereby helping our customers bring new products to market faster. We believe that our platform offers customer benefits that are highly desired by the market and not available from alternative solutions through our:
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Customer portal, which provides low-friction quoting, ordering, and data ingestion via a secure cloud-based interface. Our customer portal offers analysis, interpretation, and visual rendering of engineering, design, and supply chain data with minimal human involvement, which ultimately allows hardware engineers to reach a manufacturable design quickly and efficiently.
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Manufacturing support software, which is a continuous, bi-directional digital thread that connects our customers’ designs and data to our smart factory. It is extendable and manageable across multiple sites and locations.
Tempo’s software platform helps companies iterate faster. In the status quo, each of quoting, manufacturability review, procurement, setup, and manufacturing are manual processes. We estimate that, on average, these production process steps collectively take approximately 20 days when executed manually. By contrast, with Tempo’s automated approach, these processes could be completed in approximately five days.
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Recent Developments
Proposed Acquisition of Optimum Design Associates
On March 25, 2023, we entered into a Securities Purchase Agreement (the “ODA Purchase Agreement”) by and among us, Optimum Design Associates, Inc., a California corporation (“ODA”), Optimum Design Associates Pty. Ltd., an Australian proprietary company limited by shares (“ODA Australia” and, together with ODA, the “Acquired Companies”), Nick Barbin and Roger Hileman (Mr. Hileman, together with Mr. Barbin, the “Sellers” and each, a “Seller”). The ODA Purchase Agreement provides that, upon the terms and subject to the conditions set forth in the ODA Purchase Agreement, we will acquire from the Sellers (i) all of the issued and outstanding capital stock of ODA (the “ODA Stock” and such acquisition, the “U.S. Sale”) and (ii) all of the issued and outstanding capital stock of ODA Australia (the “ODA Australia Shares” and such acquisition, the “Australia Sale”; the Australia Sale and the U.S. Sale are collectively referred to as the “Acquisitions”). As consideration for the U.S. Sale: (i) on the closing date of the U.S. Sale (the “U.S. Closing Date”), the Company will pay to the Sellers a cash amount equal to approximately $2.8 million (subject to customary adjustments set forth in the ODA Purchase Agreement) plus 50% of the reasonable and documented out-of-pocket expenses incurred by the Acquired Companies in connection with the audit of the audited financial statements required to be delivered by the Acquired Companies prior to such closing (the “U.S. Closing Cash Consideration”); (ii) within five business days of the U.S. Closing Date, the Company will issue to the Sellers an aggregate of 4,400,000 shares of common stock, par value $0.0001 per share, of the Company (“Common Stock”); (iii) on the six-month anniversary of the U.S. Closing Date, the Company will pay to the Sellers an additional amount in cash equal to $1.5 million less the aggregate amount of Free Cash Flow Payments (as defined herein) made to the Sellers after the U.S. Closing Date and prior to the six-month anniversary of the U.S. Closing Date (the “Initial Deferred Cash Consideration”); (iv) on the 12-month anniversary of the U.S. Closing Date, the Company will pay to the Sellers an additional amount in cash equal to $2.5 million less the aggregate amount of Free Cash Flow Payments made to the Sellers on or after the six-month anniversary of the U.S. Closing Date and on or prior to the 12-month anniversary of the U.S. Closing Date (the “Remaining Deferred Cash Consideration”); and (v) the Company will agree to pay the Sellers up to $7.5 million of additional consideration (the “Earnout Consideration”) based on the Acquired Companies’ financial performance during the fiscal years ending December 31, 2023, December 31, 2024 and December 31, 2025, which payments may, subject to certain limitations, be made in cash, shares of Common Stock, or a combination thereof at the Company’s election, provided that at least 25% of the Earnout Consideration must be paid in cash. Until the 12-month anniversary of the U.S. Closing Date, as promptly as reasonably practicable following the last day of each calendar month, the Company will transfer, or cause to be transferred, to the Sellers an amount in cash equal to the free cash flow of the Acquired Companies for such completed calendar month (each such payment, a “Free Cash Flow Payment”). In no event may the amount of Free Cash Flow Payments exceed $4,000,000 in the aggregate. As consideration for the Australia Sale, the Company will pay to the Sellers, on the closing date of the Australia Sale (the “Australia Closing Date” and the Australia Closing Date and the U.S. Closing Date, each, a “Closing Date”), an amount in cash equal to $230,000 (subject to certain customary adjustments set forth in the ODA Purchase Agreement). In addition, the Company has agreed to provide specified compensation to certain employees of the Acquired Companies based on the Acquired Companies’ financial performance during the fiscal years ending December 31, 2023, December 31, 2024 and December 31, 2025, provided that such employees remain employed by the Company, the Acquired Companies or their respective subsidiaries through the applicable payment dates.
At the closing of the U.S. Sale, the Company has agreed to enter into (a) a registration rights agreement with the Sellers, pursuant to which, among other things, the Company will grant to the Sellers certain registration rights with respect to certain securities of the Company; (b) an employment agreement with Mr. Barbin pursuant to which, among other things, Mr. Barbin will be appointed as the Vice President of Optimum Design Services until the three-year anniversary of the U.S. Closing Date; (c) non-competition and non-solicitation agreements with each of Mr. Barbin and Mr. Hileman, pursuant to which, among other things, each Seller will agree not to (i) invest in, finance, participate in or become employed by any business that competes with the Company and its subsidiaries, (ii) solicit for employment or hire any employee of the Acquired Companies or (iii) solicit any business from any customer of the Acquired Companies or provide any goods or services to any customer of the Acquired Companies similar to those provided by the Acquired Companies, in each case, prior to the two-year anniversary of the U.S. Closing Date; and (d) a
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services agreement with ODA and ODA Australia, pursuant to which, among other things, ODA Australia will agree to continue to provide all services in the ordinary course of business consistent with past practice that ODA Australia provides to ODA as of the date of the ODA Purchase Agreement during the period commencing on the U.S. Closing Date and ending on the Australia Closing Date.
The consummation of each of the Acquisitions is subject to customary closing conditions, including, among others, (a) the absence of laws, orders, decrees, judgments and injunctions by any governmental entity of competent jurisdiction preventing the completion of the Acquisitions or that make the completion of the Acquisitions illegal, (b) the receipt of specified governmental and regulatory consents and approvals and expiration of any mandatory waiting period related thereto, (c) subject to certain exceptions, the accuracy of representations and warranties with respect to the Acquired Companies, the Company and the Sellers, (d) compliance in all material respects by the Acquired Companies, the Company and the Sellers with their respective covenants contained in the ODA Purchase Agreement, (e) the shares of Common Stock issuable as Stock Consideration and Earnout Consideration having been approved for listing on the Nasdaq Capital Market, LLC, (f) there having occurred no material adverse effect with respect to the Company or the Acquired Companies, (g) Buyer having obtained gross proceeds from one or more financing transactions sufficient to satisfy its cash payment obligations with respect to the closing of the Acquisitions; (h) the entry by the Sellers into employment and non-compete agreements with the Company, in each case substantially in the forms attached as exhibits to the ODA Purchase Agreement; and (i) the delivery by the Acquired Companies of certain audited financial statements with respect to the Acquired Companies.
The Business Combination and Related Transactions
On October 13, 2021, the Company entered into an Agreement and Plan of Merger (the “Original Merger Agreement”) with ACE Convergence Subsidiary Corp. (“Merger Sub”) and Legacy Tempo. On August 12, 2022, the Company entered into an Amended and Restated Agreement and Plan of Merger (as amended on September 7, 2022 and September 23, 2022, the “Merger Agreement”) with Merger Sub and Legacy Tempo, which amended and restated the Original Merger Agreement in its entirety. The Merger Agreement provided for, among other things, the merger of Merger Sub with and into Legacy Tempo (the “Merger” and, together with the other transactions contemplated by the Merger Agreement, the “Business Combination”), with Legacy Tempo surviving the Merger as a wholly owned subsidiary of Tempo, in accordance with the terms and subject to the conditions of the Merger Agreement.
In connection with the execution of the Merger Agreement, the Company entered into the Original PIPE Common Stock Subscription Agreements with certain investors pursuant to which such investors agreed to purchase 8.2 million shares of the Company’s common stock at $10.00 per share for an aggregate commitment amount of $82.0 million.
On March 16, 2022, the Company entered into Amended and Restated Subscription Agreements, which amended and restated the Original PIPE Common Stock Subscription Agreements in their entirety, pursuant to which certain investors agreed to purchase 10.2 million shares of the Company’s common stock at $10.00 per share for an aggregate commitment of $102.0 million.
On March 16, 2022, the Company entered into that certain Letter Agreement, dated as of March 16, 2022 (the “Cantor Side Letter”), with Cantor Fitzgerald & Co., which provided for the issuance and registration of up to of up to 805,000 shares of Common Stock of the Company.
On July 6, 2022, the Company entered into Second Amended and Restated Subscription Agreements (the “Second A&R Subscription Agreements”) with certain investors, which amended and restated the Amended and Restated Subscription Agreements in their entirety.
On September 7, 2022, the Company entered into Third Amended and Restated PIPE Subscription Agreements (the “Third A&R Subscription Agreements”) with certain investors (each a “PIPE Investor”), which amended and restated the applicable Second Amended and Restated Subscription Agreements in their entirety.
On November 22, 2022, Legacy Tempo entered into the First Amended and Restated Loan and Security Agreement (the “A&R LSA”) with Structural Capital Investments III, LP (“SCI”), Series Structural DCO II series of Structural Capital DCO, LLC (“DCO”), CEOF Holdings LP (“CEOF”), SQN Tempo
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Automation, LLC (“SQNTA”), SQN Venture Income Fund II, LP (“SQNVIFII” and together with SCI, DCO, CEOF and SQNTA, “Lenders” and each a “Lender”), Ocean II PLO LLC, a California limited liability company, as administrative and collateral agent for Lenders (“Agent”). Also on November 22, 2022, the Company entered into subscription agreements with certain of the Lenders (the “LSA Subscription Agreements”) in connection with the conversion of $7,000,000 of principal under the Loan Security Agreement into 700,000 shares of Common Stock.
On November 22, 2022, in connection with the Closing (as defined below), the Company issued (i) 350,000 shares of Common Stock to the PIPE Investors in accordance with the Third A&R Subscription Agreements, (ii) 748,990 shares of Common Stock to Cantor Fitzgerald & Co. in accordance with the Cantor Side Letter and (iii) 700,000 shares of Common Stock to the Lenders in accordance with the LSA Subscription Agreements.
On November 22, 2022 (the “Closing Date”), pursuant to the Merger Agreement, Merger Sub merged with and into Legacy Tempo, with Legacy Tempo surviving the merger as a wholly owned subsidiary of the Company (the “Closing”).
In connection with Closing, we changed our name to Tempo Automation Holdings, Inc. While we are the legal acquirer of Legacy Tempo in the Business Combination, Legacy Tempo is deemed to be the accounting acquirer, and the historical financial statements of Legacy Tempo became the historical financial statements of the Company upon the Closing.
The rights of holders of our Common Stock and Warrants are governed by our amended and restated certificate of incorporation (our “certificate of incorporation”), our amended and restated bylaws (the “bylaws”), and the Delaware General Corporation Law (the “DGCL”), and, in the case of the Warrants, the Warrant Agreement, dated as of July 27, 2020, by and between ACE and Continental Stock Transfer & Trust Company, as warrant agent (the “Warrant Agreement”). See the section titled “Description of Capital Stock.”
The Equity Subscription Line
On November 21, 2022, the Company entered into the Purchase Agreement and a related registration rights agreement (the “White Lion Registration Rights Agreement”) with White Lion. Pursuant to the Purchase Agreement, the Company has the right, but not the obligation to require White Lion to purchase, from time to time, up to the lesser of (i) $100,000,000 in aggregate gross purchase price of newly issued shares of Common Stock and (ii) the Exchange Cap, in each case, subject to certain limitations and conditions set forth in the Purchase Agreement.
The Purchase Agreement contains customary representations, warranties, covenants and indemnification provisions. Subject to the satisfaction of certain customary conditions including, without limitation, the effectiveness of this registration statement, the Company’s right to sell shares to White Lion will re-commence on the effective date of this registration statement (the “Commencement”) and extend until December 31, 2024. During such term, subject to the terms and conditions of the Purchase Agreement, the Company may notify White Lion when the Company exercises its right to sell shares (the effective date of such notice, a “Notice Date”).
The number of shares sold pursuant to any such notice may not exceed the lower of (a) $2,000,000 and (b) the dollar amount equal to the product of (i) the Effective Daily Trading Volume (as defined in the Purchase Agreement), (ii) the closing price of the Common Stock on the effective date of this registration statement or any new registration statement relating to the resale by White Lion of shares of Common Stock that the Company may issue to White Lion under the Purchase Agreement and (iii) 80%.
No purchase notice may result in White Lion beneficially owning (as calculated pursuant to Section 13(d) of the Exchange Act and Rule 13d-3 thereunder) more than 4.99% of the number of shares of Common Stock outstanding immediately prior to the issuance of shares of Common Stock issuable pursuant to such purchase notice.
The purchase price to be paid by White Lion for any such shares will equal (i) until an aggregate of $50,000,000 in shares have been purchased under the Purchase Agreement, 97% of the lowest daily volume-weighted average price of the Common Stock during the three consecutive trading days following the
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Notice Date, and (ii) thereafter, 99% of the lowest daily volume-weighted average price of the Common Stock during the three consecutive trading days following the Notice Date.
The Company will have the right to terminate the Purchase Agreement at any time after Commencement, at no cost or penalty, upon three trading days’ prior written notice. Additionally, White Lion will have the right to terminate the Purchase Agreement upon three trading days’ prior written notice to the Company if (i) a material adverse effect has occurred and is continuing, (ii) a fundamental transaction has occurred, (iii) the Company is in breach or default in any material respect of the White Lion Registration Rights Agreement and such breach or default is not cured within 15 trading days after notice of such breach or default is delivered to the Company, (iv) there is a lapse of the effectiveness, or unavailability of, any registration statement required by the White Lion Registration Rights Agreement for a period of 45 consecutive trading days or for more than an aggregate of 90 trading days in any 365-day period, (v) the suspension of trading of the Common Stock for a period of five (5) consecutive trading days, or (vi) the material breach of the Purchase Agreement by the Company, which breach is not cured within 15 trading days after notice of such breach or default is delivered to the Company. No termination of the Purchase Agreement will affect the registration rights provisions contained in the White Lion Registration Rights Agreement.
In consideration for the commitments of White Lion, as described above, the Company paid to White Lion a commitment fee of $1,000,000 in connection with the Closing.
The aggregate number of shares of Common Stock that the Company can sell to White Lion under the Purchase Agreement may in no case exceed 19.99% of the number of shares of Common Stock outstanding immediately prior to the execution of the Purchase Agreement (the “Exchange Cap”), unless stockholder approval is obtained to issue shares above the Exchange Cap, in which case the Exchange Cap will no longer apply.
For more detailed information regarding the Purchase Agreement, see the section entitled “Equity Subscription Line.”
Changes in the Company’s Certifying Accountant
The Audit Committee (the “Committee”) of the Board of Directors of the Company (the “Board”) conducted a competitive selection process to determine the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2023. The Committee invited several international public accounting firms to participate in this process. As a result of this process, on April 18, 2023, the Committee approved the appointment of WithumSmith+Brown PC (“Withum”) as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2023, subject to completion of its standard client acceptance procedures, and dismissed BDO USA, LLP (“BDO”), the Company’s independent registered public accounting firm for the fiscal year ended December 31, 2022, as the Company’s independent registered public accounting firm, effective as of April 18, 2023.
The report of BDO on the Company’s consolidated financial statements for the two most recent fiscal years ended December 31, 2021 and 2022 did not contain an adverse opinion or disclaimer of opinion and was not qualified or modified as to uncertainty, audit scope or accounting principles, except that BDO’s report for the year ended December 31, 2022 included an explanatory paragraph indicating that there was substantial doubt about the Company’s ability to continue as a going concern. In connection with the audit of the Company’s consolidated financial statements for the fiscal years ended December 31, 2021 and 2022, and subsequent interim period through the date of this Current Report on Form 8-K, there were no disagreements with BDO on any matters of accounting principles or practices, financial statement disclosure or auditing scope and procedures which, if not resolved to the satisfaction of BDO, would have caused BDO to make reference to the matter in their report. There were no reportable events of the type listed in paragraphs (A) through (D) of Item 304(a)(1)(v) of Regulation S-K during the fiscal year ended December 31, 2022, except for the material weaknesses in the Company’s internal control over financial reporting previously reported in Part II, Item 9A “Controls and Procedures” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, filed with the Securities and Exchange Commission on April 17, 2023, related to (a) the Company not maintaining sufficient resources who possess an appropriate level of expertise to timely review account reconciliations and identify, select, and apply GAAP pertaining to revenue recognition, inventory, equity administration and to significant financing transactions including
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business combinations, which resulted in a failure to detect accounting errors in these areas; and (b) as a result of insufficient resources, the Company failing to maintain adequate IT general controls, specifically, related to segregation of duties and system implementation. The material weaknesses have not been remediated as of the date of this Current Report on Form 8-K.
On April 18, 2023, the Board unanimously approved the appointment of Withum as the Company’s new independent registered public accounting firm, effective as of April 18, 2023. During the most recent fiscal years ended December 31, 2021 and 2022, and the subsequent interim periods through April 18, 2023, neither the Company nor anyone acting on its behalf has consulted with Withum with respect to (i) the application of accounting principles to a specified transaction, either completed or proposed, or the audit opinion that might be rendered on the Company’s consolidated financial statements and no written report or oral advice was provided to the Company by Withum that was an important factor considered by the Company in deciding on any accounting, auditing or financial reporting issue, or (ii) any matter subject to any “disagreement” (as such term is defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions) or a “reportable event” (as such term is defined in Item 304(a)(1)(v) of Regulation S-K).
Notice of Failure to Satisfy a Continued Listing Rule or Standard.
On April 24, 2023, the Company received a letter (the “MVLS Letter”) from the Listing Qualifications Department of The Nasdaq Stock Market LLC (“Nasdaq”) notifying the Company that, for the last 30 consecutive business days prior to the date of the MVLS Letter, the Company’s Market Value of Listed Securities (“MVLS”) was below the $50 million minimum MVLS requirement for continued listing on the Nasdaq Global Market under Nasdaq Listing Rule 5450(b)(2)(A) (the “MVLS Rule”). In accordance with Nasdaq Listing Rule 5810(c)(3)(C), the Company will have 180 calendar days, or until October 23, 2023 (the “MVLS Compliance Date”), to regain compliance with the MVLS Rule. To regain compliance with the MVLS Rule, the Company’s MVLS must equal or exceed $50 million for a minimum of 10 consecutive business days at any time prior to the MVLS Compliance Date. If the Company regains compliance with the MVLS Rule, Nasdaq will provide the Company with written confirmation and will close the matter.
On May 5, 2023, the Company received a letter (the “Bid Price Letter” and, together with the MVLS Letter, the “Letters”) from the Listing Qualifications Department of Nasdaq notifying the Company that, for the last 30 consecutive business days prior to the date of the Bid Price Letter, the closing bid price for the Common Stock was below the $1.00 per share requirement for continued listing on the Nasdaq Global Market under Nasdaq Listing Rule 5450(a)(1) (the “Bid Price Requirement”). In accordance with Nasdaq Listing Rule 5810(c)(3)(A), the Company will have 180 calendar days, or until November 1, 2023 (the “Bid Price Compliance Date”), to regain compliance with the Bid Price Requirement. To regain compliance with the Bid Price Requirement, the closing bid price of the Common Stock must meet or exceed $1.00 per share for a minimum of 10 consecutive business days on or prior to the Bid Price Compliance Date. If the Company regains compliance with the Bid Price Requirement, Nasdaq will provide the Company with written confirmation and will close the matter.
The Letters are only notifications of deficiencies, not of imminent delisting, and have no current effect on the listing or trading of the Company’s securities. In the event that the Company does not regain compliance with the MVLS Rule by the MVLS Compliance Date and the Bid Price Requirement by the Compliance Date, it will receive written notification that its securities are subject to delisting. At that time, the Company may appeal the delisting determination to a Hearings Panel. The Letters note that the Company may be eligible to transfer the listing of its securities to the Nasdaq Capital Market (provided that it then satisfies the requirements for continued listing on that market). The Company intends to monitor its MVLS and the closing bid price of the Common Stock and will consider available options to regain compliance with the MVLS Rule and the Bid Price Requirement. There can be no assurance that the Company will be able to regain compliance with the MVLS Rule or the Bid Price Requirement or that the Company will otherwise remain in compliance with other Nasdaq listing criteria.
Summary Risk Factors
Our business the Equity Subscription Line and this offering by the Selling Stockholders is subject to a number of risks of which you should be aware before making an investment decision. These risks are
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discussed more fully in the “Risk Factors” section of this prospectus immediately following this prospectus summary. These risks include the following:
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It is not possible to predict the actual number of shares of Common Stock, if any, we will sell under the Purchase Agreement to White Lion or the actual gross proceeds resulting from those sales. The sale and issuance of shares of Common Stock to White Lion will cause dilution to our existing securityholders, and the resale of the shares of Common Stock by White Lion, or the perception that such resales may occur, could cause the price of our securities to fall.
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Sales of a substantial number of our securities in the public market by the Selling Securityholders and/or by our existing securityholders could cause the price of our shares of Common Stock and Warrants to fall.
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Certain existing stockholders purchased, or may purchase, securities in the Company at a price below the current trading price of such securities, and may experience a positive rate of return based on the current trading price. Future investors in the Company may not experience a similar rate of return.
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Our Warrants are exercisable for shares of our Common Stock, which exercises will increase the number of shares of Common Stock eligible for future resale in the public market and result in dilution to our existing stockholders.
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There is no guarantee that our Warrants will ever be in the money, and they may expire worthless.
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Tempo will require additional capital to support business growth and this capital might not be available on acceptable terms, if at all.
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The success of our business is dependent on our ability to keep pace with technological changes and competitive conditions in our industry and our ability to effectively adapt our services as our customers react to technological changes and competitive conditions in their respective industries. We may not timely and effectively scale and adapt our existing technology, processes, and infrastructure to meet the needs of our business.
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Our operating results and financial condition may fluctuate from period to period and may fall below expectations in any particular period, which could adversely affect the market price of our common stock.
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Tempo currently competes, and we will compete, with numerous other diversified manufacturing service providers, electronic manufacturing services and design providers and others, and may face increasing competition, which could cause its operating results to suffer.
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Because our industry is expected to continue to be rapidly evolving, forecasts of market growth may not be accurate, and even if these markets achieve the forecasted growth, there can be no assurance that our business will grow at similar rates, or at all.
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Our gross profit and gross margin will be dependent on a number of factors, including our mix of services, market prices, labor costs and availability, acquisitions we may make and our ability to achieve cost synergies, level of capacity utilization and component, material, and other services prices.
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We purchase a significant amount of the materials and components we use from a limited number of suppliers, and if such suppliers become unavailable or inadequate, our customer relationships, results of operations and financial condition may be adversely affected.
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Third-party lawsuits and assertions to which we may become subject alleging its infringement of patents, trade secrets or other intellectual property rights may have a significant adverse effect on its financial condition.
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We may be involved in legal proceedings, including intellectual property (“IP”), anti-competition and securities litigation, employee-related claims and regulatory investigations, which could, among other things, divert efforts of management and result in significant expense and loss of our existing IP rights.
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An inability to successfully manage the procurement, development, implementation, or execution of IT systems, or to adequately maintain these systems and their security, as well as to protect data and other confidential information, may adversely affect our business and reputation.
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Our industry routinely experiences cyclical market patterns and our services are used across different end markets, and a significant downturn in the industry or in any of these end markets could cause a meaningful reduction in demand for our services and harm our operating results.
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We will incur increased costs as a result of operating as a public company, and our management will be required to devote substantial time to new compliance and investor relations initiatives.
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We previously identified material weaknesses in our internal control over financial reporting and may face litigation and other risks as a result of the material weakness in our internal control over financial reporting.
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If analysts do not publish research about our business or if they publish inaccurate or unfavorable research, our stock price and trading volume could decline.
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Our certificate of incorporation provides that the Court of Chancery of the State of Delaware (the “Delaware Court of Chancery”) is the exclusive forum for substantially all disputes between us and our stockholders and that the federal district courts shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the U.S. Securities Act of 1933, as amended, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.
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We are an early-stage company with a history of losses. We have not been profitable historically and we may not achieve or maintain profitability in the future.
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Our limited operating history makes evaluating our current business and our future prospects difficult and may increase the risk of your investment. We are dependent on a limited number of customers and end markets, and a decline in revenue from, or the loss of, any significant customer, could have a material adverse effect on our financial condition and operating results.
Corporate Information
We were incorporated as a Cayman Islands exempted company on March 31, 2020 under the name ACE Convergence Acquisition Corp. Upon the closing of the Business Combination, we domesticated as a Delaware corporation and changed our name to Tempo Automation Holdings, Inc. Our principal executive offices are located at 2460 Alameda Street San Francisco, CA 94103, and our telephone number is (415) 320-1261. Our website address is www.tempoautomation.com. The information contained in, or accessible through, our website does not constitute a part of this prospectus. We have included our website address in this prospectus solely as an inactive textual reference.
Implications of Being an Emerging Growth Company
As a company with less than $1.235 billion in revenue during our last fiscal year, we qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, as amended (the “JOBS Act”). An “emerging growth company” may take advantage of reduced reporting requirements that are otherwise applicable to public companies. These provisions include, but are not limited to:
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the option to present only two years of audited financial statements and only two years of related “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this prospectus;
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not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, as amended (the “Sarbanes-Oxley Act”);
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not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (i.e., an auditor discussion and analysis);
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•
reduced disclosure obligations regarding executive compensation in our periodic reports, proxy statements and registration statements; and
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exemptions from the requirements of holding a nonbinding advisory vote of stockholders on executive compensation, stockholder approval of any golden parachute payments not previously approved and having to disclose the ratio of the compensation of our chief executive officer to the median compensation of our employees.
We may take advantage of these provisions until the last day of our fiscal year following the fifth anniversary of the completion of the initial public offering of our securities. However, if (i) our annual gross revenue exceeds $1.235 billion, (ii) we issue more than $1.0 billion of non-convertible debt in any three-year period or (iii) we become a “large accelerated filer” (as defined in Rule 12b-2 under the Exchange Act) prior to the end of such five-year period, we will cease to be an emerging growth company. We will be deemed to be a “large accelerated filer” at such time that we (a) have an aggregate worldwide market value of common equity securities held by non-affiliates of $700.0 million or more as of the last business day of our most recently completed second fiscal quarter, (b) have been required to file annual and quarterly reports under the Exchange Act, for a period of at least 12 months and (c) have filed at least one annual report pursuant to the Exchange Act.
We have elected to take advantage of certain of the reduced disclosure obligations in the registration statement of which this prospectus is a part and may elect to take advantage of other reduced reporting requirements in future filings. As a result, the information that we provide to our stockholders may be different than you might receive from other public reporting companies in which you hold equity interests.
In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. We have elected to use the extended transition period for complying with new or revised accounting standards. As a result of this election, our financial statements may not be comparable to companies that comply with public company effective dates.
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THE OFFERING
Shares of Common Stock offered by us
18,099,987 shares of Common Stock issuable upon exercise of Warrants.
Shares of Common Stock offered by the Selling
Securityholders
Securityholders
26,393,705 shares of Common Stock.
Warrants offered by the Selling Securityholders
6,600,000 Warrants.
Shares of Common Stock offered by White Lion
Up to 5,276,018 shares of Common Stock.
Shares of Common Stock outstanding prior to this offering
30,751,039 shares of Common Stock (as of May 2, 2023).
Warrants outstanding prior to this offering
18,099,987 Warrants (as of May 2, 2023).
Exercise price per warrant
$11.50.
Use of proceeds
We will not receive any proceeds from the sale of shares of Common Stock or Warrants by the Selling Securityholders pursuant to this prospectus. In addition, we will not receive any of the proceeds from the sale of our shares of Common Stock by White Lion pursuant to this prospectus. However, we may receive up to $100.0 million in aggregate gross proceeds from White Lion under the Purchase Agreement in connection with sales of our shares of Common Stock to White Lion that we may, in our discretion, elect to make, from time to time pursuant to the Purchase Agreement after the date of this prospectus. We will receive up to $208.15 million from the exercise of the Warrants for cash, but will not receive any proceeds from the sale of the shares of Common Stock issuable upon such exercise. Each Warrant entitles the holder thereof to purchase one share of Common Stock at a price of $11.50 per share. On May 2, 2023, the closing price for our Common Stock was $0.3225. If the price of our Common Stock remains below $11.50 per share, warrant holders will be unlikely to exercise their Warrants for cash, resulting in little or no cash proceeds to us from such exercises. We expect to use any such proceeds for general corporate and working capital purposes, which would increase our liquidity. In order to fund planned operations while meeting obligations as they come due, the Company will need to secure additional debt or equity financing if substantial cash proceeds from the exercise of the Warrants are not received.
Risk factors
You should carefully read the section titled “Risk Factors” beginning on page 10 and the other information included in this prospectus for a discussion of factors you should consider carefully before deciding to invest in our Common Stock or Warrants.
Nasdaq symbol for our Common Stock
“TMPO”
Nasdaq symbol for our
Warrants
Warrants
“TMPOW”
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RISK FACTORS
You should carefully consider the risks and uncertainties described below and the other information in this prospectus before making an investment in our Common Stock or Warrants. Our business, financial condition, results of operations, or prospects could be materially and adversely affected if any of these risks occurs, and as a result, the market price of our Common Stock and Warrants could decline and you could lose all or part of your investment. This prospectus also contains forward-looking statements that involve risks and uncertainties. See “Cautionary Statement Regarding Forward-Looking Statements.” Our actual results could differ materially and adversely from those anticipated in these forward-looking statements as a result of certain factors, including those set forth below.
Risks Related to the Equity Subscription Line
It is not possible to predict the actual number of shares of Common Stock, if any, we will sell under the Purchase Agreement to White Lion or the actual gross proceeds resulting from those sales.
On November 21, 2022, we entered into the Purchase Agreement, pursuant to which White Lion has committed to purchase up to the lesser of (i) $100,000,000 in aggregate gross purchase price of newly issued shares of Common Stock and (ii) the Exchange Cap, in each case, subject to certain limitations and conditions set forth in the Purchase Agreement.
Subject to the satisfaction of certain customary conditions including, without limitation, the effectiveness of this registration statement, the Company’s right to sell shares to White Lion will re-commence on the effective date of this registration statement and extend until December 31, 2024. During such term, subject to the terms and conditions of the Purchase Agreement, the Company may notify White Lion when the Company exercises its right to sell shares.
We generally have the right to control the timing and amount of any sales of our shares of Common Stock to White Lion under the Purchase Agreement. Sales of our shares of Common Stock, if any, to White Lion under the Purchase Agreement will depend upon market conditions and other factors to be determined by us. We may ultimately decide to sell to White Lion all, some or none of the shares of Common Stock that may be available for us to sell to White Lion pursuant to the Purchase Agreement.
Because the purchase price per share of Common Stock to be paid by White Lion for the shares of Common Stock that we may elect to sell to White Lion under the Purchase Agreement, if any, will fluctuate based on the market prices of our Common Stock at the time we elect to sell shares of Common Stock to White Lion pursuant to the Purchase Agreement, if any, it is not possible for us to predict, as of the date of this prospectus and prior to any such sales, the number of shares of Common Stock that we will sell to White Lion under the Purchase Agreement, the purchase price per share that White Lion will pay for shares of Common Stock purchased from us under the Purchase Agreement, or the aggregate gross proceeds that we will receive from those purchases by White Lion under the Purchase Agreement.
The number of shares of Common Stock ultimately offered for sale by White Lion is dependent upon the number of shares of Common Stock, if any, we ultimately elect to sell to White Lion under the Purchase Agreement. However, even if we elect to sell shares of Common Stock to White Lion pursuant to the Purchase Agreement, White Lion may resell all, some or none of such shares at any time or from time to time in its sole discretion and at different prices.
Although the Purchase Agreement provides that we may, in our discretion, from time to time after the date of this prospectus and during the term of the Purchase Agreement, direct White Lion to purchase our shares of Common Stock from us in one or more purchases under the Purchase Agreement for a maximum aggregate purchase price of up to $100.0 million, only 5,276,018 shares of Common Stock, representing the Exchange Cap, are being registered for resale under the registration statement of which this prospectus forms a part. Additionally, we are not required or permitted to issue any shares of Common Stock under the Purchase Agreement if such issuance would breach our obligations under the rules or regulations of Nasdaq. Further, White Lion will not be required to purchase any shares of our Common Stock if such sale would result in White Lion’s beneficial ownership exceeding 4.99% of our outstanding shares of Common
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Stock. Our inability to access a part or all of the amount available under the White Lion Purchase Agreement, in the absence of any other financing sources, could have a material adverse effect on our business.
Because the market price of our shares of Common Stock may fluctuate from time to time after the date of this prospectus and, as a result, the actual purchase price to be paid by White Lion for our shares of Common Stock that we elect to sell to White Lion under the Purchase Agreement, if any, also may fluctuate because they will be based on such fluctuating market price of our shares of Common Stock, it is possible that we would need to issue and sell more than the number of shares of Common Stock being registered for resale by White Lion under this registration statement in order to receive aggregate gross proceeds of $100.0 million under the Purchase Agreement.
Accordingly, if it becomes necessary for us to issue and sell to White Lion under the Purchase Agreement more than the 5,276,018 shares of Common Stock being registered for resale under the registration statement of which this prospectus forms a part in order to receive aggregate gross proceeds equal to $100.0 million under the Purchase Agreement, we must file with the SEC one or more additional registration statements to register under the Securities Act the resale by White Lion of any such additional shares of Common Stock we wish to sell from time to time under the Purchase Agreement, which the SEC must declare effective, in each case before we may elect to sell any additional shares of Common Stock to White Lion under the Purchase Agreement. Any issuance and sale by us under the Purchase Agreement of a substantial amount of shares of Common Stock in addition to the 5,276,018 shares of Common Stock being registered for resale by White Lion under this prospectus could cause additional substantial dilution to our stockholders.
The sale and issuance of shares of Common Stock to White Lion will cause dilution to our existing securityholders, and the resale of the shares of Common Stock by White Lion, or the perception that such resales may occur, could cause the price of our securities to fall.
The purchase price per share of Common Stock to be paid by White Lion for the shares of Common Stock that we may elect to sell to White Lion under the Purchase Agreement, if any, will fluctuate based on the market prices of our shares of Common Stock at the time we elect to sell shares of Common Stock to White Lion pursuant to the Purchase Agreement. Depending on market liquidity at the time, resales of such shares of Common Stock by White Lion may cause the trading price of our shares of Common Stock to fall.
If and when we elect to sell shares of Common Stock to White Lion, sales of newly issued shares of Common Stock by us to White Lion could result in substantial dilution to the interests of existing holders of our shares of Common Stock. If all of the 5,276,018 shares of Common Stock offered for resale by White Lion under this prospectus (without regard to the $100.0 million aggregate purchase price limit pursuant to the Purchase Agreement) were issued and outstanding as of the Closing, such shares of Common Stock would represent approximately 16.7% of the total number of our shares of Common Stock outstanding. Additionally, the sale of a substantial number of shares of Common Stock to White Lion, or the anticipation of such sales, could make it more difficult for us to sell equity or equity-related securities in the future at a time and at a price that we might otherwise wish to effect sales.
Investors who buy shares of Common Stock from White Lion at different times will likely pay different prices.
Pursuant to the Purchase Agreement, we will have discretion to vary the timing, price and number of shares sold to White Lion. If and when we elect to sell shares of Common Stock to White Lion pursuant to the Purchase Agreement, after White Lion has acquired such shares of Common Stock, White Lion may resell all, some or none of such shares at any time or from time to time in its sole discretion and at different prices. As a result, investors who purchase shares from White Lion in this offering at different times will likely pay different prices for those shares, and so may experience different levels of dilution and in some cases substantial dilution and different outcomes in their investment results. Investors may experience a decline in the value of the shares they purchase from White Lion in this offering as a result of future sales made by us to White Lion at prices lower than the prices such investors paid for their shares in this offering. In addition, if we sell a substantial number of shares to White Lion under the Purchase Agreement, or if investors expect that we will do so, the actual sales of shares or the mere existence of our arrangement with White Lion may make it more difficult for us to sell equity or equity-related securities in the future at a time and at a price that we might otherwise wish to effect such sales.
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We may use proceeds from sales of our Common Stock made pursuant to the Purchase Agreement in ways with which you may not agree or in ways which may not yield a significant return.
We will have broad discretion over the use of proceeds from sales of our shares of Common Stock made pursuant to the Purchase Agreement, including for any of the purposes described in the section entitled “Use of Proceeds,” and you will not have the opportunity, as part of your investment decision, to assess whether the proceeds are being used appropriately. However, we have not determined the specific allocation of any net proceeds among these potential uses, and the ultimate use of the net proceeds may vary from the currently intended uses. The net proceeds may be used for corporate purposes that do not increase our operating results or enhance the value of our securities.
Risks Related to this Offering by the Selling Securityholders
Sales of a substantial number of our securities in the public market by the Selling Securityholders and/or by our existing securityholders could cause the price of our shares of Common Stock and Warrants to fall.
The Selling Securityholders can sell, under this prospectus, up to (i) 26,393,705 shares of Common Stock constituting approximately 85.8% of our issued and outstanding shares of Common Stock as of May 2, 2023, consisting of (a) up to 11,707,871 shares of Common Stock issued in connection with Closing at an equity consideration value of $10.00 per share by certain of the Selling Securityholders named in this prospectus, (b) up to 3,050,000 shares of Common Stock issued in the PIPE Investment at an equity consideration value of $10.00 per share by certain of the Selling Securityholders named in this prospectus, (c) up to 6,600,000 shares of Common Stock that are issuable upon the exercise of the Private Placement Warrants at an exercise price of $11.50 per share, which were originally issued in a private placement at a price of $1.00 per Private Placement Warrant in connection with the ACE IPO by certain of the Selling Securityholders named in this prospectus, (d) up to 748,990 shares of Common Stock issued to Cantor to settle the Company’s existing deferred underwriting commissions as of the Closing at an equity consideration value of $10.00 per share by Cantor, (e) up to 536,844 shares of Common Stock issued to certain of the Selling Securityholders in connection with the Closing or issuable to the Selling Securityholders hereafter to settle existing advisory fees owed to such persons as of the Closing at an equity consideration value of $10.00 per share by certain of the Selling Securityholders named in this prospectus and (f) up to 3,750,000 shares of Common Stock that were originally issued to the Sponsor in the form of sponsor shares prior to the IPO at a price of approximately $0.004 per share and (ii) 6,600,000 Warrants constituting approximately 36.5% of our issued and outstanding Warrants as of May 2, 2023, which were originally issued at a price of $1.00 per Warrant. The sale of all or a portion of the securities being offered in this prospectus could result in a significant decline in the public trading price of our securities. Despite such a decline in the public trading price, some of the Selling Securityholders may still experience a positive rate of return on the securities they purchased due to the price at which such Selling Securityholder initially purchased the securities. See “Certain existing stockholders purchased, or may purchase, securities in the Company at a price below the current trading price of such securities, and may experience a positive rate of return based on the current trading price. Future investors in the Company may not experience a similar rate of return.” below.
Sales of a substantial number of our shares of Common Stock and/or Warrants in the public market by the Selling Securityholders and/or by our other existing securityholders, or the perception that those sales might occur, could depress the market price of our shares of Common Stock and Warrants and could impair our ability to raise capital through the sale of additional equity securities.
Certain existing stockholders purchased, or may purchase, securities in the Company at a price below the current trading price of such securities, and may experience a positive rate of return based on the current trading price. Future investors in the Company may not experience a similar rate of return.
Certain stockholders in the Company, including certain of the Selling Securityholders, acquired, or may acquire, shares of our Common Stock or Warrants at prices below the current trading price of our Common Stock, and may experience a positive rate of return based on the current trading price.
This prospectus relates to the offer and resale from time to time by the Selling Securityholders of (i) up to 26,393,705 shares of Common Stock, which consists of (a) up to 11,707,871 shares of Common Stock issued in connection with the Closing at an equity consideration value of $10.00 per share by certain of the
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Selling Securityholders named in this prospectus, (b) up to 3,050,000 shares of Common Stock issued in the PIPE Investment (as defined below) at an equity consideration value of $10.00 per share by certain of the Selling Securityholders named in this prospectus, (c) up to 6,600,000 shares of Common Stock that are issuable upon the exercise of the Private Placement Warrants at an exercise price of $11.50 per share, which were originally issued in a private placement at a price of $1.00 per Private Placement Warrant in connection with the ACE IPO by certain of the Selling Securityholders named in this prospectus, (d) up to 748,990 shares of Common Stock issued to Cantor to settle the Company’s existing deferred underwriting commissions as of the Closing at an equity consideration value of $10.00 per share by Cantor, (e) up to 536,844 shares of Common Stock issued to certain of the Selling Securityholders in connection with the Closing or issuable to the Selling Securityholders hereafter to settle existing advisory fees owed to such persons as of the Closing at an equity consideration value of $10.00 per share by certain of the Selling Securityholders named in this prospectus and (f) up to 3,750,000 shares of Common Stock that were originally issued to the Sponsor in the form of sponsor shares prior to the ACE IPO at a price of approximately $0.004 per share and (ii) up to 6,600,000 Private Placement Warrants originally issued in a private placement at a price of $1.00 per Private Placement Warrant in connection with the ACE IPO by certain of the Selling Securityholders named in this prospectus.
This prospectus also relates to the potential offer and sale from time to time by White Lion of up to 5,276,018 shares of Common Stock that may be issued by us to White Lion pursuant to the Purchase Agreement at a discount of 1.0% to 3.0% to the publicly traded price of our Common Stock.
Based on the closing price of our Common Stock of $0.3225 on May 2, 2023, (i) the Sponsor may experience potential profit of up to $0.3185 per share of Common Stock based on the Sponsor’s initial purchase price of shares of Common Stock in the form of sponsor shares prior to the ACE IPO at a price of approximately $0.004 per share and (ii) White Lion may experience potential profit of up to approximately $0.01 per share based on an initial purchase price (taking into account a discount of 3.0% to the publicly traded price of our Common Stock) of approximately $0.31 per share.
Public securityholders may not be able to experience the same positive rates of return on securities they purchase due to the low price at which the Sponsor purchased shares of our Common Stock and Warrants and at which White Lion may purchase shares of our Common Stock.
Our Warrants are exercisable for shares of our Common Stock, which exercises will increase the number of shares of Common Stock eligible for future resale in the public market and result in dilution to our existing stockholders.
The outstanding Warrants to purchase an aggregate of 18,099,987 shares of our Common Stock became exercisable on December 22, 2022. Each Warrant entitles the holder thereof to purchase one share of our Common Stock at a price of $11.50 per whole share. Warrants may be exercised only for a whole number of shares of Common Stock. To the extent such warrants are exercised, additional shares of our Common Stock will be issued, which will result in dilution to the then existing holders of our Common Stock and increase the number of shares eligible for resale in the public market. Sales of substantial numbers of such shares in the public market could adversely affect the market price of our Common Stock.
Risks Related to Tempo’s Business and Industry
The success of Tempo’s business is dependent on Tempo’s ability to keep pace with technological changes and competitive conditions in Tempo’s industry, and Tempo’s ability to effectively adapt Tempo’s services as Tempo’s customers react to technological changes and competitive conditions in their respective industries. Tempo may not timely and effectively scale and adapt Tempo’s existing technology, processes, and infrastructure to meet the needs of Tempo’s business.
The success of Tempo’s business is dependent on Tempo’s ability to keep pace with technological changes and competitive conditions in Tempo’s industry, and Tempo’s ability to effectively adapt Tempo’s services as Tempo’s customers react to technological changes and competitive conditions in their respective industries. Tempo may not timely and effectively scale and adapt Tempo’s existing technology, processes, and infrastructure to meet the needs of Tempo’s business. If Tempo is unable to offer technologically advanced, high quality, quick turnaround, cost effective manufacturing services that are differentiated from Tempo’s
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competition, or if Tempo is unable to adapt those services as Tempo’s customers’ requirements change, demand for Tempo’s services may decline.
Tempo’s operating results and financial condition may fluctuate from period to period and may fall below expectations in any particular period, which could adversely affect the market price of Tempo’s common stock.
Tempo’s operating results and financial condition have historically fluctuated, and Tempo’s operating results and financial condition are expected to continue to fluctuate, from quarter-to-quarter and year-to-year due to a number of factors, many of which will not be within Tempo’s control.
Both Tempo’s business and the electronics manufacturing industry are changing and evolving rapidly, and Tempo’s historical operating results may not be useful in predicting Tempo’s future operating results. If Tempo’s operating results do not meet the guidance that it provides to the marketplace or the expectations of securities analysts or investors, the market price of Tempo’s common stock will likely decline. Fluctuations in Tempo’s operating results and financial condition may be due to a number of factors, including:
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the degree of market acceptance of its services;
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its ability to compete with competitors and new entrants into Tempo’s markets;
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the mix of services that it sells during any period;
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the timing of its sales and deliveries to customers;
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the geographic distribution of its sales;
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changes in its pricing policies or those of its competitors, including its response to price competition;
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changes in the amount that it spends to develop and manufacture new services or technologies;
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changes in the amounts that it spends to promote its services;
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changes in the cost of satisfying its warranty obligations;
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expenses and/or liabilities resulting from litigation;
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unforeseen liabilities or difficulties in integrating its acquisitions or newly acquired businesses;
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disruptions to its IT systems;
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general economic and industry conditions that affect customer demand;
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the impact of the COVID-19 pandemic on its customers, suppliers, manufacturers, and operations; and
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changes in accounting rules and tax laws.
Due to the foregoing factors, and the other risks discussed in this prospectus, you should not rely on quarter-over-quarter and year-over-year comparisons of Tempo’s operating results as an indicator of Tempo’s future performance.
Tempo currently competes with numerous other diversified manufacturing service providers, electronic manufacturing services and design providers and others, and may face increasing competition, which could cause Tempo’s operating results to suffer.
Tempo’s industry is highly competitive. Tempo competes against numerous domestic and foreign electronic manufacturers, manufacturing service providers, and design providers. These companies could decrease their pricing, thereby increasing competitive pressures for Tempo. Additionally, these competitors may:
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respond more quickly to new or emerging technologies or changes in customer requirements;
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have engineering capabilities and/or manufacturing resources that are greater than Tempo’s;
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have greater name recognition, critical mass, and geographic market presence;
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be better able to take advantage of acquisition opportunities;
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devote greater resources to the development, promotion and sale of their services and execution of their strategy;
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be better positioned to compete on price for their services;
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have excess capacity, and be better able to utilize such excess capacity;
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have greater direct buying power from component suppliers, distributors, and raw material suppliers;
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have lower cost structures as a result of their geographic location or the services they provide;
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be willing or able to make sales or provide services at lower margins than Tempo does;
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have increased vertical capabilities providing them greater cost savings.
Tempo also faces competition from the manufacturing operations of its current and potential customers, some of whom may be evaluating the merits of manufacturing products internally against the advantages of outsourcing.
The actions of competitors and current and potential customers could cause a decline in Tempo’s sales and/or compression of Tempo’s profits.
Customer relationships with emerging companies may present more risks than with established companies.
Customer relationships with emerging companies present special risks because Tempo does not have an extensive services or customer relationship history. Tempo’s credit risk on these customers, especially in trade accounts receivable and inventories, and the risk that these customers will be unable to fulfill indemnification obligations to Tempo is potentially increased. Tempo sometimes offers these customers extended payment terms and other support and financial accommodations which may increase Tempo’s financial exposure.
Tempo may be adversely affected by supply chain issues, including shortages of required electronic components and raw materials.
In the past there have been, and presently there are, industry wide conditions, natural disasters, and global events that have caused component and material shortages. These have increased the time between booking and billing, increased component and material costs (though we are usually able to pass those on to our customers), and increased the frequency of customers pre-ordering components and materials with us in anticipation of future assembly orders (though customers who pre-order components and materials with us are more likely to place future assembly orders with us). While we make efforts to consider these factors in our forecasts, it’s difficult to judge the duration of the global electronic component shortage and the degree to which it will continue to have these effects.
More broadly, strategic and efficient component and materials purchasing is an aspect of Tempo’s strategy. When prices rise, they may impact Tempo’s margins and results of operations if Tempo is not able to pass the increases through to Tempo’s customers or otherwise offset them. Some of the products Tempo manufactures require one or more components that are only available from a single source. Some of these components or materials are subject to supply shortages from time to time. In some cases, supply shortages will substantially curtail production of all assemblies using a particular component. A supply shortage can also increase Tempo’s cost of goods sold if Tempo has to pay higher prices for components or materials in limited supply or cause Tempo to have to reconfigure products to accommodate a substitute component or material. Tempo’s production of a customer’s product could be negatively impacted by any quality, reliability, or availability issues with any of Tempo’s components and material suppliers. The financial condition of Tempo’s suppliers could affect their ability to supply components or materials and their ability to satisfy any warranty obligations they may have, which could have a material adverse effect on Tempo’s results of operations.
If a component or material shortage is threatened or anticipated, Tempo may purchase its components or materials early to avoid a delay or interruption in Tempo’s operations. Purchasing components or materials early may materially increase inventory carrying costs and may result in inventory obsolescence, which could materially adversely affect Tempo’s results of operations. A component shortage may also require to
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the use of second tier vendors or the procurement of components or materials through new and untested brokers. These components or materials may be of lesser quality than those Tempo has historically purchased and could result in material costs to bring such components or materials up to necessary quality levels or to replace defective ones.
Tempo’s gross profit and gross margin will be dependent on a number of factors, including Tempo’s services mix, market prices, labor costs and availability, acquisitions Tempo may make and Tempo’s ability to achieve cost synergies, level of capacity utilization and component, material, and other services prices.
Tempo’s gross margin will be highly dependent on service mix, which is susceptible to seasonal and other fluctuations in Tempo’s markets. A shift in sales mix away from Tempo’s higher margin services could adversely affect Tempo’s future gross margin percentages. In addition, increased competition and the existence of service alternatives, more complex engineering requirements, lower demand or reductions in Tempo’s technological lead compared to Tempo’s competitors, and other factors may lead to further price erosion, lower revenue and lower margin.
In addition, prototype and on-demand electronics manufacturing requires significant capital investment, leading to high fixed costs, including depreciation expense. If Tempo is unable to utilize Tempo’s owned manufacturing facilities at a high level, the fixed costs associated with these facilities will not be fully absorbed, resulting in higher average unit costs and a lower gross margin. Furthermore, fluctuations in commodity prices could negatively impact Tempo’s margins.
Tempo’s gross margin may also be adversely affected if businesses or companies that Tempo acquires have different gross margin profiles and by expenses related to such acquisitions.
Our former independent registered public accounting firm’s report contains an explanatory paragraph that expresses substantial doubt about our ability to continue as a “going concern.”
Our former independent registered public accounting firm’s report contains an explanatory paragraph that expresses substantial doubt about our ability to continue as a “going concern.” As of December 31, 2022, we had approximately $7.0 million in our operating bank account, and a working capital deficiency of approximately $31.1 million. Tempo plans to fund operations through raising additional capital, decreasing costs and expenses and generating sufficient revenues to offset such costs, including as a result of the Acquisitions. However, there can be no assurances that Tempo will be able to secure additional financing on acceptable terms and conditions, if at all, decrease costs and expenses or generate sufficient revenues to offset such costs. These factors, among others, raise substantial doubt about Tempo’s ability to continue as a going concern.
Many of Tempo’s anticipated customers operate in industries that experience rapid technological change resulting in short product life cycles and as a result, if the product life cycles of its customers slow materially, and research and development expenditures are reduced, its financial condition, business and results of operations will be materially adversely affected.
Many of Tempo’s customers and potential customers compete in markets that are characterized by rapidly changing technology, evolving industry standards and continuous improvement in products and services. These conditions frequently result in short product life cycles. As professionals operating in research and development departments represent the majority of Tempo’s net sales, the rapid development of electronic products is a key driver of Tempo’s sales and operating performance. Any decline in the development and introduction of new electronic products could slow the demand for Tempo’s services and could have a material adverse effect on its financial condition, business and results of operations.
If demand for Tempo’s services does not grow as expected, or develops more slowly than expected, Tempo’s revenues may stagnate or decline, and Tempo’s business may be adversely affected.
Tempo may not be able to develop effective strategies to raise awareness among potential customers of the benefits of software-accelerated electronics manufacturing or Tempo’s services may not address the specific needs or provide the level of functionality or economics required by potential customers to encourage
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the electronics market to shift towards software-accelerated electronics manufacturing. If software-accelerated electronics manufacturing technology does not gain broader market acceptance as an alternative to conventional manufacturing processes, or does so more slowly than anticipated, or if the marketplace adopts electronics manufacturing technologies that differ from Tempo’s technologies, Tempo may not be able to increase or sustain the level of sales of Tempo’s services, and Tempo’s operating results would be adversely affected as a result.
Defects in shipped products that give rise to returns or warranty or other claims could result in material expenses, diversion of management time and attention, adversely affect customer relationships, and damage to Tempo’s reputation.
Tempo’s printed circuit board assemblies may be complex and may contain undetected defects or errors. This could result in delayed market acceptance of services Tempo offers or claims from customers or others, which may result in litigation, increased end user warranty, support and repair or replacement costs, damage to Tempo’s reputation and business, or significant costs and diversion of support and engineering personnel to correct the defect or error. Tempo may from time to time become subject to warranty claims related to product quality issues that could lead Tempo to incur significant expenses.
Tempo attempts to include provisions in Tempo’s agreements with customers that are designed to limit Tempo’s exposure to potential liability for damages arising from defects or errors in Tempo’s products.
However, it is possible that these limitations may not be effective as a result of unfavorable judicial decisions or laws enacted in the future.
The sale and support of Tempo’s products entails the risk of product liability claims. Any product liability claim brought against Tempo, regardless of its merit, could result in material expense, diversion of management time and attention, damage to Tempo’s business and reputation and brand, and cause Tempo to fail to retain existing customers or to fail to attract new customers.
Tempo may be involved in legal proceedings, including intellectual property (“IP”), anti-competition and securities litigation, employee-related claims, and regulatory investigations, which could, among other things, divert efforts of management and result in significant expense and loss of Tempo’s IP rights.
Tempo may be involved in legal proceedings, including cases involving Tempo’s IP rights and those of others, anti-competition and commercial matters, acquisition-related suits, securities class action suits, employee-related claims and other actions. From time to time, Tempo may also be involved or required to participate in regulatory investigations or inquiries which may evolve into legal or other administrative proceedings. Litigation or settlement of such actions, regardless of their merit, or involvement in regulatory investigations or inquiries, can be costly, lengthy, complex and time consuming, diverting the attention and energies of Tempo’s management and technical personnel.
From time to time, third parties may assert against Tempo and Tempo’s customers their IP rights to technologies that are important to Tempo’s business.
Many of Tempo’s customer agreements and/or the laws of certain jurisdictions may require Tempo to indemnify its customers or purchasers for third-party IP infringement claims, including costs to defend those claims, and payment of damages in the case of adverse rulings. However, Tempo’s suppliers may or may not be required to indemnify Tempo should Tempo or its customers be subject to such third-party claims. Claims of this sort could also harm Tempo’s relationships with its customers and might deter future customers from doing business with us. If any pending or future proceedings result in an adverse outcome, Tempo could be required to:
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cease the sale of the infringing services, processes, or technology and/or make changes to Tempo’s services, processes or technology;
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pay substantial damages for past, present and future use of the infringing technology, including up to treble damages if willful infringement is found;
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pay fines or disgorge profits or other payments, and/or cease certain conduct and/or modify Tempo’s contracting or business practices, in connection with any unfavorable resolution of a governmental investigation;
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expend significant resources to develop non-infringing technology;
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license technology from the third-party claiming infringement, which license may not be available on commercially reasonable terms, or at all;
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enter into cross-licenses with Tempo’s competitors, which could weaken Tempo’s overall IP portfolio and Tempo’s ability to compete in particular product categories; or
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relinquish IP rights associated with one or more of Tempo’s patent claims.
Any of the foregoing results could have a material adverse effect on Tempo’s business, financial condition and results of operations.
In addition, Tempo may be obligated to indemnify Tempo’s current or former directors or employees, or former directors or employees of companies that Tempo has acquired, in connection with litigation or regulatory investigations. These liabilities could be substantial and may include, among other things, the cost of defending lawsuits against these individuals, as well as stockholder derivative suits; the cost of government, law enforcement or regulatory investigations; civil or criminal fines and penalties; legal and other expenses; and expenses associated with the remedial measure, if any, which may be imposed.
Tempo’s operations could suffer if Tempo is unable to attract and retain key management or other key employees.
Tempo believes Tempo’s success has depended, and Tempo’s success will continue to depend, on the efforts and talents of Tempo’s senior management and other key personnel. Tempo’s executive team is critical to the management of Tempo’s business and operations and will continue to be critical to the development of Tempo’s strategy. Members of Tempo’s existing senior management team may resign at any time. The loss of the services of any members of Tempo’s senior management team could delay or prevent the successful implementation of Tempo’s strategy or Tempo’s commercialization of new services, or could otherwise adversely affect Tempo’s ability to carry out Tempo’s business plan. There is no assurance that if any senior executive leaves in the future, Tempo will be able to rapidly replace him or her or them and transition smoothly towards his or her or their successor, without any adverse impact on Tempo’s operations.
To support the continued growth of Tempo’s business, Tempo will also be required to effectively recruit, hire, integrate, develop, motivate, and retain additional new employees. High demand exists for senior management and other key personnel (including scientific, technical, engineering, financial, manufacturing, and sales personnel) in the prototype and on-demand electronics manufacturing industry, and there can be no assurance that Tempo will be able to retain key personnel. Tempo experiences intense competition for qualified personnel. While Tempo intends to provide competitive compensation packages to attract and retain key personnel, some of its competitors for these employees have greater resources and more experience, which may make it difficult for Tempo to compete successfully for key personnel. Moreover, new employees may not become as productive as Tempo expects since Tempo may face challenges in adequately integrating them into Tempo’s workforce and culture. Since March 2020, Tempo has had many non-manufacturing employees working remotely to protect the health and safety of Tempo’s employees, contractors, customers, and visitors.
All of Tempo’s U.S. employees are at-will employees, meaning that they may terminate their employment relationship with Tempo at any time, and their knowledge of Tempo’s business and industry would be extremely difficult to replace. It may be difficult for Tempo to restrict its competitors from benefiting from the expertise that Tempo’s former employees or consultants developed while working for Tempo.
The effect of COVID-19 on Tempo’s operations and the operations of Tempo’s customers, suppliers and logistics providers has had, and may continue to have, an adverse impact on Tempo’s financial condition and results of operations.
Tempo’s operations expose Tempo to the COVID-19 pandemic, which has had, and may continue to have, an adverse impact on employees, operations, supply chain and distribution system. To date, COVID-19 has increased Tempo’s expenses, primarily related to additional labor costs and the procurement of personal protection equipment for Tempo’s employees, and has caused a reduction in factory utilization due to disruptions and restrictions. COVID-19 has spread across the globe and is impacting worldwide economic
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activity, including Tempo’s manufacturing production sites. Public and private sector policies and initiatives to reduce the transmission of COVID-19, including travel restrictions and quarantines, are impacting Tempo’s operations, including affecting the ability of Tempo’s employees to get to Tempo’s facilities, reducing capacity utilization levels, causing certain facility or intermittent business closures, and interrupting the movement or increasing the cost of moving components and products through Tempo’s supply chain. If additional factory closures are required or reductions in capacity utilization levels occur, Tempo will likely incur additional direct costs and lost revenue. If Tempo’s suppliers experience additional closures or reductions in their capacity utilization levels in the future, Tempo may have difficulty sourcing materials necessary to fulfill production requirements.
COVID-19 has also impacted Tempo’s customers and may create unpredictable reductions or increases in demand for Tempo’s manufacturing services. Tempo’s ability to continue to offer manufacturing services is highly dependent on its ability to maintain the safety and health of its factory employees. The ability of Tempo’s employees to work may be significantly impacted by individuals contracting or being exposed to COVID-19. While Tempo is following the requirements of governmental authorities and taking preventative and protective measures to prioritize the safety of its employees, these measures may not be successful, and Tempo may be required to temporarily close facilities or take other measures. In addition, responding to the continuing pandemic could divert management’s attention from Tempo’s key strategic priorities, cause Tempo to reduce, delay, alter or abandon initiatives that may otherwise increase Tempo’s long-term value or otherwise disrupt Tempo’s business operations. The duration and extent of the effect of COVID-19 on Tempo is not determinable. COVID-19 may continue to have an adverse impact on Tempo’s consolidated financial position, results of operations, and cash flows in the near term. In addition, the continuing impact of the COVID-19 pandemic could exacerbate the other risks that Tempo is expected to face.
Tempo purchases a significant amount of the materials and components it uses from a limited number of suppliers and if such suppliers become unavailable or inadequate, its customer relationships, results of operations, and financial condition may be adversely affected.
Tempo’s manufacturing processes rely on many materials. Tempo purchases a significant portion of its materials, components and finished goods used in its production facilities from a few suppliers, some of which are single source suppliers. As certain materials are highly specialized, the lead time needed to identify and qualify a new supplier is typically lengthy and there is often no readily available alternative source. During fiscal year 2022, Tempo purchased approximately half of the components and materials for Tempo’s manufacturing processes from four materials suppliers. Tempo does not generally have long-term contracts with Tempo’s suppliers and substantially all of Tempo’s purchases are on a purchase order basis. Suppliers may extend lead times, limit supplies, place products on allocation or increase prices due to commodity price increases, capacity constraints or other factors and could lead to interruption of supply or increased demand in the industry. For example, Tempo has experienced some supply constraints, including with respect to electronic components. Additionally, the supply of these materials may be negatively impacted by increased trade tensions between the U.S. and its trading partners, particularly China. In the event that Tempo cannot obtain sufficient quantities of materials in a timely manner, at reasonable prices or of sufficient quality, or if Tempo is not able to pass on higher materials costs to its customers, Tempo’s business, financial condition and results of operations could be adversely impacted.
Tempo’s facilities, and its suppliers’ facilities and customers’ facilities, will be vulnerable to disruption due to natural or other disasters, public health crises, strikes and other events beyond Tempo’s control, and any failure to maintain adequate manufacturing facility capacity could have a material and adverse effect on Tempo’s business, financial condition and results of operations.
A major earthquake, fire, tsunami, hurricane, cyclone or other disaster, such as a pandemic, major flood, seasonal storms, nuclear event or terrorist attack affecting Tempo’s facilities or the areas in which they are located, or affecting those of Tempo’s customers or third-party manufacturers or suppliers, could significantly disrupt Tempo’s or its customers’ or suppliers’ operations and delay or prevent product shipment or installation during the time required to repair, rebuild or replace Tempo’s damaged manufacturing facilities. These delays could be lengthy and costly. Additionally, customers may delay purchases until operations return to normal. Even if Tempo is able to respond quickly to a disaster, the continued effects of the disaster could create uncertainty in Tempo’s business operations. In addition, concerns about terrorism,
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the effects of a terrorist attack, political turmoil, labor strikes, war or the outbreak of epidemic diseases (including the outbreak of COVID-19) could have a negative effect on Tempo’s operations and sales. Tempo also relies on leased facilities to maintain its manufacturing operations. The lease for Tempo’s San Francisco facility will expire in May 2023. In February 2023, Tempo signed a three-month extension to retain a portion of the existing facility. There are no guarantees that Tempo will be able to secure a long-term lease for a similar facility on the same or more favorable terms, or at all. Any failure to maintain adequate manufacturing facility capacity could have a material and adverse effect on Tempo’s business, financial condition and results of operations.
If Tempo fails to grow its business as anticipated, its operating results will be adversely affected. If Tempo grows as anticipated but fails to manage its operations and costs accordingly, its business may be harmed and its results of operations may suffer.
Tempo is expected to grow its business substantially. To this end, Tempo has made significant investments in its business, including investments in infrastructure, technology, marketing and sales efforts. If Tempo’s business does not generate the level of revenue required to support its investment, Tempo’s net sales and profitability will be adversely affected.
Tempo’s ability to effectively manage its anticipated growth and expansion of its operations will also require Tempo to enhance its operational, financial and management controls and infrastructure, as well as its human resources policies and reporting systems. These enhancements and improvements will require significant capital expenditures, investments in additional headcount and other operating expenditures and allocation of valuable management and employee resources. Tempo’s future financial performance and its ability to execute on its business plan will depend, in part, on Tempo’s ability to effectively manage any future growth and expansion. There are no guarantees that Tempo will be able to do so in an efficient or timely manner, or at all.
As Tempo acquires and invests in companies or technologies, it may not realize expected business, expected cost synergies, technological, or financial benefits. Such acquisitions or investments could prove difficult to integrate, disrupt its business, dilute stockholder value and adversely affect Tempo’s business, results of operations and financial condition.
Acquisitions involve numerous risks, any of which could harm Tempo’s business and negatively affect its financial condition and results of operations. The success of any acquisition will depend in part on Tempo’s ability to realize the anticipated business opportunities from combining the operations of acquired companies with Tempo’s existing business in an efficient and effective manner. These integration processes could take longer than anticipated and could result in the loss of key employees, the disruption of each company’s ongoing businesses, tax costs or inefficiencies, or inconsistencies in standards, controls, IT systems, procedures and policies, any of which could adversely affect Tempo’s ability to maintain relationships with customers, employees or other third parties, or Tempo’s ability to achieve the anticipated benefits of any such acquisition, and could harm Tempo’s financial performance. If Tempo is unable to successfully or timely integrate the operations of an acquired business with Tempo’s existing business, Tempo may incur unanticipated liabilities and be unable to realize the revenue growth, synergies and other anticipated benefits resulting from such acquisitions, and Tempo’s business, results of operations and financial condition could be materially and adversely affected.
Tempo will require additional capital to continue as a going concern and maintain liquidity to support business growth and this capital might not be available on acceptable terms, if at all.
The primary sources of liquidity for Legacy Tempo prior to the Merger were cash provided by financing transactions and cash provided by borrowings under existing debt facilities. Since inception, Legacy Tempo used its resources principally on product development efforts, including the development of Tempo’s software platform, growing its business, and making necessary investments in building Legacy Tempo’s factory in San Francisco. As of December 31, 2022, Legacy Tempo had an accumulated deficit of $253.2 million, $7.4 million in cash, cash equivalents, and restricted cash and a working capital deficiency of $31.1 million. During the year ended December 31, 2022, the Company used net cash of $28.8 million in
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operating activities and incurred a net loss of $144.9 million. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.
As of December 31, 2022 and March 31, 2023, the Company had approximately $7.4 million and $2.5 million (unaudited) in cash, cash equivalents, and restricted cash, respectively. Tempo intends to continue to make investments to support its business growth and will require additional funds to respond to business challenges and opportunities, including the need to develop new features or enhance its services, improve its operating infrastructure or acquire complementary businesses and technologies. Accordingly, Tempo will need to engage in equity or debt financings, including through the sale of shares of Common Stock to White Lion pursuant to the Purchase Agreement, subject to the terms and conditions therein, to secure additional funds if existing sources of cash and any funds generated from operations do not provide Tempo with sufficient capital. Although the Purchase Agreement provides that we may, in our discretion, from time to time, and during the term of the Purchase Agreement, direct White Lion to purchase our shares of Common Stock from us in one or more purchases under the Purchase Agreement for a maximum aggregate purchase price of up to $100.0 million, only 5,276,018 shares of Common Stock, representing the Exchange Cap, are being registered for resale. Additionally, we are not required or permitted to issue any shares of Common Stock under the Purchase Agreement if such issuance would breach our obligations under the rules or regulations of Nasdaq. Further, White Lion will not be required to purchase any shares of our Common Stock if such sale would result in White Lion’s beneficial ownership exceeding 4.99% of our outstanding shares of Common Stock. Our inability to access a part or all of the amount available under the White Lion Purchase Agreement, in the absence of any other financing sources, could have a material adverse effect on our business. The Company will continue to evaluate other sources of funding.
Failure to secure additional funding, as well as consent and forbearance from our existing lenders, may require the Company to modify, delay, or abandon some of its planned future expansion or development, or to otherwise enact operating cost reductions available to management, which could have a material adverse effect on the Company’s business, operating results, financial condition, and ability to achieve its intended business objectives. As such, there is substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued.
We could receive up to $208.3 million from the exercise of the Warrants for cash, but we may not receive any proceeds from the sale of the shares of Common Stock issuable upon such exercise. Each Warrant entitles the holder thereof to purchase one share of Common Stock at a price of $11.50 per share. On May 2, 2023, the closing price for our Common Stock was $0.3225. If the price of our Common Stock remains below $11.50 per share, warrant holders will be unlikely to exercise their Warrants for cash, resulting in little or no cash proceeds to us from such exercises. We expect to use any such proceeds for general corporate and working capital purposes, which would increase our liquidity. In order to fund planned operations while meeting obligations as they come due, the Company will need to secure additional debt or equity financing if substantial cash proceeds from the exercise of the Warrants are not received. There is no guarantee the Warrants will be in the money prior to their expiration and, as such, the Warrants may expire worthless and we may receive no proceeds from the exercise of such Warrants. As a result, we do not expect to rely on the cash exercise of Warrants to fund our operations. We will continue to evaluate the probability of Warrant exercises and the merit of including potential cash proceeds from the exercise of the Warrants in our future liquidity projections. We instead currently expect to rely on the sources of funding described above, if available on reasonable terms or at all.
Sales of a substantial number of shares of our Common Stock and/or Warrants in the public market by our existing securityholders (including the Selling Securityholders), or the perception that those sales might occur, could depress the market price of shares of our Common Stock and Warrants and could impair our ability to raise capital through the sale of additional equity securities.
Sales of a substantial number of shares of our Common Stock and/or Warrants in the public market by our existing securityholders, or the perception that those sales might occur, could depress the market price of shares of our Common Stock and Warrants and could impair our ability to raise capital through the sale of additional equity securities. We are unable to predict the effect that such sales may have on the prevailing market price of shares of our Common Stock and Warrants. The total shares of Common Stock available for resale represent a substantial percentage of our total outstanding shares of Common Stock
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as of the date of this Prospectus. The Selling Securityholders can sell up to (a) 26,393,705 shares of Common Stock constituting approximately 85.8% of our issued and outstanding shares of Common Stock as of May 2, 2023 and (b) 6,600,000 Warrants constituting approximately 36.5% of our issued and outstanding Warrants as of May 2, 2023.
Certain agreements with our capital markets advisors contain provisions that, if triggered, could cause substantial dilution to our then-existing stockholders and adversely affect our stock price.
In connection with the Business Combination, the Company entered into letter agreements with each of its three capital markets advisors (the “Advisor Letter Agreements”) pursuant to which the Company agreed to issue to each such advisor by February 22, 2023 a number of shares of Common Stock having an aggregate value of $250,000 as determined based on the volume-weighted average price of a share of Common Stock for the 30 trading days ending on the date that was 60 days after the Closing Date (the “Issuance VWAP”). The Company issued 25,000 and 159,948 shares of Common Stock to each capital markets advisor on November 22, 2022 and February 10, 2023, respectively. In accordance with the terms of the Advisor Letter Agreements, the company will issue an additional 153,948 shares of Common Stock to each advisor to satisfy the obligation based on the Issuance VWAP. Pursuant to the Advisor Letter Agreements, in the event that the volume-weighted average purchase for the 30 trading days ending on the 12-month anniversary of the Closing Date (the “Measurement Period VWAP”) is less than the Initial VWAP, the Company will be required to issue to each capital market advisor a number of additional shares of Common Stock in an amount equal to the quotient of (i) the product of (A) the number of shares of Common Stock held by such advisor on the 12-month anniversary of the Closing Date multiplied by (B) the Issuance VWAP minus the Measurement Period VWAP divided by (ii) the Measurement Period VWAP. To the extent that the Measurement Period VWAP is less than the Issuance VWAP and we are required to issue additional shares of Common Stock to our capital markets advisors, holders of our Common Stock may experience additional dilution, which may adversely affect our stock price.
Tempo may not be able to maintain compliance with its debt covenants in the future, which could result in an event of default.
The A&R LSA contains customary affirmative and negative covenants which, among other things, require Tempo to (i) maintain Unrestricted Cash (as defined in the A&R LSA) of $5.0 million at all times (the “Unrestricted Cash Covenant)”, (ii) not incur or pay any non-trade payable in excess of $1.0 million without Agent’s prior written consent and (iii) not create, incur, assume or suffer to exist any indebtedness other than Permitted Indebtedness (as defined in the A&R LSA). Subsequent to December 31, 2022, Tempo’s unrestricted cash balance dropped below the covenant level. If Tempo’s unrestricted cash balance remains below the covenant level or breaches these or other financial covenants and fails to secure a waiver or forbearance from the Lenders, such breach or failure could result in the Lenders declaring an event of default and accelerate the repayment of the outstanding borrowings under the A&R LSA or the exercise of other rights or remedies that the Lenders may have under applicable law. There can be no assurance that Tempo will be able to regain compliance with these covenants or that the Lenders under the A&R LSA or the lenders of any future indebtedness Tempo may incur will grant Tempo any waiver or forbearance should Tempo fail to maintain compliance with these covenants. As of the filing date of this Prospectus, we are in default under the A&R LSA as a result of our failure to comply with the Unrestricted Cash Covenant.
Tempo could be subject to warranty and other claims involving allegedly defective or counterfeit products that Tempo supplies.
The products Tempo supplies are sometimes used in potentially hazardous or critical applications, such as the assembled parts of an aircraft, medical device or automobile, that could result in death, personal injury, property damage, loss of production, punitive damages and consequential damages. While Tempo has not experienced any such claims to date, actual or claimed defects in the products Tempo supplies could result in Tempo being named as a defendant in lawsuits asserting potentially large claims.
Tempo attempts to include legal provisions in Tempo’s agreements with customers that are designed to limit Tempo’s exposure to potential liability for damages arising from defects or errors, or the inclusion of parts from third-party suppliers that, subsequent to procurement, are discovered to be counterfeit in Tempo’s
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products. However, it is possible that these limitations may not be effective as a result of unfavorable judicial decisions or laws enacted in the future. Any such lawsuit, regardless of merit, could result in material expense, diversion of management time and efforts and damage to Tempo’s reputation, and could cause Tempo to fail to retain or attract customers, which could adversely affect Tempo’s results of operations.
Compliance or the failure to comply with current and future environmental, health and safety, product stewardship and producer responsibility laws or regulations could cause Tempo significant expense.
Tempo will be subject to a variety of federal, state, local and foreign environmental, health and safety, product stewardship and producer responsibility laws and regulations, including those arising from global pandemics or relating to the use, generation, storage, discharge and disposal of hazardous chemicals used during its manufacturing process, those governing worker health and safety, those requiring design changes, supply chain investigation or conformity assessments and those relating to the recycling or reuse of products it manufactures. If Tempo fails to comply with any present or future regulations or obtain in a timely manner any needed permits, Tempo could become subject to liabilities, and could face fines or penalties, the suspension of production, or prohibitions on services it provides. In addition, such regulations could restrict Tempo’s ability to expand its facilities or could require it to acquire costly equipment, or to incur other significant expenses, including expenses associated with the recall of any non-compliant product or with changes in Tempo’s operational, procurement and inventory management activities.
Certain environmental laws impose liability for the costs of investigation, removal and remediation of hazardous or toxic substances on an owner, occupier or operator of real estate, or on parties who arranged for hazardous substance treatment or disposal, even if such person or company was unaware of, or not responsible for, contamination at the affected site. Soil and groundwater contamination may have occurred at or near, or may have arisen from, some of Tempo’s facilities. From time to time Tempo investigates, remediates and monitors soil and groundwater contamination at certain of its operating sites. In certain instances where contamination existed prior to Tempo’s ownership or occupation of a site, landlords or former owners have retained some contractual responsibility for contamination and remediation. However, failure of such persons to perform those obligations could result in Tempo being required to address such contamination. As a result, Tempo may incur clean-up costs in such potential removal or remediation efforts. In other instances, Tempo may be responsible for clean-up costs and other liabilities, including the possibility of claims due to health risks by both employees and non-employees, as well as other third-party claims in connection with contaminated sites.
In addition, there is an increasing governmental focus around the world on global warming and environmental impact issues, which may result in new environmental, health and safety regulations that may affect Tempo, its suppliers, and/or its customers. This could cause Tempo to incur additional direct costs for compliance, as well as increased indirect costs resulting from its customers, suppliers or both incurring additional compliance costs that get passed on to Tempo. These costs may adversely impact Tempo’s operations and financial condition.
An inability to successfully manage the procurement, development, implementation or execution of Information Technology (“IT”) systems, or to adequately maintain these systems and their security, as well as to protect data and other confidential information, may adversely affect Tempo’s business and reputation.
As a complex company, Tempo is heavily dependent on its IT systems to support its customers’ requirements and to successfully manage its business. Any inability to successfully manage the procurement, development, implementation, execution, or maintenance of such systems, including matters related to system and data security, cybersecurity, privacy, reliability, compliance, performance and access, as well as any inability of these systems to fulfill their intended purpose, could have an adverse effect on Tempo’s business. See “If Tempo experiences a significant cybersecurity breach or disruption in its information systems, Tempo’s business could be adversely affected.” below.
Tempo is subject to increasing expectations and data security requirements from its customers, including those related to the U.S. Federal Acquisition Regulation, U.S. Defense Federal Acquisition Regulation Supplement, and U.S. Cybersecurity Maturity Model Certification. In addition, Tempo is required to comply with increasingly complex and rigorous regulatory standards enacted to protect business and personal data in various jurisdictions. For example, the European Union’s General Data Protection
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Regulation, and similar legislation in other jurisdictions in which Tempo operates, imposes additional obligations on companies regarding the handling of personal data and provide certain individual privacy rights to persons whose data is stored. Compliance with customer expectations and existing, proposed and recently enacted laws and regulations can be costly; any failure to comply with these expectations and regulatory standards could subject Tempo to legal and reputational risks. Misuse of or failure to secure personal information could also result in violation of data privacy laws and regulations, proceedings against Tempo by governmental entities or others, fines and penalties, damage to Tempo’s reputation and credibility and could have a negative impact on Tempo’s business and results of operations.
If Tempo experiences a cybersecurity breach or disruption in its information systems, Tempo’s business could be adversely affected.
Malicious actors may be able to penetrate Tempo’s network and misappropriate or compromise Tempo’s confidential information or that of third parties, create system disruptions or cause shutdowns. Malicious actors also may be able to develop and deploy viruses, worms and other malicious software programs that attack Tempo’s platform or otherwise exploit any security vulnerabilities of Tempo’s platform. While Tempo will employ a number of protective measures, including firewalls, network infrastructure vulnerability scanning, anti-virus and endpoint detection and response technologies, these measures may fail to prevent or detect attacks on Tempo’s systems due at least in part to the frequent evolving nature of cybersecurity attacks. Although these measures are designed to maintain the confidentiality, integrity and availability of Tempo’s information and technology systems, there is no assurance that these measures will detect all threats or prevent a cybersecurity attack in the future, which could adversely affect Tempo’s business, reputation, operations or services.
In addition, the costs to Tempo to reduce the risk of cyber or other security problems, bugs, viruses, worms, malicious software programs and security vulnerabilities could be significant and, if Tempo’s efforts to address these problems are not successful, could result in interruptions, delays, cessation of service and loss of existing or potential customers that may impede Tempo’s sales, manufacturing, distribution or other critical functions.
Tempo relies on its IT systems to manage numerous aspects of its business and a disruption of these systems could adversely affect its business.
Tempo relies on its IT systems to manage numerous aspects of its business, including purchasing products from its suppliers, providing procurement and logistic services, shipping products to its customers, managing its accounting and financial functions (including its internal controls) and maintaining its research and development data. Tempo’s IT systems are an essential component of its business and any disruption could significantly limit its ability to manage and operate its business efficiently. A failure of Tempo’s IT systems to perform properly could disrupt Tempo’s supply chain, product development and customer experience, which may lead to increased overhead costs and decreased sales and have an adverse effect on Tempo’s reputation and its financial condition. The hardware and software that Tempo utilizes in Tempo’s services may contain defects in design or manufacture, including “bugs” and other problems that could unexpectedly interfere with the operation or security of the services.
In addition, a substantial portion of Tempo’s employees conduct work remotely, making Tempo more dependent on potentially vulnerable communications systems and making Tempo more vulnerable to cyberattacks. Although Tempo takes steps and incurs significant costs to secure its IT systems, including its computer systems, intranet and internet sites, email and other telecommunications and data networks, such security measures may not be effective and its systems may be vulnerable to damage or interruption. Disruption to Tempo’s IT systems could result from power outages, computer and telecommunications failures, computer viruses, cyber-attack or other security breaches, catastrophic events such as fires, floods, earthquakes, tornadoes, hurricanes, acts of war and terrorism.
Tempo’s current levels of insurance may not be adequate for Tempo’s potential liabilities.
Tempo maintains insurance to cover potential exposure for most claims and losses, including potential product and non-product related claims, lawsuits and administrative proceedings seeking damages or other remedies arising out of its commercial operations. However, Tempo’s current insurance coverage is subject to
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various exclusions, self-retentions and deductibles. Tempo may be faced with types of liabilities that are not covered under Tempo’s current insurance policies, such as environmental contamination or terrorist attacks, or that exceed Tempo’s current or future policy limits. Even a partially uninsured claim of significant size, if successful, could have an adverse effect on Tempo’s financial condition.
In addition, Tempo may not be able to continue to obtain insurance coverage on commercially reasonable terms, or at all, Tempo’s existing policies may be cancelled or otherwise terminated by the insurer, and/or the companies that Tempo acquires may not be eligible for certain types or limits of insurance. Maintaining adequate insurance and successfully accessing insurance coverage that may be due for a claim can require a significant amount of Tempo’s management’s time, and Tempo may be forced to spend a substantial amount of money in that process.
Because Tempo’s industry is rapidly evolving, forecasts of market growth may not be accurate, and even if these markets achieve the forecasted growth, there can be no assurance that Tempo’s business will grow at similar rates, or at all.
Market opportunity estimates and growth forecasts included in this prospectus are subject to significant uncertainty and are based on assumptions and estimates that may not prove to be accurate. The forecasts and estimates in this prospectus relating to the expected size and growth of the markets for prototype and on-demand electronics manufacturing technology may prove to be inaccurate. Even if these markets experience the forecasted growth described in this prospectus, Tempo may not grow its business at similar rates, or at all. Tempo’s future growth is subject to many factors, including market adoption of Tempo’s services, which is subject to many risks and uncertainties. Accordingly, the forecasts and estimates of market size and growth described in this prospectus, including the estimate that Tempo’s total addressable market size is approximately $290 billion based on IPC’s 2012 – 2013, 2018 and 2019 Annual Reports and Forecasts for the North American EMS Industry, should not be taken as indicative of Tempo’s future growth. In addition, these forecasts do not consider the impact of the current global COVID-19 pandemic, and Tempo cannot assure you that these forecasts will not be materially and adversely affected as a result.
Global economic, political and social conditions and uncertainties in the markets that Tempo will serve may adversely impact Tempo’s business.
Tempo’s performance will depend on the financial health and strength of its customers, which in turn will be dependent on the economic conditions of the markets in which Tempo and its customers operate. A decline in the global economy, difficulties in the financial services sector and credit markets, continuing geopolitical uncertainties and other macroeconomic factors all affect the spending behavior of potential customers. The economic uncertainty in Europe, the United States, India, China and elsewhere arising out of the COVID-19 pandemic, increased monetary inflation and banking disruptions may cause end-users to further delay or reduce technology purchases.
Tempo may also face risks from financial difficulties or other uncertainties experienced by its suppliers, distributors or other third parties on which it relies. If third parties are unable to supply Tempo with required materials or components or otherwise assist Tempo in operating its business, Tempo’s business could be harmed.
Tempo’s industry routinely experiences cyclical market patterns and Tempo’s services are used across different end markets. A significant downturn in the industry or in any of these end markets could cause a meaningful reduction in demand for Tempo’s services and harm its operating results.
The prototype and on-demand electronics manufacturing industry is cyclical and Tempo’s financial performance has been affected by downturns in the industry. Down cycles are generally characterized by price erosion and weaker demand for Tempo’s services. Tempo attempts to identify changes in market conditions as soon as possible; however, the dynamics of the market in which Tempo operates make prediction of and timely reaction to such events difficult. Due to these and other factors, Tempo’s past results are not reliable predictors of Tempo’s future results. Furthermore, any significant upturn in the prototype and on-demand electronics manufacturing industry could result in increased competition for access to raw materials and third-party service providers.
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Additionally, Tempo’s services are used across different end markets, and demand for Tempo’s products is difficult to predict and may vary within or among the various industries it serves. Tempo’s target markets may not grow or develop as it currently expects, and demand may change in one or more of Tempo’s end markets, which may reduce Tempo’s revenue, lower Tempo’s gross margin and/or affect Tempo’s operating results. Tempo has experienced concentrations of revenue at certain customers and within certain end markets. Any deterioration in these end markets, reductions in the magnitude of revenue streams, Tempo’s inability to meet requirements, or volatility in demand for Tempo’s services could lead to a reduction in Tempo’s revenue and adversely affect Tempo’s operating results. Tempo’s success in its end markets depends on many factors, including the strength or financial performance of the customers in such end markets, Tempo’s ability to timely meet rapidly changing requirements, market needs, and its ability to maintain program wins across different markets and customers to dampen the effects of market volatility. The dynamics of the markets in which Tempo operates make prediction of and timely reaction to such events difficult.
If Tempo is unable to accomplish any of the foregoing, or to offset the volatility of cyclical changes in the semiconductor industry or its end markets through diversification into other markets, such inability could harm its business, financial condition, and operating results.
The industry experienced a significant downturn during the most recent global recession. Downturns have been characterized by diminished demand, production overcapacity, and accelerated erosion of average selling prices. Any prolonged or significant downturn in the prototype and on-demand electronics manufacturing industry could harm Tempo’s business and reduce demand for Tempo’s services. Any future downturns in the prototype and on-demand electronics manufacturing industry could also harm Tempo’s business, financial condition, and results of operations. Furthermore, any significant upturn in the prototype and on-demand electronics manufacturing industry could result in increased competition for access to raw material and third-party service provider capacity. Tempo is dependent on the availability of this capacity to offer its services and Tempo cannot provide assurances that adequate capacity will be available to it in the future.
Tempo conducts a portion of its business pursuant to U.S. government contracts, which are subject to unique risks.
Contracts with the U.S. government are subject to extensive regulations, and new regulations, or changes to existing regulations, could increase Tempo’s compliance costs, including in the form of withheld payments and/or reduced future business if Tempo fails to comply with these requirements in the future, or otherwise have a material impact on Tempo’s business, which could negatively impact Tempo’s financial condition and operating results.
Contracts with the U.S. government are also subject to a variety of other requirements and risks including government reviews, audits, investigations, False Claims Act cases, suspensions and debarments as well as other legal actions and proceedings that generally do not apply to purely commercial contracts. In addition, transactions involving government contractors may be subject to government review and approvals and may require the contractor to hold certain national security clearances in order to perform them.
The U.S. government may modify, curtail or terminate one or more contracts with Tempo or Tempo’s customers.
The U.S. government contracting party may modify, curtail or terminate its contracts with Tempo or Tempo’s customers, without prior notice and either at its convenience or for default based on performance. In addition, funding pursuant to Tempo’s U.S. government contracts may be reduced or withheld as part of the U.S. Congressional appropriations process due to fiscal constraints, changes in U.S. national security strategy and/or priorities or other reasons. The U.S. government, at its discretion, may also revoke, suspend, or terminate national security clearances necessary to perform certain contracts.
Any loss or anticipated loss or reduction of expected funding and/or modification, curtailment, or termination of one or more of our U.S. government contracts could have a material adverse effect on Tempo’s earnings, cash flow and/or financial position.
Third-party lawsuits and assertions to which Tempo may become subject alleging its infringement of third party IP rights may have a significant adverse effect on Tempo’s business and financial condition.
Third parties may own issued patents and pending patent applications that exist in fields relevant to Tempo’s business, including those relevant to prototype and on-demand electronics manufacturing.
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Some of these third parties may assert that Tempo is employing their proprietary technology without authorization. Because patent applications can take many years to issue, there may be currently pending patent applications, which may later result in issued patents that Tempo’s technologies may infringe. In addition, third parties may obtain patents in the future and claim that Tempo’s technologies infringe upon these patents. Any third-party lawsuits or other assertion to which Tempo is subject alleging Tempo’s infringement of patents, trade secrets or other IP rights may have a significant adverse effect on Tempo’s business and financial condition.
Many of Tempo’s customer agreements and/or the laws of certain jurisdictions may require Tempo to indemnify Tempo’s customers or purchasers for third-party IP infringement claims, including costs to defend those claims, and payment of damages in the case of adverse rulings. However, Tempo’s suppliers may or may not be required to indemnify Tempo should Tempo or Tempo’s customers be subject to such third-party claims. Claims of this sort could also harm Tempo’s relationships with Tempo’s customers and might deter future customers from doing business with us. If any pending or future proceedings result in an adverse outcome, Tempo could be required to:
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cease the sale of the infringing services, processes or technology and/or make changes to Tempo’s services, processes or technology;
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pay substantial damages for past, present and future use of the infringing technology, including up to treble damages if willful infringement is found;
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pay fines or disgorge profits or other payments, and/or cease certain conduct and/or modify Tempo’s contracting or business practices, in connection with any unfavorable resolution of a governmental investigation;
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expend significant resources to develop non-infringing technology;
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license technology from the third-party claiming infringement, which license may not be available on commercially reasonable terms, or at all;
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enter into cross-licenses with Tempo’s competitors, which could weaken Tempo’s overall IP portfolio and Tempo’s ability to compete in particular product categories;
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pay substantial damages to Tempo’s direct or end customers to discontinue use or replace infringing technology with non-infringing technology; or
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relinquish IP rights associated with one or more of Tempo’s patent claims.
Any of the foregoing results could have a material adverse effect on Tempo’s business, financial condition and results of operations.
If Tempo is unable to adequately protect or enforce its IP rights, such information may be used by others to compete against us.
Tempo has devoted substantial resources to the development of its technology and related IP rights. Tempo’s success and future revenue growth will depend, in part, on its ability to protect its IP. Tempo relies on a combination of registered and unregistered IP. Tempo protects its proprietary rights using patents, licenses, trademarks, trade secrets, confidentiality and assignment of invention agreements and other methods.
Despite Tempo’s efforts to protect its proprietary rights, it is possible that competitors or other unauthorized third parties may obtain, copy, use or disclose Tempo’s technologies, inventions, processes or improvements. Tempo cannot assure you that any of Tempo’s existing or future patents or other IP rights will not be challenged, invalidated or circumvented, or will otherwise provide Tempo with meaningful protection. Tempo’s pending patent applications may not be granted, and Tempo may not be able to obtain foreign patents or pending applications corresponding to Tempo’s U.S. patents. Even if foreign patents are granted, effective enforcement in foreign countries may not be available.
Tempo’s trade secrets, know-how and other unregistered proprietary rights are a key aspect of its IP portfolio. While Tempo takes reasonable steps to protect its trade secrets and confidential information and enter into confidentiality and invention assignment agreements intended to protect such rights, such
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agreements can be difficult and costly to enforce or may not provide adequate remedies if violated, and Tempo may not have entered into such agreements with all relevant parties. Such agreements may be breached, and trade secrets or confidential information may be willfully or unintentionally disclosed, including by employees who may leave Tempo and join one of its competitors, or Tempo’s competitors or other parties may learn of the information in some other way. The disclosure to, or independent development by, a competitor of any of Tempo’s trade secrets, know-how or other technology not protected by a patent or other IP system could materially reduce or eliminate any competitive advantage that Tempo may have over such competitor.
If Tempo’s patents and other IP do not adequately protect Tempo’s technology, Tempo’s competitors may be able to offer services similar to those offered by Tempo. Tempo’s competitors may also be able to develop similar technology independently or design around Tempo’s patents and other IP. Any of the foregoing events would lead to increased competition and reduce Tempo’s revenue or gross margin, which would adversely affect Tempo’s operating results.
If Tempo attempts enforcement of its IP rights, Tempo may be subject or party to claims, negotiations or complex, protracted litigation. IP disputes and litigation, regardless of merit, can be costly and disruptive to Tempo’s business operations by diverting attention and energies of management and key technical personnel and by increasing Tempo’s costs of doing business. Any of the foregoing could adversely affect Tempo’s business and financial condition.
As part of any settlement or other compromise to avoid complex, protracted litigation, Tempo may agree not to pursue future claims against a third party, including related to alleged infringement of Tempo’s IP rights. Part of any settlement or other compromise with another party may resolve a potentially costly dispute but may also have future repercussions on Tempo’s ability to defend and protect its IP rights, which in turn could adversely affect Tempo’s business.
As a result of becoming a public company, Tempo is obligated to develop and maintain effective internal control over financial reporting. Tempo identified material weaknesses in its internal control over financial reporting and if its remediation of these material weaknesses is not effective, or if it fails to develop and maintain effective disclosure controls/procedures and internal control over financial reporting, its ability to produce timely and accurate financial statements or comply with applicable laws and regulations could be impaired which may adversely affect Tempo’s business and stock price.
As a public company, Tempo is required, pursuant to Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, to furnish a report by management on, among other things, the effectiveness of Tempo’s internal control over financial reporting. This assessment will need to include disclosure of any material weaknesses identified by Tempo’s management in Tempo’s internal control over financial reporting. The rules governing the standards that must be met for Tempo’s management to assess Tempo’s internal control over financial reporting are complex and require significant documentation, testing, and possible remediation. Testing and maintaining internal controls may divert management’s attention from other matters that are important to Tempo’s business. Tempo’s independent registered public accounting firm will be required to attest to the effectiveness of Tempo’s internal control over financial reporting on an annual basis. However, while Tempo remains an emerging growth company, Tempo will not be required to include an attestation report on internal control over financial reporting issued by Tempo’s independent registered public accounting firm. If Tempo is not able to complete Tempo’s initial assessment of Tempo’s internal controls and otherwise implement the requirements of Section 404 of the Sarbanes-Oxley Act in a timely manner or with adequate compliance, Tempo’s independent registered public accounting firm may not be able to certify as to the adequacy of Tempo’s internal controls over financial reporting.
Matters impacting Tempo’s internal controls may cause Tempo to be unable to report its financial information on a timely basis and thereby subject Tempo to adverse regulatory consequences, including sanctions by the SEC or violations of applicable stock exchange listing rules, which may result in a breach of the covenants under existing or future financing arrangements. There also could be a negative reaction in the financial markets due to a loss of investor confidence in Tempo and the reliability of Tempo’s financial statements. Confidence in the reliability of Tempo’s financial statements also could suffer if Tempo or Tempo’s independent registered public accounting firm continue to report a material weakness in Tempo’s internal
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controls over financial reporting. This could materially adversely affect Tempo and lead to a decline in the market price of Tempo’s common stock.
Tempo identified material weaknesses in its internal control over financial reporting and may continue to identify additional material weaknesses in the future. If the Company fails to develop and maintain an effective system of internal control over financial reporting, it may not be able to accurately report its financial results in a timely manner, which may adversely affect investor confidence in the Company.
In connection with Tempo’s financial statement close process, Tempo identified material weaknesses in its internal control over financial reporting. A material weakness is a deficiency or combination of deficiencies in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of its financial statements would not be prevented or detected on a timely basis. These deficiencies could result in additional material misstatements to its financial statements that could not be prevented or detected on a timely basis. More specifically, Tempo identified the following material weaknesses in its internal control:
(a) we did not maintain sufficient resources who possess an appropriate level of expertise to timely review account reconciliations and identify, select, and apply GAAP pertaining to revenue recognition, inventory, equity administration and to significant financing transactions including business combinations. These control deficiencies resulted in a failure to detect accounting errors in these areas; and
(b) as a result of insufficient resources, we failed to maintain adequate IT general controls, specifically, related to segregation of duties and system implementation.
If not remediated, these material weaknesses could result in material misstatements to the Company’s annual or interim financial statements that might not be prevented or detected on a timely basis, or in delayed filing of required periodic reports. If the Company is unable to assert that its internal control over financial reporting is effective, or when required in the future, if the Company’s independent registered public accounting firm is unable to express an unqualified opinion as to the effectiveness of the internal control over financial reporting, investors may lose confidence in the accuracy and completeness of the Company’s financial reports, the market price of the common stock could be adversely affected and the Company could become subject to litigation or investigations by Nasdaq, the SEC, or other regulatory authorities, which could require additional financial and management resources.
In response to the identified weaknesses, our management has begun the process of developing a remediation plan to improve our internal controls over financial reporting for the year ending December 31, 2023. These remediation efforts include the hiring of additional accounting and finance personnel with appropriate expertise to strengthen our overall controls over the review of reconciliations, the application of GAAP and the IT environment. The material weaknesses will not be considered remediated until management designs and implements effective controls that operate for a sufficient period of time and management has concluded, through testing, that these controls are effective. The Company’s management will monitor the effectiveness of the Company’s remediation plans and will make changes management determines to be appropriate.
Fluctuations in the cost and availability of raw materials, equipment, labor, and transportation could cause manufacturing delays or increase Tempo’s costs.
The price and availability of key raw materials and components used to offer Tempo’s services may fluctuate significantly. Additionally, the cost of logistics and transportation fluctuates in large part due to the price of oil, currency fluctuations, and global demand trends. Any fluctuations in the cost and availability of any of Tempo’s raw materials or other sourcing or transportation costs related to Tempo’s raw materials or services could harm Tempo’s gross margins and its ability to meet customer demand. If Tempo is unable to successfully address a significant portion of these service cost increases or fluctuations, Tempo’s results of operations could be harmed.
Certain software Tempo uses is from open-source code sources, which, under certain circumstances could materially adversely affect Tempo’s business, financial condition, and operating results.
Some of the software used to execute Tempo’s services contains code from open source sources, the use of which may subject Tempo to certain conditions, including the obligation to offer such services for no cost
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or to make the proprietary source code involved in delivering those services publicly available. Further, although some open source vendors provide warranty and support agreements, it is common for such software to be available “as-is” with no warranty, indemnity or support. Although Tempo monitors its use of such open source code to avoid subjecting its services to unintended conditions, such use, under certain circumstances, could materially adversely affect Tempo’s business, financial condition and operating results and cash flow, including if Tempo is required to take remedial action that may divert resources away from Tempo’s development efforts.
Tempo is an early-stage company with a history of losses. Tempo has not been profitable historically and Tempo may not achieve or maintain profitability in the future.
Tempo experienced net losses in each year from Tempo’s inception, including net losses of $144.9 million and $48.0 million for the years ended December 31, 2022 and 2021, respectively. Tempo believes that it will continue to incur operating losses and negative cash flow as it continues to invest significantly in Tempo’s business, in particular across Tempo’s research and development efforts and sales and marketing programs. These investments may not result in increased revenue or growth in Tempo’s business.
As a newly-public company, Tempo will incur significant additional legal, accounting and other expenses that Tempo did not incur as a private company. If Tempo acquires and integrates other companies, Tempo will also incur additional legal, accounting and other expenses. These increased expenditures may make it harder for Tempo to achieve and maintain future profitability. Revenue growth and growth in Tempo’s customer base may not be sustainable, and Tempo may not achieve sufficient revenue to achieve or maintain profitability. Tempo may incur significant losses in the future for a number of reasons, including due to the other risks described in this prospectus, and Tempo may encounter unforeseen expenses, difficulties, complications and delays and other unknown events. As a result, Tempo’s losses may be larger than anticipated, Tempo may incur significant losses for the foreseeable future, and Tempo may not achieve profitability when expected, or at all, and even if Tempo does, Tempo may not be able to maintain or increase profitability.
Furthermore, if Tempo’s future growth and operating performance fail to meet investor or analyst expectations, or if Tempo has future negative cash flow or losses resulting from Tempo’s investment in acquiring customers or expanding Tempo’s existing operations, this could have a material adverse effect on Tempo’s business, financial condition and results of operations.
Tempo’s limited operating history makes evaluating Tempo’s current business and Tempo’s future prospects difficult and may increase the risk of your investment.
Tempo’s limited operating history may make it difficult for you to evaluate Tempo’s current business and Tempo’s future prospects as Tempo continues to grow its business. Tempo’s ability to forecast its future operating results is subject to a number of uncertainties, including Tempo’s ability to plan for and model future growth. Tempo has encountered risks and uncertainties frequently experienced by growing companies in rapidly evolving industries, and Tempo will encounter such risks and uncertainties as it continues to grow Tempo’s business. If Tempo’s assumptions regarding these uncertainties are incorrect or change in reaction to changes in its markets, or if Tempo does not address these risks successfully, Tempo’s operating and financial results could differ materially from Tempo’s expectations, Tempo’s business could suffer, and the trading price of Tempo’s stock may decline.
Tempo is dependent on a limited number of customers and end markets. A decline in revenue from, or the loss of, any significant customer, could have a material adverse effect on Tempo’s financial condition and operating results.
Tempo depends upon a small number of customers for a substantial portion of Tempo’s revenue. During the year ended December 31, 2022, two customers accounted for 21% and 20% of our total revenue, respectively. During the year ended December 31, 2021, one customer accounted for 46% of our total revenue. No other customers accounted for more than 10% of Tempo’s total revenue. A decline in revenue from, or the loss of, any significant customer could have a material adverse effect on Tempo’s financial condition and operating results. See the section titled “Tempo’s Management’s Discussion and Analysis of Financial Condition and Results of Operations — Quantitative and Qualitative Disclosures About Market
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Risk — Concentrations of Credit Risk and Major Customers”. Tempo cannot assure: (i) that orders that may be completed, delayed, cancelled or reduced will be replaced with new business; (ii) that Tempo’s current customers will continue to utilize Tempo’s services consistent with historical volumes or at all; and/or (iii) that Tempo’s customers will renew their long-term manufacturing or services contracts with Tempo on acceptable terms or at all.
There can also be no assurance that Tempo’s efforts to secure new customers and programs in Tempo’s traditional or new markets, including through acquisitions, will succeed in reducing Tempo’s customer concentration. Acquisitions are also subject to integration risk, and revenues and margins could be lower than Tempo anticipates. Failure to secure business from existing or new customers in any of Tempo’s end markets would adversely impact Tempo’s operating results.
Any of the foregoing may adversely affect Tempo’s margins, cash flow, and Tempo’s ability to grow Tempo’s revenue, and may increase the variability of Tempo’s operating results from period to period. See “Tempo’s operating results and financial condition may fluctuate from period to period and may fall below expectations in any particular period, which could adversely affect the market price of Tempo’s common stock.” Tempo’s failure to meet Tempo’s customers’ price expectations may adversely affect Tempo’s business and results of operations.
Demand for Tempo’s services are sensitive to price. Tempo believes its competitive pricing has been an important factor in Tempo’s results to date. Therefore, changes in Tempo’s pricing strategies can have a significant impact on Tempo’s business and ability to generate revenue. Many factors, including Tempo’s production and personnel costs and Tempo’s competitors’ pricing and marketing strategies, can significantly impact Tempo’s pricing strategies. If Tempo fails to meet its customers’ price expectations in any given period, demand for Tempo’s services and service lines could be negatively impacted and Tempo’s business and results of operations could suffer.
Future resales of common stock may cause the market price of Tempo’s securities to drop significantly, even if Tempo’s business is doing well.
Pursuant to the Lock-Up Agreement (as defined below) and subject to certain exceptions, the Sponsor and certain former stockholders of Tempo will be contractually restricted from selling or transferring any of their shares of common stock (not including the shares of Tempo issued pursuant to the terms of the Third A&R PIPE Subscription Agreements) (the “Lock-up Shares”). Such end on the earlier of (i) November 22, 2023, (ii) the closing of a merger, liquidation, stock exchange, reorganization or other similar transaction after the closing date of the Merger that results in all of the public stockholders of Tempo having the right to exchange their shares of Tempo common stock for cash securities or other property, (iii) the day after the date on which the closing price of the Tempo common stock equals or exceeds $12.00 per share (as adjusted for stock splits, stock capitalizations, reorganizations, recapitalizations and the like) for any twenty trading days within any thirty-trading day period commencing at least 150 days after the closing date of the Merger or (iv) the liquidation of Tempo.
However, following the expiration of such lockup, the Sponsor and certain former stockholders of Legacy Tempo will not be restricted from selling shares of Tempo’s common stock held by them, other than by applicable securities laws. Additionally, the Third Party PIPE Investors are not restricted from selling any of their shares of our common stock, other than by applicable securities laws. As such, sales of a substantial number of shares of Tempo common stock in the public market could occur at any time. These sales, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of Tempo common stock. The Sponsor and certain former stockholders of Legacy Tempo collectively beneficially own approximately 47.12% of the outstanding shares of Tempo common stock (not including the shares of Tempo common stock issued in the PIPE Investment pursuant to the terms of the Third A&R PIPE Subscription Agreements).
The shares held by the Sponsor and certain former stockholders of Legacy Tempo may be sold after the expiration of the applicable lock-up period under the Lock-Up Agreement. As restrictions on resale end, the sale or possibility of sale of these shares could have the effect of increasing the volatility in Tempo’s share price or the market price of Tempo common stock could decline if the holders of currently restricted shares sell them or are perceived by the market as intending to sell them.
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Further, the shares of our common stock issued under the Legacy Tempo 2015 Equity Incentive Plan (the “2015 Plan”) and the Tempo Automation Holdings, Inc. 2022 Incentive Award Plan (the “2022 Plan”) are, or will become, eligible for sale in the public market once those shares are issued, subject to provisions relating to various vesting agreements, lock-up agreements and, in some cases, limitations on volume and manner of sale applicable to affiliates under Rule 144, as applicable. No shares are reserved for future issuances under the 2015 Plan. The number of shares reserved for future issuance under the 2022 Plan equals 2,639,329. The maximum number of shares of our common stock that may be issued pursuant to the exercise of incentive stock options (“ISOs”) granted under the 2015 Plan and 2022 Plan is equal to 2,267,680 and 518,198, respectively. We filed a registration statement on Form S-8 under the Securities Act to register shares of our common stock or securities convertible into or exchangeable for shares of our common stock issued pursuant to our equity incentive plans. The S-8 registration statement automatically became effective upon filing on February 21, 2023. Accordingly, shares registered under such registration statement are available for sale in the open market, subject to the limitations noted above.
We may redeem your unexpired warrants prior to their exercise at a time that is disadvantageous to you, thereby making your warrants worthless.
We have the ability to redeem the outstanding warrants at any time after they become exercisable and prior to their expiration, at a price of $0.01 per warrant if, among other things, the last reported sale price of Tempo’s common stock for any twenty trading days within any thirty-trading day period ending on the third trading day prior to the date on which we send the notice of redemption to the warrant holders equals or exceeds $18.00 per share (as adjusted for share splits, share dividends, rights issuances, subdivisions, reorganizations, recapitalizations and the like). If and when the warrants become redeemable by us, we may exercise our redemption right even if we are unable to register or qualify the underlying securities for sale under all applicable state securities laws. As a result, we may redeem the warrants as set forth above even if the holders are otherwise unable to exercise the warrants. Redemption of the outstanding warrants as described above could force you to: (i) exercise your warrants and pay the exercise price therefor at a time when it may be disadvantageous for you to do so (ii) sell your warrants at the then-current market price when you might otherwise wish to hold your warrants; or (iii) accept the nominal redemption price which, at the time the outstanding warrants are called for redemption, we expect would be substantially less than the market value of your warrants. None of the private placement warrants will be redeemable by us so long as they are held by the Sponsor or its permitted transferees. Tempo intends to retain its future earnings, if any, to finance the further development and expansion of its business and does not intend to pay cash dividends in the foreseeable future. Any future determination to pay dividends will be at the discretion of Tempo’s board of directors and will depend on its financial condition, results of operations, capital requirements and future agreements and financing instruments, business prospects and such other factors as its board of directors deems relevant.
There is no guarantee that our Warrants will ever be in the money, and they may expire worthless.
As of the date of this prospectus, the exercise price for our Warrants is $11.50 per share of Common Stock. On May 2, 2023, the closing price of our Common Stock was $0.3225. If the price of our shares of Common Stock remains below $11.50 per share, the exercise price of our Warrants, warrant holders will be unlikely to exercise their Warrants for cash, resulting in little or no cash proceeds to us from such exercises. There is no guarantee that our Warrants will be in the money prior to their expiration and, as such, our Warrants may expire worthless.
Concentration of ownership among Tempo’s executive officers, directors and their affiliates may prevent new investors from influencing significant corporate decisions.
As of the Closing, the stockholders of Legacy Tempo beneficially owned, directly or indirectly approximately 62.5% of Tempo’s outstanding common stock and the executive officers, directors of Tempo and their affiliates as a group beneficially owned approximately 8.4% of Tempo’s outstanding common stock.
As a result, these stockholders will be able to exercise a significant level of control over all matters requiring stockholder approval, including the election of directors, appointment and removal of officers,
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any amendment of our certificate of incorporation and approval of mergers and other business combination transactions requiring stockholder approval, including proposed transactions that would result in Tempo stockholders receiving a premium price for their shares and other significant corporate transactions. This control could have the effect of delaying or preventing a change of control or changes in management and will make the approval of certain transactions difficult or impossible without the support of these stockholders.
Tempo’s disclosure controls and procedures may not prevent or detect all errors or acts of fraud.
Tempo designed its disclosure controls and procedures to reasonably assure that information Tempo must disclose in reports Tempo files or submits under the Exchange Act is accumulated and communicated to management, and recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. Tempo believes that any disclosure controls and procedures or internal controls and procedures, no matter how well-conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by an unauthorized override of the controls.
The price of Tempo’s common stock and warrants may be volatile.
The price of Tempo common stock, as well as Tempo warrants may fluctuate due to a variety of factors, including:
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changes in the industries in which Tempo and its customers operate;
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developments involving Tempo’s competitors;
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developments involving Tempo’s suppliers;
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market demand and acceptance of Tempo’s services;
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changes in laws and regulations affecting Tempo’s business, including export control laws;
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variations in Tempo’s operating performance and the performance of its competitors in general;
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actual or anticipated fluctuations in Tempo’s quarterly or annual operating results;
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publication of research reports by securities analysts about Tempo or its competitors or its industry;
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the public’s reaction to Tempo’s press releases, its other public announcements and its filings with the SEC;
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actions by stockholders, including the sale by the Third Party PIPE Investors of any of their shares of Tempo’s common stock;
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additions and departures of key personnel;
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commencement of, or involvement in, litigation involving Tempo;
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changes in its capital structure, such as future issuances of securities or the incurrence of additional debt;
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the volume of shares of Tempo common stock available for public sale; and
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general economic and political conditions, such as the effects of the COVID-19 outbreak, recessions, interest rates, local and national elections, fuel prices, international currency fluctuations, corruption, political instability and acts of war or terrorism.
These market and industry factors may materially reduce the market price of Tempo common stock and warrants regardless of the operating performance of Tempo.
Tempo does not intend to pay cash dividends for the foreseeable future.
Tempo currently intends to retain its future earnings, if any, to finance the further development and expansion of its business and does not intend to pay cash dividends in the foreseeable future. Any future
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determination to pay dividends will be at the discretion of Tempo’s board of directors and will depend on its financial condition, results of operations, capital requirements, restrictions contained in future agreements and financing instruments, business prospects and such other factors as its board of directors deems relevant.
Tempo will incur increased costs as a result of operating as a public company, and Tempo’s management will be required to devote substantial time to new compliance and investor relations initiatives.
As a public company, Tempo incurs significant legal, accounting and other expenses that Tempo did not incur as a private company. Tempo is subject to the reporting requirements of the Exchange Act and the Sarbanes-Oxley Act. The Exchange Act requires the filing of annual, quarterly and current reports with respect to a public company’s business and financial condition. The Sarbanes-Oxley Act, as well as rules subsequently adopted by the SEC and Nasdaq to implement provisions of the Sarbanes-Oxley Act, require, among other things, that a public company establish and maintain effective disclosure and financial controls. As a result, Tempo will incur significant legal, accounting and other expenses that Tempo did not previously incur. Tempo’s entire management team and many of its other employees will need to devote substantial time to compliance, and may not effectively or efficiently manage its transition into a public company.
Further, pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the SEC has adopted additional rules and regulations in these areas, such as mandatory “say on pay” voting requirements that will apply to Tempo when Tempo ceases to be an emerging growth company. Stockholder activism, the current political environment and the current high level of government intervention and regulatory reform may lead to substantial new regulations and disclosure obligations, which may lead to additional compliance costs and impact the manner in which Tempo operates its business in ways we cannot currently anticipate.
Tempo expects the rules and regulations applicable to public companies to substantially increase Tempo’s legal and financial compliance costs and to make some activities more time consuming and costly. If these requirements divert the attention of Tempo’s management and personnel from other business concerns, they could have a material adverse effect on Tempo’s business, financial condition and results of operations. The increased costs will decrease Tempo’s net income or increase Tempo’s net loss, and may require Tempo to reduce costs in other areas of Tempo’s business or increase the prices of Tempo’s services. For example, Tempo expects these rules and regulations to make it more difficult and more expensive for Tempo to obtain director and officer liability insurance, and Tempo may be required to incur substantial costs to maintain the same or similar coverage. Tempo cannot predict or estimate the amount or timing of additional costs Tempo may incur to respond to these requirements. The impact of these requirements could also make it more difficult for Tempo to attract and retain qualified persons to serve on Tempo’s board of directors, Tempo’s board committees or as executive officers.
If Tempo fails to maintain proper and effective internal controls over financial reporting, Tempo’s ability to produce accurate and timely financial statements could be impaired, investors may lose confidence in Tempo’s financial reporting and the trading price of Tempo’s common stock may decline.
Tempo is a public reporting company subject to the rules and regulations established from time to time by the SEC and Nasdaq. These rules and regulations will require, among other things, that Tempo establish and periodically evaluate procedures with respect to Tempo’s internal control over financial reporting. Reporting obligations as a public company are likely to place a considerable strain on Tempo’s financial and management systems, processes and controls, as well as on Tempo’s personnel.
In addition, as a public company, Tempo will be required to document and test Tempo’s internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act so that Tempo’s management can certify as to the effectiveness of Tempo’s internal control over financial reporting. For additional information related to the risks and uncertainties of Tempo’s compliance with the Sarbanes-Oxley Act, see “Risk Factors — Tempo has identified material weaknesses in its internal control over financial reporting and may continue to identify additional material weaknesses in the future. If the Company fails to
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develop and maintain an effective system of internal control over financial reporting, it may not be able to accurately report its financial results in a timely manner, which may adversely affect investor confidence in the Company.”
Changes in accounting rules and regulations, or interpretations thereof, could result in unfavorable accounting charges or require Tempo to change Tempo’s compensation policies.
Accounting methods and policies for public companies are subject to review, interpretation and guidance from Tempo’s independent registered accounting firm and relevant accounting authorities, including the SEC. Changes to accounting methods or policies, or interpretations thereof, may require Tempo to reclassify, restate or otherwise change or revise Tempo’s consolidated financial statements.
We are currently an emerging growth company and a smaller reporting company within the meaning of the Securities Act, and to the extent we have taken advantage of certain exemptions from disclosure requirements available to emerging growth companies or smaller reporting companies, this could make our securities less attractive to investors and may make it more difficult to compare our performance with other public companies.
Tempo is an “emerging growth company,” as defined in the JOBS Act. As an emerging growth company, Tempo will be able to follow reduced disclosure requirements and will not have to make all of the disclosures that public companies that are not emerging growth companies do. Tempo will remain an emerging growth company until the earlier of (a) the last day of the fiscal year in which Tempo has total annual gross revenues of $1.235 billion or more; (b) the last day of the fiscal year following the fifth anniversary of the date of the completion of the initial public offering of Tempo; (c) the date on which Tempo has issued more than $1 billion in nonconvertible debt during the previous three years; or (d) the date on which Tempo is deemed to be a large accelerated filer under the rules of the SEC, which means the market value of Tempo’s common stock that is held by non-affiliates exceeds $700 million as of the prior June 30. For so long as Tempo remains an emerging growth company, Tempo is permitted and intend to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not emerging growth companies. These exemptions include:
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not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act;
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not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (i.e., an auditor discussion and analysis);
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reduced disclosure obligations regarding executive compensation in Tempo’s periodic reports, proxy statements and registration statements; and
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exemptions from the requirements of holding a non-binding advisory vote of stockholders on executive compensation, stockholder approval of any golden parachute payments not previously approved and having to disclose the ratio of the compensation of Tempo’s chief executive officer to the median compensation of Tempo’s employees.
In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. Tempo has elected to use the extended transition period for complying with new or revised accounting standards; and as a result of this election, Tempo’s financial statements may not be comparable to companies that comply with public company effective dates.
Tempo may choose to take advantage of some, but not all, of the available exemptions for emerging growth companies. Tempo cannot predict whether investors will find Tempo’s common stock less attractive if Tempo relies on these exemptions. If some investors find Tempo’s common stock less attractive as a result, there may be a less active trading market for Tempo’s common stock and Tempo’s share price may be more volatile.
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We are also a “smaller reporting company” as defined under the Exchange Act. We may continue to be a smaller reporting company so long as either (i) the market value of shares of our common stock held by non-affiliates is less than $250 million or (ii) our annual revenue was less than $100 million during the most recently completed fiscal year and the market value of shares of our common stock held by non-affiliates is less than $700 million. If we are a smaller reporting company at the time we cease to be an emerging growth company (an “EGC”), we may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies. Specifically, as a smaller reporting company, we may choose to present only the two most recent fiscal years of audited financial statements in our Annual Reports on Form 10-K and have reduced disclosure obligations regarding executive compensation, and, similar to EGCs, if we are a smaller reporting company under the requirements of clause (ii) above, we would not be required to obtain an attestation report on internal control over financial reporting issued by our independent registered public accounting firm.
Tempo’s certificate of incorporation provides that the Delaware Court of Chancery will be the exclusive forum for substantially all disputes between Tempo and Tempo’s stockholders and that the federal district courts shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the U.S. Securities Act of 1933, as amended, which could limit Tempo’s stockholders’ ability to obtain a favorable judicial forum for disputes with Tempo or Tempo’s directors, officers or employees.
Tempo’s certificate of incorporation and bylaws provide that, unless Tempo consents in writing to the selection of an alternative forum, the (a) Delaware Court of Chancery (or, in the event that the Delaware Court of Chancery does not have jurisdiction, the federal district court for the District of Delaware or other state courts of the State of Delaware) shall, to the fullest extent permitted by law, be the sole and exclusive forum for: (i) any derivative action, suit or proceeding brought on Tempo’s behalf; (ii) any action, suit or proceeding asserting a claim of breach of fiduciary duty owed by any of Tempo’s directors, officers, or stockholders to Tempo or to Tempo’s stockholders; (iii) any action, suit or proceeding asserting a claim arising pursuant to the DGCL, Tempo’s certificate of incorporation or bylaws; or (iv) any action, suit or proceeding asserting a claim governed by the internal affairs doctrine; and (b) subject to the foregoing, the federal district courts of the United States of America shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act. Notwithstanding the foregoing, such forum selection provisions shall not apply to suits brought to enforce any liability or duty created by the Exchange Act or any other claim for which the federal courts of the United States have exclusive jurisdiction. The choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with Tempo or Tempo’s directors, officers, or other employees, which may discourage such lawsuits against Tempo and Tempo’s directors, officers, and other employees. Alternatively, if a court Tempore finds the choice of forum provision contained in Tempo’s certificate of incorporation to be inapplicable or unenforceable in an action, Tempo may incur additional costs associated with resolving such action in other jurisdictions, which could harm Tempo’s business, results of operations, and financial condition.
Additionally, Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder. As noted above, Tempo’s certificate of incorporation and bylaws provide that the federal district courts of the United States of America shall have jurisdiction over any action arising under the Securities Act. Accordingly, there is uncertainty as to whether a court would enforce such provision. Tempo’s stockholders will not be deemed to have waived Tempo’s compliance with the federal securities laws and the rules and regulations thereunder.
Risks Related to the Acquisitions
The consummation of the Acquisitions is subject to the satisfaction or waiver of a number of conditions and if those conditions are not satisfied or waived, the ODA Purchase Agreement may be terminated in accordance with its terms and the Acquisitions may not be completed.
Although we expect to complete the Acquisitions in the second quarter of 2023, there can be no assurances as to the exact timing of the closing or that the Acquisitions will be completed at all. The consummation of the Acquisitions are subject to the satisfaction or waiver of a number of conditions
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contained in the ODA Purchase Agreement, including, among others, (a) the absence of laws, orders, decrees, judgments and injunctions by any governmental entity of competent jurisdiction preventing the completion of the Acquisitions or that make the completion of the Acquisitions illegal, (b) the receipt of specified governmental and regulatory consents and approvals and expiration of any mandatory waiting period related thereto, (c) subject to certain exceptions, the accuracy of representations and warranties with respect to the Acquired Companies, the Company and the Sellers, (d) compliance in all material respects by the Acquired Companies, the Company and the Sellers with their respective covenants contained in the ODA Purchase Agreement, (e) the shares of Common Stock issuable as Stock Consideration and Earnout Consideration having been approved for listing on the Nasdaq Capital Market, LLC, (f) there having occurred no material adverse effect with respect to the Company or the Acquired Companies, (g) Buyer having obtained gross proceeds from one or more financing transactions sufficient to satisfy its cash payment obligations with respect to the closing of the Acquisitions; (h) the entry by the Sellers into employment and non-compete agreements with the Company, in each case substantially in the forms attached as exhibits to the ODA Purchase Agreement; and (i) the delivery by the Acquired Companies of certain audited financial statements with respect to the Acquired Companies. Such conditions, some of which are beyond our control, may not be satisfied or waived in a timely manner or at all and therefore make the completion and timing of the Acquisitions uncertain. In addition, the ODA Purchase Agreement contains certain customary termination rights for both parties, which if exercised will also result in the Acquisitions not being consummated. Any such termination or any failure to otherwise complete the Acquisitions could result in our business being adversely impacted by the failure to pursue other beneficial opportunities due to the time and resources committed by our management to the Acquisitions, the failure to realize any of the anticipated benefits of completing the Acquisitions, the incurrence of legal, accounting and other expenses relating to the Acquisitions and negative reactions from the financial markets and customers that may occur if the anticipated benefits of the Acquisitions are not realized. Such consequences could materially and adversely affect our business, financial condition, results of operations and cash flows.
The regulatory approvals required in connection with the Australia Sale may not be obtained or may contain materially burdensome conditions.
Completion of the Australia Sale is conditioned upon the receipt of certain regulatory approvals, and neither Tempo nor the Acquired Companies can provide assurance that these approvals will be obtained. If any conditions or changes to the proposed structure of the Australia Sale are required to obtain these regulatory approvals, they may have the effect of jeopardizing or delaying completion of the Australia Sale or reducing the anticipated benefits of the Acquisitions. If either Tempo or the Acquired Companies agree to any material conditions in order to obtain any approvals required to complete the Australia Sale, the business and results of operations of the combined company may be adversely affected.
Even if the Acquisitions are completed, we may be unable to successfully integrate the business of the Acquired Companies into our business or achieve the anticipated benefits of the Acquisitions.
The success of the Acquisitions will depend, in part, on our ability to realize the anticipated benefits and cost savings from integrating the assets and operations of the Acquired Companies into our business, and there can be no assurance that we will be able to successfully integrate or otherwise realize the anticipated benefits of the Acquisitions. Difficulties in integrating the Acquired Companies into our company and our ability to manage the combined company may result in us performing differently than expected, in operational challenges or in the delay or failure to realize anticipated expense-related efficiencies, and could have a material adverse effect on our business, financial condition, results of operations and cash flows. Potential difficulties that may be encountered in the integration process include, among others:
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the inability to successfully integrate the Acquired Companies operationally in a manner that permits us to achieve the full revenue, expected cash flows and cost savings anticipated from the Acquisitions;
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not realizing anticipated operating synergies; and
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potential unknown liabilities and unforeseen expenses, delays or regulatory conditions associated with the Acquisitions.
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Tempo’s ability to successfully operate the businesses of Tempo and the Acquired Companies following the consummation of the Acquisitions will be largely dependent upon the efforts of certain key personnel. The loss of such key personnel could negatively impact the operations and financial results of Tempo and/or the Acquired Companies.
Tempo’s ability to successfully operate the businesses of Tempo and the Acquired Companies following consummation of the Acquisitions will be largely dependent upon the efforts of certain key personnel of Tempo and the Acquired Companies. It is possible that Tempo and/or the Acquired Companies may lose such key personnel, the loss of which could negatively impact the operations and profitability of Tempo and the Acquired Companies. Furthermore, certain of the key personnel of the Acquired Companies may be unfamiliar with the requirements of operating a company regulated by the SEC, which could cause Tempo to have to expend time and resources helping them become familiar with such requirements.
The announcement or pendency of the Acquisitions could disrupt Tempo’s or the Acquired Companies’ respective businesses, results of operations and financial condition.
The announcement or pendency of the Acquisitions prior to their consummation could cause disruptions in and create uncertainty surrounding Tempo’s and the Acquired Companies’ businesses, including affecting Tempo’s and the Acquired Companies’ relationships with their respective existing and future customers, suppliers, business partners and employees. Such risks could have an adverse effect on the Tempo’s and the Acquired Companies’ respective businesses, results of operations and financial condition, as well as the market price of Tempo’s common stock, regardless of whether the Acquisitions are completed. In particular, the Tempo and the Acquired Companies could potentially lose important personnel who decide to pursue other opportunities as a result of the Acquisitions. Any adverse effect could be exacerbated by a prolonged delay in closing the Acqusitions. Existing customers or suppliers of Tempo and the Acquired Companies may seek to change their existing business relationships or renegotiate their contracts with the Acquired Companies or defer decisions concerning the Tempo or the Acquired Companies, and potential customers or suppliers could defer entering into contracts with Tempo or the Acquired Companies, each as a result of the uncertainties relating to the Acquisitions. In addition, in an effort to complete the Acquisitions, Tempo and the Acquired Companies have expended, and will continue to expend, significant management resources, which are being diverted from the Tempo’s and the Acquired Companies’ day-to-day operations, and significant demands are being, and will continue to be, placed on the managerial, operational and financial personnel and systems of the Tempo and the Acquired Companies in connection with efforts to complete the Acquisitions.
Following the consummation of the Acquisitions, Tempo and/or the Acquired Companies may be exposed to unknown or contingent liabilities and may be required to subsequently take write-downs or write-offs, restructuring and impairment or other charges that could have a significant negative effect on their financial condition, results of operations and the market value of Tempo’s common stock.
Tempo cannot provide assurance that the due diligence it conducted in relation to the Acquisitions identified all material issues or risks associated with the Acquisitions or the Acquired Companies. Furthermore, Tempo cannot provide assurances that factors outside of its control will not later arise. As a result of these factors, Tempo and/or the Acquired Companies may be exposed to liabilities and incur additional costs and expenses and Tempo and/or the Acquired Companies may be forced to later write-down or write-off assets, restructure operations, or incur impairment or other charges that could result in reporting losses.
Even if Tempo’s due diligence has identified certain risks, unexpected risks may arise and previously known risks may materialize in a manner not consistent with Tempo’s preliminary risk analysis. If any of these risks materialize, this could have a material adverse effect on Tempo’s financial condition and results of operations and could contribute to negative market perceptions about Tempo’s securities.
We will require additional financing to consummate the Acquisitions, which financing may not be available on favorable terms, if at all, and may Tempo may issue additional securities in connection with such financing transactions that may dilute the ownership of Tempo’s current stockholders.
Tempo will need to raise additional funds through public or private financing to consummate the Acquisitions. No assurance can be given that additional financing will be available to Tempo or that, if
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available, it will be obtained on terms favorable to Tempo. If Tempo cannot obtain additional financing or if Tempo cannot obtain financing on terms favorable to it, Tempo will not be able to consummate, and may be forced to abandon, the Acquisitions and Tempo’s business and operations may be materially harmed as a result. In addition, Tempo may incur significant additional indebtedness to fund the Acquisitions. Any such debt financing may involve restrictive covenants relating to capital raising activities and other financial and operational matters, which may make it more difficult for Tempo to obtain additional capital and to pursue business opportunities, including potential acquisitions, in the future. Any such debt financings may also contain provisions that, if breached, may entitle lenders or their agents to accelerate the repayment of loans or seize Tempo’s assets that they have a security interest in, and there is no assurance that Tempo would be able to repay such loans in such an event or prevent the enforcement of security granted pursuant to any such debt financing.
Tempo cannot predict the effect, if any, that future issuances of debt, common stock, other equity securities or securities convertible into or exchangeable for common stock or other equity securities or the availability of any of the foregoing for future sale, will have on the market price of Tempo’s common stock. The issuance of substantial amounts of Tempo’s common stock or securities convertible into or exchangeable for Tempo’s common stock, or the perception that such issuances could occur, may adversely affect prevailing market prices for Tempo’s common stock. If Tempo raises additional funds through future issuances of common stock, other equity securities or securities convertible into or exchangeable for common stock or other equity securities, Tempo’s stockholders could suffer significant dilution, and any new equity securities Tempo issues could have rights, preferences and privileges superior to those of holders of Tempo common stock.
General Risk Factors
Tempo may be subject to securities litigation, which is expensive and could divert management attention.
The market price of Tempo’s common stock may be volatile and, in the past, companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation. Tempo may be the target of this type of litigation in the future. Securities litigation against Tempo could result in substantial costs and divert management’s attention from other business concerns, which could seriously harm its business.
If analysts do not publish research about Tempo’s business or if they publish inaccurate or unfavorable research, Tempo’s stock price and trading volume could decline.
The trading market for the common stock of Tempo will depend in part on the research and reports that analysts publish about its business. Tempo does not have any control over these analysts. If one or more of the analysts who cover Tempo downgrade its common stock or publish inaccurate or unfavorable research about its business, the price of its common stock would likely decline. If few analysts cover Tempo, demand for its common stock could decrease and its common stock price and trading volume may decline. Similar results may occur if one or more of these analysts stop covering Tempo in the future or fail to publish reports on it regularly.
We face risks and uncertainties related to litigation, regulatory actions and government investigations and inquiries.
We are subject to, and may become a party to, a variety of litigation, other claims, suits, regulatory actions and government investigations and inquiries. From time to time, we may also be involved in legal proceedings and investigations arising in the ordinary course of business, including those relating to employment matters, relationships with collaboration partners, IP disputes, and other business matters. Any such claims or investigations may be time-consuming, costly, divert management resources, or otherwise have a material adverse effect on our business or results of operations.
The results of litigation and other legal proceedings are inherently uncertain and adverse judgments or settlements in some or all of these legal disputes may result in materially adverse monetary damages or injunctive relief against us. Any claims or litigation, even if fully indemnified or insured, could damage our reputation and make it more difficult to compete effectively or obtain adequate insurance in the future.
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THE EQUITY SUBSCRIPTION LINE
On November 21, 2022, the Company entered into the Purchase Agreement and the White Lion Registration Rights Agreement. Pursuant to the Purchase Agreement, the Company has the right, but not the obligation to require White Lion to purchase, from time to time, up to the lesser of (i) $100,000,000 in aggregate gross purchase price of newly issued shares of Common Stock and (ii) the Exchange Cap, in each case, subject to certain limitations and conditions set forth in the Purchase Agreement.
The Purchase Agreement contains customary representations, warranties, covenants and indemnification provisions. Subject to the satisfaction of certain customary conditions including, without limitation, the effectiveness of this registration statement, the Company’s right to sell shares to White Lion will re-commence on the effective date of this registration statement and extend until December 31, 2024. During such term, subject to the terms and conditions of the Purchase Agreement, the Company may notify White Lion when the Company exercises its right to sell shares.
The number of shares sold pursuant to any such notice may not exceed the lower of (a) $2,000,000 and (b) the dollar amount equal to the product of (i) the Effective Daily Trading Volume (as defined in the Purchase Agreement), (ii) the closing price of the Common Stock on the effective date of this registration statement or any new registration statement relating to the resale by White Lion of shares of Common Stock that the Company may issue to White Lion under the Purchase Agreement and (iii) 80%.
No purchase notice may result in White Lion beneficially owning (as calculated pursuant to Section 13(d) of the Exchange Act and Rule 13d-3 thereunder) more than 4.99% of the number of shares of Common Stock outstanding immediately prior to the issuance of shares of Common Stock issuable pursuant to such purchase notice.
The purchase price to be paid by White Lion for any such shares will equal (i) until an aggregate of $50,000,000 in shares have been purchased under the Purchase Agreement, 97% of the lowest daily volume-weighted average price of the Common Stock during the three consecutive trading days following the Notice Date, and (ii) thereafter, 99% of the lowest daily volume-weighted average price of the Common Stock during the three consecutive trading days following the Notice Date.
The Company will have the right to terminate the Purchase Agreement at any time after Commencement, at no cost or penalty, upon three trading days’ prior written notice. Additionally, White Lion will have the right to terminate the Purchase Agreement upon three trading days’ prior written notice to the Company if (i) a material adverse effect has occurred and is continuing, (ii) a fundamental transaction has occurred, (iii) the Company is in breach or default in any material respect of the White Lion Registration Rights Agreement and such breach or default is not cured within 15 trading days after notice of such breach or default is delivered to the Company, (iv) there is a lapse of the effectiveness, or unavailability of, any registration statement required by the White Lion Registration Rights Agreement for a period of 45 consecutive trading days or for more than an aggregate of 90 trading days in any 365-day period, (v) the suspension of trading of the Common Stock for a period of five (5) consecutive trading days, or (vi) the material breach of the Purchase Agreement by the Company, which breach is not cured within 15 trading days after notice of such breach or default is delivered to the Company. No termination of the Purchase Agreement will affect the registration rights provisions contained in the White Lion Registration Rights Agreement.
In consideration for the commitments of White Lion, as described above, the Company paid to White Lion a commitment fee of $1,000,000 in connection with the Closing.
The aggregate number of shares of Common Stock that the Company can sell to White Lion under the Purchase Agreement may in no case exceed 19.99% of the number of shares of Common Stock outstanding immediately prior to the execution of the Purchase Agreement, unless stockholder approval is obtained to issue shares above the Exchange Cap, in which case the Exchange Cap will no longer apply.
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USE OF PROCEEDS
We will not receive any proceeds from the sale of shares of Common Stock or Warrants by the Selling Securityholders pursuant to this prospectus. In addition, we will not receive any of the proceeds from the sale of our shares of Common Stock by White Lion pursuant to this prospectus. However, we may receive up to $100.0 million in aggregate gross proceeds from White Lion under the Purchase Agreement in connection with sales of our shares of Common Stock to White Lion that we may, in our discretion, elect to make, from time to time pursuant to the Purchase Agreement after the date of this prospectus. We will receive up to $208.15 million from the exercise of the Warrants for cash, but will not receive any proceeds from the sale of the shares of Common Stock issuable upon such exercise. Each Warrant entitles the holder thereof to purchase one share of Common Stock at a price of $11.50 per share. On May 2, 2023, the closing price for our Common Stock was $0.3225. If the price of our Common Stock remains below $11.50 per share, warrant holders will be unlikely to exercise their Warrants for cash, resulting in little or no cash proceeds to us from such exercises. We expect to use any such proceeds for general corporate and working capital purposes, which would increase our liquidity. In order to fund planned operations while meeting obligations as they come due, the Company will need to secure additional debt or equity financing if substantial cash proceeds from the exercise of the Warrants are not received.
We intend to use the proceeds from the sale of our shares of Common Stock to White Lion and the proceeds from the exercise of Warrants for cash for general corporate and working capital purposes. Our management will have broad discretion over the use of proceeds from the sale of our shares of Common Stock to White Lion and the proceeds from the exercise of Warrants for cash.
The Selling Securityholders will pay all incremental selling expenses relating to the sale of their shares of Common Stock and Warrants, including underwriters’ or agents’ commissions and discounts, brokerage fees, underwriter marketing costs and all reasonable fees and expenses of any legal counsel representing the Selling Securityholders, except that we will pay the reasonable fees and expenses of one legal counsel for the Selling Securityholders, in the event of an underwritten offering of their securities. We will bear all other costs, fees and expenses incurred in effecting the registration of the securities covered by this prospectus, including, without limitation, all registration and filing fees, printing and delivery fees, Nasdaq listing fees and fees and expenses of our counsel and our accountants.
White Lion may offer, sell or distribute all or a portion of the shares of Common Stock hereby registered publicly or through private transactions at prevailing market prices or at negotiated prices. We will bear all costs, expenses and fees in connection with the registration of such shares of Common Stock, including with regard to compliance with state securities or “blue sky” laws. The timing and amount of any sale are within the sole discretion of White Lion. White Lion is an underwriter under the Securities Act. Although White Lion is obligated to purchase shares of Common Stock under the terms of the Purchase Agreement, to the extent we choose to sell such shares of Common Stock to White Lion (subject to certain conditions), there can be no assurances that White Lion will sell any or all of the shares of Common Stock purchased under the Purchase Agreement pursuant to this prospectus. White Lion will bear all commissions and discounts, if any, attributable to its sale of the shares of Common Stock.
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DETERMINATION OF OFFERING PRICE
We cannot currently determine the price or prices at which shares of Common Stock or Warrants may be sold by White Lion or the Selling Securityholders under this prospectus.
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DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock. We currently intend to retain all available funds and future earnings, if any, to fund the development and growth of the business, and therefore, do not anticipate declaring or paying any cash dividends on our Common Stock in the foreseeable future. Any future determination related to our dividend policy will be made at the discretion of our board of directors after considering our business prospects, results of operations, financial condition, cash requirements and availability, debt repayment obligations, capital expenditure needs, contractual restrictions, covenants in the agreements governing current and future indebtedness, industry trends, the provisions of Delaware law affecting the payment of dividends and distributions to stockholders and any other factors or considerations the board of directors deems relevant.
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MARKET INFORMATION
Our Common Stock and Warrants are listed on Nasdaq under the symbols “TMPO” and “TMPOW,” respectively. Prior to the consummation of the Business Combination, the Class A common stock, units and warrants were listed on Nasdaq under the symbols “ACEV,” “ACEVU” and “ACEVW,” respectively. As of December 31, 2022, there were 121 holders of record of our Common Stock and five holders of record of our Warrants. The actual number of stockholders of our Common Stock and the actual number of holders of our Warrants is greater than the number of record holders and includes holders of our Common Stock or Warrants whose shares of Common Stock or Warrants are held in street name by brokers and other nominees.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
You should read the following discussion and analysis of financial condition and results of operations together with the consolidated financial statements and the related notes and other financial information of Tempo included elsewhere in this prospectus. Some of the information contained in this discussion and analysis contains forward-looking statements that involve risks and uncertainties. As a result of many factors, such as those set forth in the section of the prospectus captioned “Risk Factors” and elsewhere in this prospectus, actual results may differ materially from those anticipated in these forward-looking statements.
Company Overview
Tempo is a leading software-accelerated electronics manufacturer that aims to transform the product development process for the world’s innovators. We believe that our proprietary software platform redefines the customer journey and accelerates time-to-market. Our profit, growth, and strong margins are unlocked by a differentiated customer experience and software-enabled efficiencies. We anticipate that our growth and data accrual will be accelerated via M&A that will benefit from our technology in our highly fragmented industry.
Founded in 2013, Tempo is headquartered in San Francisco, California and serves more than 100 customers out of our single manufacturing facility. We work with companies across industries, including space, semiconductor, aviation and defense, medical device, as well as industrials and e-commerce. Our customers include hardware engineers, engineering program managers, and procurement and supply chain personnel from businesses of a variety of sizes, ranging from Fortune 500 companies to start-ups. The electronics within their products are most often manufactured as Printed Circuit Board Assemblies (“PCBAs”). The PCBA manufacturing process typically takes two inputs: 1) electronic components, and 2) a Printed Circuit Board (“PCB”), which is the substrate that the components are attached to and electrical connections that complete the circuit(s). The assembly process typically consists of attaching the electronics components to the PCB using solder paste, then curing the paste in an oven such that an electrical and mechanical bond is formed. Given the varied requirements of different products, customers typically will design different, custom PCBAs for each of their products.
During the initial phases of product development, up until a product is deemed production ready, customers generally prefer quick turnaround times and the highest quality from their vendors to ensure they are able to meet their timelines to release new products. Based on IPC’s 2012-2013, 2018, and 2019 Annual Reports and Forecasts for the North American EMS Industry, the estimated size of this electronics prototyping and on-demand production market in the United States is approximately $290 billion. Most of these electronics have historically been produced by small manufacturers who have been largely ignored by software and therefore struggle to consistently satisfy customer demands manually.
Tempo has developed a technology-enabled, accelerated manufacturing platform to streamline this electronic product realization process, thereby helping our customers bring new products to market faster. We believe that our platform offers customer benefits that are highly desired by the market and not available from alternative solutions through our:
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Customer portal, which provides low-friction quoting, ordering, and data ingestion via a secure cloud-based interface. Our customer portal offers analysis, interpretation, and visual rendering of engineering, design, and supply chain data with minimal human involvement, which ultimately allows hardware engineers to reach a manufacturable design quickly and efficiently.
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Manufacturing support software, which is a continuous, bi-directional digital thread that connects our customers designs and data to our smart factory. It is extendable and manageable across multiple sites and locations.
Tempo’s software platform helps companies iterate faster. In the status quo, each of quoting, manufacturability review, procurement, setup, and manufacturing are manual processes. We estimate that, on average, these production process steps collectively take approximately 20 days when executed manually. By contrast, with Tempo’s automated approach, these processes could be completed in approximately five days.
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Growth Strategy and Outlook
Tempo’s growth strategy has two elements:
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Enhance our automated, intelligent process to benefit the customer experience. As we take more orders, we accumulate more data. More data helps us deliver a better customer experience, which, in turn, drives more orders — a virtuous cycle. Further, additional orders yield additional gross profit, which we can use to accelerate our research and development (“R&D”) investment in our software platform.
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Make disciplined inorganic investments. The $290.0 billion fragmented landscape is a target-rich environment for M&As that will benefit from our technology, with an estimated 34 M&A transactions completed in the North American electronics manufacturing services (which we refer to as PCBA) and PCB sectors in 2021 according to GP Ventures, Ltd as of January 2022. To execute this strategy, we plan to leverage our leadership team’s decades of acquisition and integration experience. We expect that our software platform will confer top-line and bottom-line benefits to the targets we acquire. In addition, we expect that future acquisitions will provide further fuel, in the form of data, for enhancing our platform.
The Business Combination
On November 22, 2022, we consummated the Business Combination, pursuant to which, among other things, Merger Sub merged with and Legacy Tempo, with Legacy Tempo surviving such Merger as a wholly owned subsidiary of the Company. Upon the Closing, ACE was renamed Tempo Automation Holdings, Inc. The Company’s common stock and public warrants are listed on Nasdaq and trade under the ticker symbols “TMPO” and “TMPO.W,” respectively.
The Merger has been accounted for as a reverse recapitalization in accordance with U.S. GAAP. Under the guidance in ASC 805, Business Combinations, ACE, who is the legal acquirer, has been treated as the “acquired” company for financial reporting purposes and Tempo has been treated as the accounting acquirer. This determination was primarily based on Tempo having a majority of the voting power of the post-combination company, Tempo’s senior management comprising substantially all of the senior management of the post-combination company, the relative size of Tempo compared to ACE, and Tempo’s operations comprising the ongoing operations of the post-combination company. Accordingly, for accounting purposes, the Merger has been treated as the equivalent of a capital transaction in which Tempo is issuing stock for the net assets of ACE. The net assets of ACE have been stated at historical cost, with no goodwill or other intangible assets recorded. Operations prior to the Merger are those of Tempo, as Tempo is considered the predecessor for financial reporting purposes.
Public Company Costs
Subsequent to the Business Combination, Tempo Automation Holdings, Inc. is an SEC-registered and Nasdaq-listed company. Accordingly, we have hired and expect to hire additional staff and implement new processes and procedures to address public company requirements. We also expect to incur substantial additional expenses for, among other things, directors’ and officers’ liability insurance, director fees, and additional internal and external costs for investor relations, accounting, audit, legal and other functions.
Key Financial Definitions/Components of Results of Operations
Revenue
Tempo generates revenue by manufacturing electronics in the form of PCBAs. It produces prototype and on-demand production PCBAs for customers who have urgent, high complexity projects. Our contracts typically consist of a single performance obligation of completed PCBA and hence, the contract price per the purchase order is deemed to be reflective of the standalone selling price. Revenue is recognized over time using the cost input method. Over time recognition was applied as products represent assets with no alternative use and the contracts include an enforceable right to payment for work completed to date.
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Our customer base consists primarily of leading innovators in space, semiconductor, aviation & defense, medical device, and industrial & e-commerce industries. We enter into a purchase order with each customer and ensure that the purchase orders are executed by all parties. Payment terms and conditions vary by contract type, although terms generally include a requirement of payment within 30 to 60 days from the date when the performance obligation has been satisfied and include no general rights of return.
Cost of revenue
Cost of revenue primarily includes direct materials, direct labor, stock-based compensation expenses and manufacturing overhead incurred for revenue-producing units shipped. Cost of revenue also includes associated warranty costs, shipping and handling, and other miscellaneous costs.
Operating Expenses
Research and development expense
Research and development costs are expensed as incurred and consist primarily of personnel and related costs for product development activities, including stock-based compensation expenses. Research and development costs also include professional fees payable to third parties, license and subscription fees for development tools, and manufacturing-related costs associated with product development.
Sales and marketing expense
Sales and marketing expenses consist of personnel and related expenses for our employees working in sales and marketing and business development departments including salaries, bonuses, payroll taxes, and stock-based compensation. Also included are non-personnel costs such as marketing activities, professional and other consulting fees.
General and administrative expense
General and administrative expenses consist primarily of personnel and related expenses for our employees, in our finance and administrative teams including salaries, bonuses, payroll taxes, and stock-based compensation. It also consists of legal, consulting, and professional fees, rent expenses pertaining to our offices, business insurance costs and other costs, including fees related to the Merger and all corresponding activities. Post-Merger, we have and will continue to incur additional audit, tax, accounting, legal, investor relation, insurance and other costs related to the Company’s ongoing compliance with applicable securities and other regulations associated with being a public company.
Impairment loss
We abandoned a section of our operating lease for the remainder of the lease term and have no intention of subleasing the space. We concluded that the abandoned section of our ROU asset was not recoverable and recognized an impairment charge within impairment loss in the condensed statements of operations.
Impacts Related to the COVID-19 Pandemic
In March 2020, the World Health Organization declared the outbreak of COVID-19 to be a global pandemic and recommended containment and mitigation measures worldwide. In response, government authorities have issued an evolving set of mandates, including requirements to shelter-in-place, curtail business operations, restrict travel, and avoid physical interaction. These mandates and the continued spread of COVID-19 have disrupted normal business activities in many segments of the global economy, resulting in weakened economic conditions. More recently, government mandates have been lifted by certain public authorities and economic conditions have improved in certain sectors of the economy relative to early in the second quarter of 2020. Certain regions of the world have experienced increasing numbers of COVID-19 cases, however, and if this continues and if public authorities intensify efforts to contain the spread of COVID-19, normal business activity may be further disrupted and economic conditions could weaken.
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Our ability to continue to operate without any significant negative impacts will in part depend on our ability to protect our employees and our supply chain. We have endeavored to follow actions recommended by governments and health authorities to protect our employees. We have been able to broadly maintain our operations, and we intend to continue to work with our stakeholders (including customers, employees, suppliers, and local communities) to responsibly address this global pandemic. The Company’s operations expose it to the COVID-19 pandemic, which has had and may continue to have an adverse impact on Tempo’s employees, operations, supply chain and distribution system. However, uncertainty resulting from the global pandemic could result in unforeseen disruptions that could impact our operations going forward.
If our suppliers experience additional closures or reductions in their capacity utilization levels in the future, we may have difficulty sourcing materials necessary to fulfill production requirement. Due to the COVID-19 pandemic, Tempo has experienced some supply chain constraints, including with respect to semiconductor components, and has responded by ordering larger quantities of these components to ensure an adequate supply. COVID-19 has also impacted our customers and may create unpredictable reductions or increases in demand for Tempo’s manufacturing services. We have also not observed any material impairments of our assets or a significant change in the fair value of assets due to the COVID-19 pandemic.
For additional information on risk factors that could impact our results, please refer to the section titled “Risk Factors.”
Critical Accounting Policies and Estimates
The preparation of consolidated financial statements in conformity with GAAP requires Tempo’s management to make estimates and assumptions that affect the reported amount of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses during the reported periods. The more critical accounting estimates include estimates related to revenue recognition, stock-based compensation, fair value measurements, warrant liabilities and earnout liabilities. Tempo also has other key accounting policies, which involve the use of estimates, judgments and assumptions that are significant to understanding its results, which are described in Note 2 to Tempo’s annual consolidated financial statements as of and for the years ended December 31, 2022 and 2021, appearing elsewhere in this prospectus.
Revenue Recognition
In accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”), we recognize revenue over the contract period as services are being performed and as the related asset is being created. The amount of revenue recognized reflects the consideration to which we expect to be entitled to receive in exchange for these services using the five-step method required by ASC 606:
(1)
Identify the contract with a customer:
A contract with a customer exists when (i) we enter into an enforceable contract with a customer that defines each party’s rights regarding the products and services to be transferred and identifies the payment terms related to these products and services, (ii) the contract has commercial substance, and (iii) we determine that collection of substantially all consideration for products and services that are transferred is probable based on the customer’s intent and ability to pay the promised consideration. We enter into a purchase order with each customer and ensure the purchase order is executed by all parties. Payment terms and conditions vary by contract type, although terms generally include a requirement of payment within 30 to 60 days from the date when the performance obligation has been satisfied and include no general rights of return.
(2)
Identify the performance obligations in the contract:
Performance obligations promised in a contract are identified based on the products and services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the products and services either on its own or together with other resources that are readily available from third parties or from us, and are distinct in the context of the contract, whereby the transfer of the products and services is separately identifiable from other promises in the contract. Our contracts typically consist of a single performance obligation for completed PCBAs.
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As part of the term and conditions of the customer contract, we generally offer a warranty for a period of thirty days from the date of the shipment. This type of warranty provides the customers with assurance that the assembled product complies with any agreed upon workmanship specifications. Therefore, as the warranty cannot be purchased separately and only provides assurance that the product complies with agreed-upon specifications, the warranty is not considered a separate performance obligation.
(3)
Determine the transaction price:
The transaction price is determined based on the consideration to which we will be entitled in exchange for transferring products and services to the customer. The transaction price consists of fixed consideration as noted in each purchase order. In instances where the timing of revenue recognition differs from the timing of invoicing, we have determined that contracts do not include a significant financing component.
We elected a practical expedient available under ASC 606 which permits us to not adjust the amount of consideration for the effects of a significant financing component if, at contract inception, the expected period between the transfer of promised goods or services and customer payment is one year or less.
(4)
Allocate the transaction price to performance obligations in the contract:
If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Each purchase order contains only one performance obligation and hence, the contract price per the purchase order is deemed to be reflective of the standalone selling price and the entire transaction price is allocated to the single performance obligation. All manufactured products are highly customized, and therefore, priced independently.
(5)
Recognize revenue when or as the company satisfies a performance obligation:
For each performance obligation identified, we determine at contract inception whether the performance obligation is satisfied over time or at a point in time. The transfer of control for our products qualify for over time revenue recognition because the products represent assets with no alternative use and the contracts include an enforceable right to payment for work completed to date. We have selected a cost incurred input method of measuring progress to recognize revenue over time, based on the status of work performed. The cost input method is representative of the value provided to the customer as it represents our performance completed to date. We typically satisfy our performance obligations in one month or less. We have elected to treat shipping and handling activities as fulfillment costs and also elected to record revenue net of sales and other similar taxes.
Stock-Based Compensation
Accounting for stock-based compensation requires us to make a number of judgments, estimates and assumptions. If any of our estimates prove to be inaccurate, our net loss and operating results could be adversely affected.
We estimate the fair value of stock options granted to employees and directors using the Black-Scholes option-pricing model, which requires the input of subjective assumptions, including (1) the expected stock price volatility, (2) the expected term of the award, (3) the risk-free interest rate and (4) expected dividends and (5) the fair value of our common stock. These assumptions are estimated as follows:
•
Volatility. Since the Company does not have a trading history of its common stock, the expected volatility was derived from the average historical stock volatilities of several public companies within the Company’s industry that its considers to be comparable to its business over a period equivalent to the expected term of the stock option grants.
•
Expected term. The expected term represents the period that the Company’s stock-based awards are expected to be outstanding and primarily calculated as the average of the option vesting and contractual terms, based on the simplified method. The simplified method deems the term to be the average of the time-to-vesting and the contractual life of the options.
•
Risk-free rate. The Company bases the risk-free interest rate on the implied yield available on U.S. Treasury zero-coupon issues with remaining term equivalent to expected term.
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•
Expected dividend yield. The Company has not issued any dividends in its history and does not expect to issue dividends over the life of the options and, therefore, has estimated the dividend yield to be zero.
•
Fair value of common stock. Prior to the Merger, the fair value of the shares of common stock underlying the stock-based awards was determined by the board of directors, with input from management, and 409A valuations. Subsequent to the Merger, the fair value of the shares of common stock is determined based on the closing price of common stock on the transaction date.
Fair Value Measurements
Our financial instruments include cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities, certain term loans, loan and security borrowings, warrant liabilities, and earnout liabilities. We have determined the carrying value of cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities, certain term loans and, certain loan and security borrowings approximates the fair value due to their short maturities.
We have classified the warrant liabilities as Level 2 financial instruments.
We have classified certain term loans and the earnout liabilities as Level 3 financial instruments.
Warrant Liability
Liability classified warrants are subject to re-measurement at each balance sheet date, and any change in fair value is recognized in the change in fair value of warrants in the statements of operations. We estimate the fair value of these liabilities using the Black-Scholes option pricing model. As further discussed in Stock-Based Compensation above, assumptions used are based on the individual characteristics of the warrants on each valuation date, including contemplating changes in the value of the shares underlying such warrants.
Earnout Liability
Liability classified equity awards are subject to re-measurement at each balance sheet date, and any change in fair value is recognized in the change in fair value of earnout liabilities in the statements of operations. We estimate the fair value of these liabilities using a Monte Carlo valuation model. Assumptions used are based on the individual characteristics of the earnout liability on each valuation date, and include volatility, discount rate and time incurred to meet the minimum volume-weighted average price.
Recent accounting pronouncements
A discussion of recently issued accounting standards applicable to Tempo is described in Note 2, Significant Accounting Policies, in the Notes to the Financial Statements contained elsewhere in this prospectus.
Results of Operations
Year ended December 31, 2022 compared to year ended December 31, 2021
The following table sets forth Tempo’s consolidated statements of operations data for the year ended December 31, 2022 and Legacy Tempo’s statements of operations data for the year ended December 31, 2021. We have derived this data from our audited annual financial statements included elsewhere in this prospectus. This information should be read in conjunction with our audited annual financial statements and related notes included elsewhere in this Report. The results of historical periods are not necessarily indicative of the results of operations for any future period.
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| | | |
Year Ended
December 31, |
| |
$ Change
|
| |
% Change
|
| |||||||||||||||
|
(In thousands)
|
| |
2022
|
| |
2021
|
| ||||||||||||||||||
| Consolidated Statement of Operations: | | | | | | | | | | | | | | | | | | | | | | | | | |
|
Revenue
|
| | | $ | 12,049 | | | | | $ | 17,361 | | | | | $ | (5,312) | | | | | | (31)% | | |
|
Cost of revenue
|
| | | | 10,736 | | | | | | 14,578 | | | | | | (3,842) | | | | | | (26)% | | |
|
Gross profit
|
| | | | 1,313 | | | | | | 2,783 | | | | | | (1,470) | | | | | | (53)% | | |
| Operating expenses | | | | | | | | | | | | | | | | | | | | | | | | | |
|
Research and development
|
| | | | 10,803 | | | | | | 9,904 | | | | | | 899 | | | | | | 9% | | |
|
Sales and marketing
|
| | | | 8,265 | | | | | | 9,817 | | | | | | (1,552) | | | | | | (16)% | | |
|
General and administrative
|
| | | | 29,487 | | | | | | 16,376 | | | | | | 13,111 | | | | | | 80% | | |
|
Impairment loss
|
| | | | 297 | | | | | | — | | | | | | 297 | | | | | | N.M. | | |
|
Total operating expenses
|
| | | | 48,852 | | | | | | 36,097 | | | | | | 12,755 | | | | | | 35% | | |
|
Loss from operations
|
| | | | (47,539) | | | | | | (33,314) | | | | | | (14,225) | | | | | | 43% | | |
| Other income (expense), net | | | | | | | | | | | | | | | | | | | | | | | | | |
|
Interest expense
|
| | | | (8,095) | | | | | | (3,686) | | | | | | (4,409) | | | | | | 120% | | |
|
Other financing cost
|
| | | | (30,793) | | | | | | (8,955) | | | | | | (21,838) | | | | | | 244% | | |
|
Interest income
|
| | | | 20 | | | | | | 3 | | | | | | 17 | | | | | | 567% | | |
|
Loss on debt extinguishment
|
| | | | (52,276) | | | | | | (319) | | | | | | (51,957) | | | | | | N.M. | | |
|
Other income (expense)
|
| | | | (4) | | | | | | 2,500 | | | | | | (2,504) | | | | | | (100)% | | |
|
Change in fair value of warrant and derivatives
|
| | | | 453 | | | | | | (4,242) | | | | | | 4,695 | | | | | | (111)% | | |
|
Change in fair value of debt
|
| | | | (10,766) | | | | | | — | | | | | | (10,766) | | | | | | N.M. | | |
|
Change in fair value of earnout liabilities
|
| | | | 4,149 | | | | | | — | | | | | | 4,149 | | | | | | N.M. | | |
|
Total other income (expense), net
|
| | | | (97,312) | | | | | | (14,699) | | | | | | (82,613) | | | | | | 562% | | |
|
Loss before income taxes
|
| | | | (144,851) | | | | | | (48,013) | | | | | | (96,838) | | | | | | 202% | | |
|
Income tax provision
|
| | | | — | | | | | | — | | | | | | — | | | | | | N.M. | | |
|
Net loss
|
| | | $ | (144,851) | | | | | $ | (48,013) | | | | | $ | (96,838) | | | | | | 202% | | |
N.M. — Percentage change not meaningful
Revenue
Revenue for the year ended December 31, 2022 was $12.0 million, as compared to $17.4 million for the same period in 2021. The year-over-year decrease of $5.3 million, or 31%, was primarily due to global electronic component supply shortages, which lengthened the time between the booking of orders and the recognition of revenue, the end of the new product introduction (“NPI”) portion of the product development lifecycle of a significant customer program, and workforce reductions and furloughs in response to delays in closing the Business Combination and related financing transactions.
Cost of revenue and gross profit
Cost of revenue for the year ended December 31, 2022 was $10.7 million, as compared to $14.6 million for the same period in 2021. The decrease of $3.8 million, or 26%, in cost of revenue for the year ended December 31, 2022 as compared to the same period in 2021 was primarily driven by a decrease in sales which was partially offset by an increase in direct material costs on account of the global electronic component supply shortage during the year ended December 31, 2022.
Our gross profits for the year ended December 31, 2022 decreased by $1.5 million, or 53%, as compared to the year ended December 31, 2021. The gross profit percentage decreased from 16.0% for the year ended December 31, 2021 to 10.9% for the year ended December 31, 2022, primarily due to reduced sales volumes
52
and an increase in direct material costs, both on account of the global semiconductor supply shortage during the year ended December 31, 2022.
Research and development expenses
Research and development expenses for the year ended December 31, 2022 increased by $0.9 million, or 9%, compared to the same period in 2021. The increase in research and development expenses is primarily attributable to a $1.1 million increase in stock-based compensation expense, and a $0.1 million increase in software licenses and subscriptions partially offset by a $0.5 million decrease in employee compensation and benefits driven by an average decrease of 19% in headcount.
Sales and marketing expenses
Sales and marketing expenses for the year ended December 31, 2022 decreased by $1.6 million, or 16%, compared to the same period in 2021. The decrease in sales and marketing expenses is primarily attributable to a $0.8 million decrease in employee compensation and benefits driven by an average decrease of 10% in headcount, and a $0.7 million decrease in consulting and professional services.
General and administrative expenses
General and administrative expenses for the year ended December 31, 2022 increased by $13.1 million, or 80%, compared to the same period in 2021. The increase in general and administrative expenses is primarily attributable to a $7.4 million increase in stock-based compensation expense related to vesting of performance options and issuance of performance restricted stock units and a $7.0 million increase in legal and other professional service fees related to merger and acquisition activities. The increase was partially offset by a $0.7 million decrease in recruiting related expenses and a $0.5 million decrease in employee compensation and benefits driven by an average decrease of 14% in headcount.
Impairment loss
The Company abandoned a section of their leased office space and accordingly, determined that a portion of the ROU asset which was not recoverable and recognized an impairment charge of $0.1 million to the right of use asset, and a $0.2 million impairment charge to leasehold improvements.
Interest expense
Interest expense for the year ended December 31, 2022 increased by $4.4 million, or 120%, as compared to the year ended December 31, 2021 primarily due to the additional $10.0 million term loan and $10.6 million convertible debt entered into during the year ended December 31, 2022, as compared to the equipment loan and term loan outstanding during the year ended December 31, 2021. Refer to Note 5 and Note 6 of the consolidated financial statements for more information.
Other financing cost
Other financing cost for the year ended December 31, 2022 was primarily related to issuance of 18,262,167 warrants to existing investors prior to the closing of the Merger. The warrants were measured at fair value on the issuance, which was $27.5 million. Additionally, $3.2 million was recognized as other financing cost which related to the upfront costs associated with convertible debt received.
Interest income
Interest income for the year ended December 31, 2022 as compared to the year ended December 31, 2021 was not material.
Loss on debt extinguishment
Loss on debt extinguishment for the year ended December 31, 2022 was related to the modifications of our loan and security agreements, convertible promissory notes, and bridge notes which were accounted for as an extinguishment of debt. Accordingly, the Company recorded a loss on debt extinguishment of
53
$38.9 million. Additionally, upon the closing of the Merger, our loan and security agreement was amended to decrease the outstanding borrowing and borrowing capacity, which was also accounted for as an extinguishment of debt, and the Company recorded an additional $13.4 million as a loss on debt extinguishment.
Other income (expense)
Other income (expense) decreased by $2.5 million, or 100%, during the year ended December 31, 2022 as compared to the year ended December 31, 2021, primarily related to the gain on PPP loan forgiveness in August 2021.
Fair value of warrant and derivative liabilities
Fair value of warrant and derivative liabilities increased by $4.7 million during the year ended December 31, 2022 as compared to the year ended December 31, 2021. During the year ended December 31, 2022 the Company recognized a $0.5 million net gain on the decrease in the fair value of liability-classified warrants outstanding during the year, including a final remeasurement of such warrants that occurred upon the net exercise of Legacy Tempo warrants on the Merger date. During the year ended December 31, 2021, the Company recorded a $4.2 million loss on fair value relating to the liability-classified warrants outstanding during the year ended December 31, 2021.
Fair value of debt
The Company accounts for certain convertible notes outstanding during the year ended December 31, 2022, under the fair value option and throughout the year through the date of the Merger, when such notes converted to common stock, the Company recognized remeasurement losses of $10.7 million. Effective from the date of the Merger, the Company accounts for borrowings under the amended and restated loan and security agreement under the fair value option, which resulted in a remeasurement loss of $0.1 million from the date of the Merger through December 31, 2022.
Fair value of earnout liabilities
Fair value of earnout liabilities decreased by $4.1 million during the year ended December 31, 2022. The decrease was related to decline in the fair value of the earnout liability to Legacy Tempo shareholders from the Merger date to December 31, 2022 in the amount of $4.9 million. The decrease was offset by a $0.8 million increase in a contingent obligation to issue additional shares of common stock to PIPE investors in certain instances upon declines in the market of the common stock following the closing of the Business Combination.
Net loss
As a result of the factors discussed above, our net loss for the year ended December 31, 2022 was $144.9 million, an increase of $96.9 million, or 202%, as compared to $48.0 million for the year ended December 31, 2021.
Liquidity, Capital Resources and Going Concern
Tempo’s primary sources of liquidity is cash provided by common and preferred equity offerings, and cash provided by borrowings from various debt issuances. Since inception, the Company has used its resources principally on product development efforts, including the development of Tempo’s software platform, growing our business, and making necessary investments in building Tempo’s factory in San Francisco. As of December 31, 2022, Tempo had an accumulated deficit of $253.2 million, $7.1 million in cash and cash equivalents, $0.3 million of restricted cash and a working capital deficiency of $31.1 million. During the year ended December 31, 2022, the Company used net cash of $28.8 million in operating activities and incurred a net loss of $144.9 million. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.
While we received cash of $18.7 million from the completion of the Merger, additional capital infusion will be necessary in order to fund planned operations while meeting obligations as they come due. This
54
additional funding may be debt or equity financing, including the sale of shares of Common Stock to White Lion pursuant to the Purchase Agreement, subject to the terms and conditions therein. Although the Purchase Agreement provides that we may, in our discretion, from time to time and during the term of the Purchase Agreement, direct White Lion to purchase our shares of Common Stock from us in one or more purchases under the Purchase Agreement for a maximum aggregate purchase price of up to $100.0 million, only 5,276,018 shares of Common Stock, representing the Exchange Cap. Additionally, we are not required or permitted to issue any shares of Common Stock under the Purchase Agreement if such issuance would breach our obligations under the rules or regulations of Nasdaq. Further, White Lion will not be required to purchase any shares of our Common Stock if such sale would result in White Lion’s beneficial ownership exceeding 4.99% of our outstanding shares of Common Stock. Our inability to access a part or all of the amount available under the White Lion Purchase Agreement, in the absence of any other financing sources, could have a material adverse effect on our business. The Company will continue to evaluate other sources of funding.
In order to fund planned operations while meeting obligations as they become due, the Company will require additional funding from either public or private financing sources. Failure to secure additional funding, as well as consent and forbearance from our existing lenders, may require the Company to modify, delay, or abandon some of its planned future expansion or development, or to otherwise enact operating cost reductions available to management, which could have a material adverse effect on the Company’s business, operating results, financial condition, and ability to achieve its intended business objectives. As such, there is substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued.
Debt Financings
Term Loan and Credit Facility with Financial Institution
To finance its operations, Legacy Tempo entered into a series of terms loans with a certain lenders.
In June 2020, Legacy Tempo entered into a Loan and Security Agreement (the “LSA”) with Silicon Valley Bank. On October 14, 2021, the Company paid $10.3 million to settle the credit facility under the LSA with Silicon Valley Bank, including $0.3 million of interest and final payment.
Equipment Loan and Security Agreement
On January 29, 2021, Legacy Tempo entered into an equipment loan and security agreement with SQN Venture Income Fund II, LP. The overall loan facility provides for a maximum borrowing capacity of $6.0 million consisting of two tranches, each with a borrowing capacity up to $3.0 million.
On January 29, 2021, Legacy Tempo drew down $3.0 million of the facility. Tempo is required to make monthly payments for a period of 42 months on this tranche. The loan has a maturity date of July 2024. An additional $3.0 million can be drawn by Tempo, provided that certain criteria are met, such as Tempo not having defaulted on the Tranche I Loan and there having not been a material adverse change (as defined in the Loan and Security Agreement) as of the date for the borrowing request. The loan facility is used for financing certain equipment purchases.
Paycheck Protection Program Loan
In May 2020, Legacy Tempo was granted a loan under the Paycheck Protection Program (“PPP”) offered by the Small Business Administration (“SBA”) under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), section 7(a)(36) of the Small Business Act for $2.5 million. Monthly payments of principal and interest of approximately $0.1 million began in December 2020, subject to deferral as Legacy Tempo applied for debt forgiveness, and continue through maturity in May 2022, if required.
Legacy Tempo applied for forgiveness of the PPP loan and was notified that the entire $2.5 million PPP loan was forgiven in August 2021. Loan forgiveness is reflected in other income and expense section in the statement of operations.
55
August 2022 Bridge Notes
On August 25, 2022, Legacy Tempo entered into a note purchase agreement with the Initial Bridge Investors under the Loan and Security Agreement pursuant to which Legacy Tempo agreed to issue up to $5.0 million in aggregate principal amount of convertible promissory notes (the “August 2022 Bridge Notes”), to the Initial Bridge Investors for aggregate cash proceeds of approximately $1.4 million and the cancellation of approximately $3.6 million of outstanding amounts owed under the Loan and Security Agreement.
The August 2022 Bridge Notes initially bear interest at a rate of 10% per annum. The August 2022 Bridge Notes will mature, and all outstanding principal and accrued but unpaid interest thereunder will be due and payable by Tempo, on the earlier of August 25, 2023 and the time at which such outstanding amount becomes due and payable upon an event of default under the August 2022 Bridge Notes. Unless an event of default has occurred and is continuing at such time, upon the closing of the Business Combination, the consummation of another SPAC transaction, the consummation of a qualified financing or the consummation of an initial public offering or direct listing, all outstanding amounts under the August 2022 Bridge Notes, together with all accrued and unpaid interest thereon, as of such time will automatically convert in full into a number of shares of (i) Tempo common stock or (ii) Tempo preferred stock having terms equivalent to the terms of Tempo’s most senior preferred stock, in each case in accordance with the terms of the August 2022 Bridge Notes, such that the value of the securities received by the holder of any August 2022 Bridge Note will equal the product of (x) the aggregate principal amount, together with any accrued but unpaid interest, outstanding under such August 2022 Bridge Note as of the time of such conversion multiplied by (y) four. If an event of default has occurred and is continuing at such time, then upon the closing of the Business Combination, the consummation of a business combination transaction with another special purpose acquisition company, the consummation of a qualified financing, the consummation of an initial public offering or direct listing or the consummation of any Change of Control, the August 2022 Bridge Notes will only be converted as set forth above if the holder of such note provides its written consent to such conversion. Upon the consummation of any change of control prior to the conversion of the August 2022 Bridge Notes, Tempo will pay to the holder of such August 2022 Bridge Note, upon the closing of such change of control and in full satisfaction of the applicable August 2022 Bridge Note, a cash amount equal to the sum of (i) the product of (a) the outstanding principal balance under the applicable August 2022 Bridge Note multiplied by (b) four, plus (ii) accrued and unpaid interest.
On August 25, 2022, as a condition to closing the issuance and sale of the August 2022 Bridge Notes, Tempo:
•
amended and restated the 2022 Promissory Notes on substantially similar terms to the August 2022 Bridge Notes;
•
entered into an amended and restated warrant with existing investors, which amended and restated that certain Warrant to Purchase Shares of Common Stock, dated as of October 11, 2021, to, among other things, provide for the automatic conversion, with an amended exercise price of zero, of such warrant into shares of Tempo common stock upon the consummation of the Business Combination, a business combination or similar transaction with another special purpose acquisition company, the consummation of a qualified financing or the consummation of an initial public offering or direct listing; and
•
adopted that certain Amended and Restated Fifth Amended and Restated Certificate of Incorporation of Tempo, to, among other things, (i) increase the authorized capital of Tempo for purposes of reserving for issuance an adequate number of shares of Tempo common stock and Tempo preferred stock for issuance upon conversion of the August 2022 Bridge Notes; and (ii) create a new series of Tempo preferred stock designated as “Series C-3 Preferred Stock” and establish the rights, preferences and privileges of such series of Tempo preferred stock for purposes of issuing shares of such series of Tempo preferred stock upon conversion of the August 2022 Bridge Notes. Unless an event of default has occurred and is continuing at such time, upon the closing of the Business Combination, the consummation of another SPAC transaction, the consummation of a qualified financing or the consummation of an initial public offering or direct listing, all outstanding amounts under the August 2022 Bridge Notes, together with all accrued and unpaid interest thereon as of such time will automatically convert in full into a number of shares of (i) Tempo common stock or (ii) Tempo preferred stock having terms equivalent to the terms of Tempo’s most senior preferred stock, in each
56
case in accordance with the terms of the August 2022 Bridge Notes, such that the value of the securities received by the holder of any August 2022 Bridge Note will equal the product of (x) the aggregate principal amount, together with any accrued but unpaid interest, outstanding under such August 2022 Bridge Note as of the time of such conversion multiplied by (y) four. If an event of default has occurred and is continuing at such time, then upon the closing of the Business Combination, the consummation of a business combination transaction with another special purpose acquisition company, the consummation of a qualified financing, the consummation of an initial public offering or direct listing or the consummation of any Change of Control, the August 2022 Bridge Notes will only be converted as set forth above if the holder of such note provides its written consent to such conversion. Upon the consummation of any change of control prior to the conversion of the August 2022 Bridge Notes, Tempo will pay to the holder of such August 2022 Bridge Note, upon the closing of such change of control and in full satisfaction of the applicable August 2022 Bridge Note, a cash amount equal to the sum of (i) the product of (a) the outstanding principal balance under the applicable August 2022 Bridge Note multiplied by (b) four, plus (ii) accrued and unpaid interest.
November 2022 Amended and Restated LSA
On November 22, 2022, in connection with the closing of the Merger, the Company entered into that the A&R LSA, by and among, the Company, as borrower and the lenders party thereto (the “Lenders”), pursuant to which the Lenders committed to lend the Company up to $20.0 million in term loan financing (the “A&R LSA Facility” or the “Credit Facility”). The A&R LSA amended and restated in its entirety the LSA, by and among the Company and the lenders party thereto. The A&R LSA Facility matures on December 1, 2025.
On November 22, 2022, pursuant to terms of the A&R LSA, the Company repaid a portion of the outstanding balance under the LSA to the Lenders in a cash amount equal to $3.0 million, and $0.4 million in lender fees. Additionally, the Lenders entered into the Lender Subscription Agreements pursuant to which a portion of the outstanding balance under the LSA in an amount equal to $7.0 million was converted into 700,000 shares of common stock at a conversion rate of $10.00 per share. As a result of the modification, tranches 2 through 4 of the original LSA were removed and are not available to be drawn under the new facility.
Convertible Promissory Notes
On January 18, 2022, Legacy Tempo issued convertible promissory notes to existing investors for gross proceeds of $5.0 million (the “2022 Promissory Notes”). The 2022 Promissory Notes bear simple interest on the unpaid principal at a rate of 10% per year and are due and payable by us on demand any time after November 15, 2022. The outstanding amount converted into securities of ACE upon the closing of the Business Combination.
The convertible promissory notes were advanced in contemplation of the Merger with ACE are expected to be considered part of the funding contemplated to consummate the Merger.
On July 1, 2022, ACE, Legacy Tempo and ACE Equity Partners International Pte. Ltd. (“AEPI”) entered into an Unsecured Subordinated Convertible Note (the “Bridge Note”) due September 30, 2022, pursuant to which AEPI agreed to loan to Legacy Tempo up to an aggregate principal amount of $5,000,000, $2,500,000 of which was advanced to Legacy Tempo as of June 30, 2022. On August 25, 2022, in connection with the Bridge Financing, the Bridge Note was amended and restated on substantially similar terms to the August 2022 Bridge Notes.
Convertible Junior Notes
In March 2022, the Company and ACE entered into a Securities Purchase Agreement (the “ACE Securities Purchase Agreement”) with ACE SO3 SPC Limited (“ACE S03”), pursuant to which ACE SO3 agreed to purchase an unsecured subordinated convertible note in an aggregate principal amount of $20.0 million (the “ACE Convertible Note”) from Tempo in connection with the Closing of the Business Combination. The ACE Convertible Note would have borne interest at a rate of 18% per annum, payable in
57
kind by increasing the outstanding principal amount of the ACE Convertible Note. Upon the earlier to occur of the conversion or payment in full of the principal amount hereof and all accrued but unpaid interest hereunder and the maturity date, Tempo would have paid to the holder of the ACE Convertible an amount equal 5% of the initial principal amount thereof.
On July 1, 2022, ACE and ACE SO3 entered into a termination agreement, pursuant to which the ACE Securities Purchase Agreement was terminated in its entirety in accordance with its terms.
White Lion Stock Purchase Agreement
On November 21, 2022, ACE entered into the Purchase Agreement and a registration rights agreement with White Lion (the “White Lion Registration Rights Agreement”). Pursuant to the Purchase Agreement, the Company has the right, but not the obligation to require White Lion to purchase, from time to time, up to the lesser of (i) $100.0 million in aggregate gross purchase price of newly issued shares of Common Stock and (ii) the Exchange Cap, in each case, subject to certain limitations and conditions set forth in the Purchase Agreement.
Cash flows for the years ended December 31, 2022 and 2021
The following table summarizes Tempo’s cash flows from operating, investing, and financing activities for the year ended December 31, 2022 and Legacy Tempo’s cash flows from operating, investing, and financing activities for the year ended December 31, 2021:
| | | |
For the Year Ended December 31,
|
| |||||||||
|
(in thousands)
|
| |
2022
|
| |
2021
|
| ||||||
|
Net cash used in operating activities
|
| | | $ | (28,793) | | | | | $ | (30,228) | | |
|
Net cash used in investing activities
|
| | | | (34) | | | | | | (622) | | |
|
Net cash provided by financing activities
|
| | | | 33,076 | | | | | | 16,288 | | |
Cash flows from operating activities
For the year ended December 31, 2022, operating activities used $28.8 million in cash. The primary factors affecting our operating cash flows during this period were our net loss of $144.9 million, offset by our non-cash charges of $108.3 million primarily consisting of depreciation and amortization of $7.2 million, stock-based compensation of $11.3 million, noncash other financing cost of $30.8 million, impairment loss of $0.3 million, loss on debt extinguishment of $51.9 million, non-cash operating lease expense of $0.8 million, and $10.5 million of change in fair value of debt, which was offset by the change in fair value of warrants of $0.5 million and the change in fair value of earnout liabilities of $4.1 million. The cash provided from our changes in our operating assets and liabilities was $8.8 million, which was primarily due to a $0.3 million decrease in accounts receivable, a $1.0 million decrease in contract assets, a $4.1 million decrease in other non-current assets, a $1.7 million increase in accounts payable related to timing of payments, a $2.4 million increase in contract liabilities due to increase in prepayment received from customers, a $0.9 million increase in accrued liabilities due to legal and professional fees incurred related to merger and acquisition related activities and a $0.6 million increase in loans payable from relates parties, which was offset by a $1.7 million increase in inventory related to materials purchased for upcoming assembly orders, a $0.4 million increase in prepaid expenses and other current assets, and a $1.1 million decrease in operating lease liabilities.
For the year ended December 31, 2021, operating activities used $30.2 million in cash. The primary factors affecting our operating cash flows during this period were our net loss of $48.0 million, offset by our non-cash charges of $18.2 million primarily consisting of depreciation and amortization of $3.8 million, stock-based compensation of $2.5 million, noncash other financing cost of $9.0 million related to issuance of common stock warrants, loss on debt extinguishment of $0.3 million, non-cash operating lease expense of $0.8 million, change in fair value of warrants liabilities of $4.2 million, and bad debt expense of $0.1 million which was partially offset by forgiveness of PPP loan of $2.5 million. Cash flow from operations was also affected favorably by changes in our operating assets and liabilities of $4.9 million, which was primarily due to $1.1 million increase in accounts payable and $3.8 million increase in accrued liabilities due to legal and
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professional fees incurred related to merger and acquisition related activities. These amounts were partially offset by unfavorable effects on cash from operations due to changes in our operating assets and liabilities of $5.2 million which primarily consists of $0.3 million increase in accounts receivable due to large billings near the end of the period, increase of $0.7 million in inventory, $1.2 million increase in prepaids and other current assets, $1.8 million increase in other non-current assets, $1.0 million decrease in operating lease liabilities and $0.2 million decrease in other non-current liabilities.
Cash flows from investing activities
During the year ended December 31, 2022, cash used in investing activities was $34 thousand, which consisted solely of property and equipment purchases.
During the year ended December 31, 2021, cash used in investing activities was $0.6 million, which consisted solely of property and equipment and purchases.
Cash flows from financing activities
During the year ended December 31, 2022, cash provided by financing activities was $33.1 million, primarily from net proceeds from the issuance of debt of $20.6 million and net proceeds of $18.7 million from the Merger, partially offset by debt payments of $3.8 million, payments of deferred transaction costs of $1.3 million, principal payments made under finance lease of $1.1 million and debt issuance costs of $0.1 million.
During the year ended December 31, 2021, cash provided by financing activities was $16.3 million, primarily from net proceeds from the issuance of debt of $32.2 million, and $0.1 million proceeds from exercise of stock options, which was offset by debt repayment of $14.9 million, principal payments made under finance lease of $0.9 million, and payment of deferred transaction costs of $0.2 million.
Emerging Growth Company Status
Tempo is an EGC, as defined in the JOBS Act. The JOBS Act permits companies with EGC status to take advantage of an extended transition period to comply with new or revised accounting standards, delaying the adoption of these accounting standards until they would apply to private companies. Tempo intends to elect to use this extended transition period to enable us to comply with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date Tempo (i) is no longer an EGC or (ii) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. As a result, Tempo’s financial statements may not be comparable to companies that comply with the new or revised accounting standards as of public company effective dates.
In addition, Tempo intends to rely on the other exemptions and reduced reporting requirements provided by the JOBS Act. Subject to certain conditions set forth in the JOBS Act, if, as an EGC, Tempo relies on such exemptions, we are not required to, among other things: (i) provide an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act; (ii) provide all of the compensation disclosure that may be required of non-EGCs under the Dodd-Frank Wall Street Reform and Consumer Protection Act; (iii) comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis); and (iv) disclose certain executive compensation-related items such as the correlation between executive compensation and performance and comparisons of the Chief Executive Officer’s compensation to median employee compensation.
Tempo will remain an EGC under the JOBS Act until the earliest of (i) the last day of our first fiscal year following the fifth anniversary of the closing of ACE’s initial public offering, (ii) the last date of our fiscal year in which we have total annual gross revenue of at least $1.235 billion, (iii) the date on which we are deemed to be a “large accelerated filer” under the rules of the SEC with at least $700.0 million of outstanding securities held by non-affiliates or (iv) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the previous three-years.
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Quantitative and Qualitative Disclosures About Market Risk
Tempo’s operations expose Tempo to a variety of market risks. Tempo monitors and manages these financial exposures as an integral part of its overall risk management program.
Interest Rate Risk
Our exposure to market risk includes changes in interest rates that could affect the balance sheet, statement of operations, and the statement of cash flows. We are exposed to interest rate risk primarily on variable rate borrowings under the credit facility. There were $20.0 million of borrowings outstanding under debt facilities with variable or semi-variable interest rates as of December 31, 2022. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity, Capital Resources and Going Concern” and Note 5 — “Borrowing Arrangements” and Note 6 — “Borrowing Arrangements — Related Party” to the Consolidated Financial Statements as of December 31, 2022 and 2021 for additional information regarding our outstanding debt obligations.
Additionally, our cash and cash equivalents as of December 31, 2022 consisted of $7.1 million in bank deposits and money market funds. Such interest-earning instruments also carry a degree of interest rate risk. The goals of our investment policy are capital preservation, liquidity, safeguarding of capital and total return. We do not enter into investments for trading or speculative purposes and have not used any derivative financial instruments to manage our interest rate exposure. While we believe our cash and cash equivalents do not contain excessive risk, we cannot provide absolute assurance that in the future our investments will not be subject to adverse changes in market value.
As of December 31, 2022 and 2021, the impact of a hypothetical change of 10.0% in variable interest rates would not have a material effect on our Financial Statements. We do not currently engage in hedging transactions to manage our exposure to interest rate risk.
Concentrations of Credit Risk and Major Customers
Our customer base consists primarily of leading innovators in space, semiconductor, aviation and defense, medical device, as well as industrials and e-commerce. We do not require collateral on our accounts receivables.
As of December 31, 2022, one customer accounted for 61% of our accounts receivable. As of December 31, 2021, one customer accounted for 49% of our accounts receivable. No other customers accounted for more than 10% of our accounts receivable, net.
During the year ended December 31, 2022, two customers accounted for 21% and 20% of our total revenue, respectively. During the year ended December 31, 2021, one customer accounted for 46% of our total revenue. No other customers accounted for more than 10% of our total revenue.
Further, our accounts receivable is from companies within the various industries listed above and, as such, we are exposed to normal industry credit risks. We continually evaluate our reserves for potential credit losses and establish reserves for such losses.
Foreign Currency Exchange Risk
Our operations include activities in the United States. In addition, we contract with vendors that are located outside of the United States and certain invoices are denominated in foreign currencies. While our operating results are exposed to changes in foreign currency exchange rates between the U.S. dollar and various foreign currencies, there was no material impact on our results of operations for any periods presented herein.
Effects of Inflation
Inflation generally affects us by increasing our cost of labor and material costs. We do not believe that inflation and changing prices had a significant impact on our results of operations for any periods presented herein. While we are seeing, and expect to continue to see, inflation due to, among other things, the COVID-19 pandemic and other geopolitical and macroeconomic events, such as the ongoing military conflict between Ukraine and Russia and related sanctions, as of December 31, 2022, we do not expect anticipated changes in inflation to have a material effect on our business, financial condition or results of operations for future reporting periods other than general impacts on companies due to general economic and market conditions.
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BUSINESS
Company Overview
Tempo Automation Holdings, Inc. (the “Company”, or “Tempo”, “us,” “our” or “we”) is a leading software-accelerated electronics manufacturer that aims to transform the product development process for the world’s innovators. We believe that our proprietary software platform redefines the customer journey and accelerates time-to-market. Our profit, growth, and strong margins are unlocked by a differentiated customer experience and software-enabled efficiencies. We anticipate that our growth and data accrual will be accelerated via mergers and acquisitions (“M&As”) that will benefit from our technology in our highly fragmented industry.
Founded in 2013, Tempo is headquartered in San Francisco, California and serves more than 100 customers out of our single manufacturing facility.
We work with companies across industries, including space, semiconductor, aviation and defense, medical device, as well as industrials and e-commerce. Our customers include hardware engineers, engineering program managers, and procurement and supply chain personnel from businesses of a variety of sizes, ranging from Fortune 500 companies to start-ups. The electronics within their products are most often manufactured as Printed Circuit Board Assemblies (“PCBAs”). The PCBA manufacturing process typically takes two inputs: 1) electronic components, and 2) a printed circuit board (“PCB”), which is the substrate that the components are attached to and electrical connections that complete the circuit(s). The assembly process typically consists of attaching the electronic components to the PCB using solder paste, then curing the paste in an oven such that an electrical and mechanical bond is formed. Given the varied requirements of different products, customers typically will design different, custom PCBAs for each of their products.
During the initial phases of product development, up until a product is deemed production ready, customers generally prefer quick turnaround times and the highest quality from their vendors to ensure they are able to meet their timelines. Based on IPC’s 2012 – 2013, 2018, and 2019 Annual Reports and Forecasts for the North American Electronics Manufacturing Services (“EMS”) Industry, the estimated size of this electronics prototyping and on-demand production market in the United States is approximately $290 billion. Most of these electronics have historically been produced by small manufacturers who have been largely ignored by software and therefore struggle to consistently satisfy customer demands manually.
Tempo has developed a technology-enabled manufacturing platform to streamline this electronic product realization process, thereby helping our customers bring new products to market faster. We believe that our platform offers customer benefits that are highly desired by the market and not available from alternative solutions through our:
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Customer portal, which provides low-friction quoting, ordering, and data ingestion via a secure cloud-based interface. Our customer portal offers analysis, interpretation, and visual rendering of engineering, design, and supply chain data with minimal human involvement, which ultimately allows hardware engineers to reach a manufacturable design quickly and efficiently.
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Manufacturing support software, which is a continuous, bi-directional digital thread that connects our customers’ designs and data to our smart factory. It is extendable and manageable across multiple sites and locations.
Tempo’s software platform helps companies iterate faster. In the status quo, each of quoting, manufacturability review, procurement, setup, and manufacturing are manual processes. We estimate that, on average, these production process steps collectively take approximately 20 days when executed manually. By contrast, with Tempo’s automated approach, these processes could be completed in approximately five days.
Industry Background and Competition
We focus on the approximately $290B US electronics prototype and on-demand manufacturing industry
Whether a product launch consists of just a few units (what we call on-demand production; examples include satellites and hospital operating room capital equipment) or high quantity production runs on a
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regular schedule (what we call volume production; examples include the printed circuit boards within electric cars and laptop computers), the product development process is the same. In its February 2010 report, “Why Printed Circuit Board Design Matters to the Executive,” Aberdeen Group, LLC estimated that the average electronics product goes through 14 iterations before it gets to market. Each iteration typically requires a small number of PCBAs to be produced, i.e. 10 – 100 units, and that number often grows for later iterations. Eventually, the product is declared production-ready, and transitions to a production phase.
Based on the IPC’s 2012 – 2013, 2018, and 2019 Annual Reports and Forecasts for the North American EMS Industry, each year, companies spend an estimated $2.0 trillion on electronics manufacturing. Outside of the United States, prototype and on-demand production is estimated at $375 billion, while volume production is estimated at $1.3 trillion. The United States has the opposite mix: while only $60 billion is spent on volume production, there is approximately $290 billion spent on prototype and on-demand production, which is Tempo’s primary market.
The electronics prototype and on-demand production market has different dynamics than that of the volume production market. While volume production often has one design iteration parked on a production line for several months, a prototype and on-demand production line may see many iterations of a design in that same period. There are other unique attributes that typify manufacturing in a high mix/ low volume factory, including the practice that electronic component inventory is typically procured just-in-time and many change orders are typical for a given design iteration, both of which amplify the need for quick procurement and logistics management. While volume production is usually focused on minimizing cost, prototype and on-demand production are typically focused on minimizing time to market.
Many high-growth verticals require high-quality, increasingly complex electronics. According to the July 2020 report, “Space: Investing in the Final Frontier,” published by Morgan Stanley & Co. LLC, the space industry is set to grow from $350 billion to over $1.0 trillion by 2040. According to “McKinsey on Semiconductors,” published by McKinsey & Company, LLC in 2019, the semiconductor industry is expected to reach $362 billion by 2025, reflecting a compound annual growth rate of 7.2% from 2020 through 2025. The aviation and defense industry is expected to reach $850 billion by 2026 based on a compound annual growth rate of 9% from 2019 through 2026 according to the February 2021 research report, “Aircraft Manufacturing Market By Type (Gliders, Helicopters, Ultra-Light Aircraft, Passenger Aircraft, Unmanned Aerial Vehicle & Drones, and Airships), and By Application (Military & Defense, Civil, Commercial and Others): Global Industry Outlook, Market Size, Business Intelligence, Consumer Preferences, Statistical Surveys, Comprehensive Analysis, Historical Developments, Current Trends, and Forecasts, 2020 – 2026,” published by Facts & Factors Research. The medical device industry is expected to reach $600 billion by 2023 based on an anticipated compound annual growth rate of 6.1% from 2021 through 2023 according to the September 2021 research report, “Medical Devices Global Market Opportunities And Strategies To 2030: COVID-19 Impact and Recovery,” published by The Business Research Company. Additionally, according to the December 2020 study, “Industrial IoT (IIoT) Market by Component, Application (Robotics, Maintenance, Monitoring, Resource Optimization, Supply Chain, Management), Industry (Aerospace, Automotive, Energy, Healthcare, Manufacturing, Retail), and Region — Global Forecast to 2027” published by Meticulous Market Research Pvt. Ltd., the industrial and ecommerce industry is expected to reach $260 billion by 2027, reflecting a compound annual growth rate of 16.7% from 2020 through 2027.
The outsourced industry is currently underserved by a highly fragmented, low-tech supplier base
The outsourced electronics manufacturing market in the United States is currently served primarily by small businesses that are often owner-operated. Based on IPC’s 2019 Annual Report and Forecast for the North American EMS Industry, approximately 1,100, or 77%, of those companies have annual gross revenues of less than $50 million, 7% have annual gross revenues between $50 million and $500 million, and the remaining 16%, many of which are volume manufacturers who often refer out prototype and on-demand production business, have annual gross revenues of $500 million or more.
Tempo primarily competes against the 77% of companies in the initial group with annual gross revenues of less than $50 million. Tempo believes that these companies typically have an aging, expert workforce that is retiring, along with their manufacturing knowledge. Based on IPC’s October 2021 report,
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“The Current Sentiment of the Global Electronics Manufacturing Supply Chain,” approximately 80% of electronics manufacturing companies are finding it “somewhat” or “extremely” difficult to hire highly qualified workers.
The highly manual status quo slows the product development process. CAD and design files are sent through various methods, reviewed by humans, and produced labor-intensively. The disconnected processes are technologically underserved. The result is a process that is slow, arduous, opaque, unreliable, and of unpredictable quality.
Our Solutions and Technology
Software-accelerated electronics manufacturing: a digital thread from design to delivery
Tempo, by contrast, weaves a digital thread, from first touch to delivery. Patents underpin the algorithms that analyze the design, determine component availability, deliver an estimate, and set up the manufacturing line.
Tempo’s engagement process typically begins with customers uploading design files to our web-based customer portal. Our platform proceeds to capture and preserve the engineer’s design intent, provides a rapid estimate, and accepts their order with minimal human interaction.
Our platform also underpins the logistics required to execute electronics manufacturing. It facilitates ordering components via integrated interfaces with pre-qualified raw material vendors, and generates the files necessary to program the factory for assembly.
Tempo’s automated platform connects processes across disciplines, bridges gaps, and eliminates regrettable processing errors, setting Tempo apart from the manual processes typical of electronics manufacturing’s status quo.
The Tempo Visualizer
The Tempo Visualizer (the “Visualizer”) provides our customers with the analog of a print preview and spellcheck capability for electronics design. When a customer uploads their design data, the Visualizer creates a realistic, rendered image of what we intend to produce. We then overlay data from the digital thread onto this view. Through the Visualizer, we can surface which of the customer’s electronic components are difficult to stock and provide alternatives. Additionally, we can highlight details of manufacturing issues that came up and were resolved during production — not only for this iteration of the customer’s design, but for previous iterations as well.
Software-driven manufacturing and manufacturing-driven software
With our automated platform as a starting point, we are creating a self-driving factory, a factory run by the expertise of personnel, augmented by software and automation. With each incremental customer order, we collect more information on a broader range of parts and designs. All this data is fuel for machine learning, improving our models, and driving ever-improving results. That benefits not only our bottom line, but also delights our customers, resulting in increased orders.
Given that all our processes and data are run through a distributed cloud-based computing system, the experience, knowledge and skills from our factory based in San Francisco are fully portable and applicable to other facilities and any facilities to be acquired in the future. What we learn in one factory can be immediately shared with the rest. We have designed the Tempo platform to not just inform our factory, but to be scalable to transform our industry.
Our Competitive Strengths
We believe that we have a number of competitive strengths that will enable our market leadership to grow. Our competitive strengths include:
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Tech-enabled customer experience. We believe that manual processes are unable to compete with an automated platform that connects processes across disciplines, bridges gaps, and minimizes
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regrettable processing errors. We also believe that the speed, quality, and seamlessness that we deliver to our customers through our platform sets us apart from our competitors.
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Large and growing scale of data. With each successive interaction with our customer portal and each customer order we process, we collect more information on a broader range of parts and designs, which deepens the experience in the system.
All this data is fuel for machine learning, improving our models, and driving ever-improving results. We expect to increase the rate of our data accumulation through our M&A strategy.
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Foundational patents. Our patents cover key elements of digitizing the electronics manufacturing process from end-to-end.
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Visionary and experienced management team. Our management team has a track record of building strong technology businesses and successfully executing M&A strategies. We believe they are well-positioned to lead the company in the journey ahead.
Our Growth Strategies
Tempo’s growth strategy has two elements:
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Enhance our automated, intelligent process to benefit the customer experience. As we complete more estimates and take more orders, we accumulate more data. More data helps us deliver a better customer experience, which, in turn, drives more orders - a virtuous cycle. Further, additional orders yield additional gross profit, which we can use to accelerate our R&D investment in our software platform.
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Make disciplined inorganic investments. The $290 billion fragmented landscape is a target-rich environment for M&A that will benefit from our technology, with an estimated 34 M&A transactions completed in the North American electronics manufacturing services (which we refer to as PCBA) and PCB sectors in 2021 according to GP Ventures, Ltd as of January 2022. To execute this strategy, we plan to leverage our leadership team’s decades of acquisition and integration experience. We expect that our software platform will confer top-line and bottom-line benefits to the targets we acquire. In addition, we expect that future acquisitions will provide further fuel, in the form of data, for enhancing our platform.
Our Customers
Tempo serves more than 100 customers across the space, semiconductor, aviation and defense, medical device, and industrial and ecommerce industries. Tempo’s customers include six of the top ten space companies, two of the top ten semiconductor companies, six of the top ten aviation and defense companies, seven of the top ten medical device companies, and four of the top ten industrial and ecommerce companies by market capitalization. We have two customers that accounted for 21% and 20% of our revenues during the fiscal years 2022 and one customer which accounted for 46% of our total revenue in 2021.
Intellectual Property
Our ability to drive innovation in our business depends in part upon our ability to protect our core technology and IP. We attempt to protect our IP rights, both in the United States and abroad, through a combination of patent, trademark, copyright and trade secret laws, as well as nondisclosure and invention assignment agreements with our consultants and employees and through non-disclosure agreements with our vendors and business partners. Unpatented research, development, know-how and engineering skills make an important contribution to our business, but we pursue patent protection when we believe it is possible and consistent with our overall strategy for safeguarding IP.
As of December 31, 2022, we own three issued United States patents. Tempo’s patents and patent applications are directed to, among other things, the digitization of the electronics manufacturing process and its associated supply chain. In addition, we have four issued United States trademarks and three issued international trademarks.
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Employees
As of December 31, 2022, we had 74 employees located in the United States. None of our employees are represented by a labor union. We have not experienced any work stoppages and believe we maintain good relations with our employees.
Facilities
As of December 31, 2022, we lease space for our office and manufacturing operations in San Francisco, California. This facility consists of approximately 50,000 square feet under a lease that will expire in May of 2023. In February 2023, the Company entered into a three-month extension of the lease through August 2023 with respect to approximately 26,000 square feet.
Government Regulation
Our business activities are subject to various laws, rules, and regulations of the United States. Compliance with these laws, rules, and regulations has not had a material effect upon our capital expenditures, results of operations, or competitive position, and we do not currently anticipate material capital expenditures for environmental control facilities. Nevertheless, compliance with existing or future governmental regulations, including, but not limited to, those pertaining to international operations, export controls, business acquisitions, consumer and data protection, employee health and safety, and taxes, could have a material impact on our business in subsequent periods. Please see “Risk Factors” for a discussion of these potential impacts.
Legal Proceedings
We are and, from time to time, we may become involved in legal proceedings or be subject to claims arising in the ordinary course of our business. We are not presently a party to any other legal proceedings that, in the opinion of our management, if determined adversely to us, would individually or taken together have a material adverse effect on our business, operating results, financial condition, or cash flows.
Available Information
Our Internet address for our stockholders and other interested parties is www.tempoautomation.com. We make available, free of charge, through our website, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports, as soon as reasonably practicable after filing or furnishing such reports with the SEC. Also, the charters of our Audit Committee, Compensation Committee, and Nominating and Corporate Governance Committee, our Code of Ethics and Conduct, Corporate Governance Guidelines and stockholder communications are available through our website, and we also intend to disclose any amendments to our Code of Ethics and Conduct, or waivers to such code on behalf of our Chief Executive Officer or Chief Financial Officer, on our website. All of these corporate governance materials are available free of charge to any stockholder who provides a written request to the Company at 2460 Alameda Street San Francisco, CA 94103, Attention: Ryan Benton, Corporate Secretary. The contents of our website are not intended to be incorporated by reference into this Report or any other report or document we file and any reference to our website is intended to be an inactive textual reference only.
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MANAGEMENT
Management and Board of Directors
The following sets forth certain information, as of May 2, 2023, concerning the persons who serve as our executive officers and directors.
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Name
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Age
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Position
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| Executive Officers | | | | | | | |
| Joy Weiss | | |
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President, Chief Executive Officer and Director
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| Ryan Benton | | |
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Chief Financial Officer, Secretary and Director
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| Directors | | | | | | | |
| Behrooz Abdi | | |
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| | Director | |
| Matthew Granade | | |
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| | Director | |
| Omid Tahernia | | |
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| | Director | |
| Jacqueline Schneider | | |
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| | Director | |
Joy Weiss has been our President and Chief Executive Officer and a member of our board of directors since November 2022. Prior to that, Ms. Weiss served as Legacy Tempo’s President and Chief Executive Officer from September 2019 to November 2022 and as a member of Legacy Tempo’s board of directors from December 2015 to November 2022. Ms. Weiss was one of Legacy Tempo’s earliest investors and one of its first outside advisors. Prior to joining Legacy Tempo, she served as Vice President, Data Center and Vice President, Internet of Things (IoT) at Analog Devices, Inc. (“Analog Devices”), a leading global semiconductor manufacturer, from March 2017 to September 2019. From 2012 to March 2017, Ms. Weiss served as President of the Dust Networks division of Linear Technology, Inc. (“Linear”), which was acquired by Analog Devices in March 2017. From 2004 to 2011, Ms. Weiss served as President and Chief Executive Officer of Dust Networks, Inc., a pioneer in the field of wireless sensor networking, which was acquired by Linear in December 2011. Prior to joining Dust Networks, Inc., Ms. Weiss served as an Executive in Residence of Blueprint Ventures and as Chief Executive Officer of Inviso. She currently serves on the boards of Inkspace Imaging, a private medical technology company, and Playworks, a national non-profit, and she has previously served on the boards of several other private companies. Ms. Weiss holds a degree in Electrical Engineering from the Massachusetts Institute of Technology. We believe that Ms. Weiss is qualified to serve on the Board due to her deep knowledge of Tempo and her extensive industry and leadership experience.
Ryan Benton has been our Chief Financial Officer, Secretary and a member of our board of directors since November 2022. Prior to that, Mr. Benton served as Chief Financial Officer of Legacy Tempo from July 2020 to November 2022. He has also served as a member of ACE’s board of directors since July 2020 and as a Board Member of Revasum, Inc. (“Revasum”), a publicly listed semiconductor capital equipment company, since September 2018. Between September 2018 and July 2020, Mr. Benton served as Chief Financial Officer of Revasum. Prior to joining Revasum, from August 2017 to September 2018, Mr. Benton served as Senior Vice President and Chief Financial Officer for BrainChip Holdings Ltd., a publicly listed AI software and chip solution provider and developer of neuromorphic circuits. From 2012 to August 2017, Mr. Benton held various positions at Exar Corporation, a fabless semiconductor chip manufacturer (“Exar”), including as Senior Vice President and Chief Financial Officer from 2012 through 2016 and Chief Executive Officer and Executive Board Member from 2016 until the sale of Exar to Maxlinear, Inc. in May 2017. From 1993 to 2012, Mr. Benton worked at several technology companies. He started his career as an auditor at Arthur Andersen & Company in 1991. Mr. Benton received a B.A. of Business Administration in Accounting from the University of Texas at Austin and he passed the State of Texas Certified Public Accountancy exam. We believe Mr. Benton is qualified to serve on the Board due to his deep knowledge of Tempo, his industry expertise and his experience serving on the boards of other public companies.
Omid Tahernia has been a member of our board of directors since November 2022. Prior to that, Mr. Tahernia served as a member of ACE’s board of directors from July 2020 to November 2022. Mr. Tahernia is currently an Executive Vice President for Bridgewest Group, LLC (“Bridgewest”), a position
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he has held since September 2020. Mr. Tahernia has also served as the Chief Executive Officer of Endura Technologies, a portfolio company of Bridgewest, since January 2021. Mr. Tahernia is the founder of SERNAI Networks, Inc. (“Sernai”), a developer of high-speed communication and intelligence-based interconnect solutions. Mr. Tahernia has served as the Chief Executive Officer of Sernai since November 2018. Since 2016, Mr. Tahernia has acted as a business and strategy advisor to several technology start-ups engaged in the Commercial IoT, Enterprise Data Center, IPTV Service Provider, Digital Healthcare, Artificial Intelligence and Semiconductor industries. From 2012 to 2015, Mr. Tahernia served as the Chief Executive Officer of Ikanos Communications (Nasdaq: IKAN) (“Ikanos”), which was acquired by Qualcomm in 2015. Prior to joining Ikanos, Mr. Tahernia was President and Chief Executive Officer of Tilera Corporation from 2007 to 2011. Before this, Mr. Tahernia spent more than three years at Xilinx, Inc., most recently serving as Corporate Vice President & General Manager of the company’s Processing Solutions Group. Mr. Tahernia worked at Motorola from 1984 to 2004, with his most recent leadership role being Vice President and Director, Strategy and Business Development at Motorola Semiconductors. Mr. Tahernia received an M.S. in Electrical Engineering from Georgia Institute of Technology and a B.S. in Electrical Engineering from Virginia Tech. We believe Mr. Tahernia is qualified to serve on the Board due to his strong track record of leading companies, including public companies, and his industry experience.
Behrooz Abdi has been a member of our board of directors since November 2022. Prior to that, Mr. Abdi served as ACE’s Chief Executive Officer and the Chairman of ACE’s board of directors from July 2020 to November 2022. Mr. Abdi is currently a Strategic Advisor for the Sensor System Business Company of TDK Corporation, a multinational electronics company, a position he has held since April 2020. Prior to this, from 2012 to March 2020, he was President and Chief Executive Officer of InvenSense, Inc. (NYSE: INVN), a leading provider of sensors for smart phones, drones, wearables, smart homes and the automotive industry. Mr. Abdi currently serves as an advisor to InvenSense. He was previously Chief Executive Officer and President of a network processor company, RMI, from 2007 to 2009, and Executive Vice President of RMI’s acquirer, NetLogic Microsystems (Nasdaq: NETL), from 2009 to 2011. From 2004 until 2007, Mr. Abdi served as Senior Vice President and General Manager of QCT at Qualcomm, Inc. Prior to this, Mr. Abdi worked at Motorola Inc. for 18 years, from 1985 to 2003, where his last role was Vice President and General Manager in charge of the mobile radio frequency and mixed-signal integrated circuits product lines. Mr. Abdi received a bachelors’ degree in electrical engineering from Montana State University-Bozeman and a master’s degree in electrical engineering from the Georgia Institute of Technology. He also serves on the board of the Georgia Institute of Technology and the Montana State University Foundation, as well as the boards of several private companies. We believe that Mr. Abdi is qualified to serve on the Board due to his extensive industry and leadership experience, including serving on public company boards.
Jacqueline Schneider has been a member of our board of directors since November 2022. Prior to that, she served on Legacy Tempo’s board of directors from March 2021 to November 2022 and served as a consultant for Legacy Tempo on sales and marketing strategy from March 2020 through February 2021. Prior to serving as a member of Legacy Tempo’s board, she founded Northpointe Advisors, LLC, a company which offers consulting services to fast-growing technology companies, in November 2019, a venture in which she is still involved. From May 2016 to November 2019, Ms. Schneider served as the Chief Revenue Officer of Field Nation, LLC, a field service marketplace and project management solution that connects companies and contingent labor. As Chief Revenue Officer, Ms. Schneider was responsible for overseeing sales, marketing, customer service, customer success and sales engineering for Field Nation. From 2006 to 2017, she led sales at Proto Labs, Inc., where she oversaw a ten-fold increase in revenue and helped guide the company through a successful IPO. She currently serves on the board of Edge Embossing, a private microstructured plastics manufacturing company, and provides consulting services to various technology companies. She received her B.S. in Business from St. Cloud State University in 1987. We believe that Ms. Schneider is qualified to serve on the Board due to her track record of success in the industry and her experience as an executive.
Matthew Granade has been a member of our board of directors since November 2022. Prior to that, he served a member of Legacy Tempo’s board of directors from May 2019 to November 2022. In May 2013, he co-founded Domino Data Lab, Inc., a company that provides a data science platform that can be used to accelerate research, increase collaboration and rapidly deliver models, a venture in which he is still involved. From March 2016 to November 2020, Mr. Granade was a managing partner at Point72 Ventures, LLC, where he managed Point72’s venture capital investment arm, which focused on financial technology, enterprise
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automation, artificial intelligence, cyber-security and healthcare. He also served as Point72’s Chief Market Intelligence Officer from August 2015 to December 2020. In that role, Mr. Granade oversaw multiple business enterprises, including many of Point72’s innovation initiatives, and directed and managed Point72’s central portfolio. During his tenure with Point72, he oversaw the firm’s efforts to develop unique information assets, including alternative data, for its portfolio managers. Before founding Domino and joining Point72, Mr. Granade was Co-Head of Research at Bridgewater Associates, a systematic macro hedge fund, where he built and led teams that developed insights on the global economy, created new algorithmic systems for capturing alpha, and published Bridgewater’s market commentary, Daily Observations. Mr. Granade currently services on the board of Domino Data Lab and previously served on the board of Imperative Execution Inc., a private company that offers a platform for efficient trading by using machine learning to optimize order matching and reduce costs. He received his A.B. from Harvard College in 1999 and his M.B.A. from Harvard Business School in 2004. We believe that Mr. Granade is qualified to serve on the Board due to his leadership and innovation experience in advanced analytics, data, finance and technology.
Corporate Governance
We structure our corporate governance in a manner we believe closely aligns our interests with those of our stockholders. Notable features of this corporate governance include:
•
we have independent director representation on our audit, compensation and nominating committees, and our independent directors meet regularly in executive sessions without the presence of our corporate officers or non-independent directors;
•
at least one of our directors qualifies as an “audit committee financial expert” as defined by the SEC; and
•
we have begun to and will continue to implement a range of other corporate governance best practices, including implementing a robust director education program.
Independence of the Board of Directors
Nasdaq listing standards require that a majority of our board of directors be independent. An “independent director” is defined generally as a person other than an officer or employee of the company or its subsidiaries or any other individual having a relationship which, in the opinion of the company’s board of directors, would interfere with the director’s exercise of independent judgment in carrying out the responsibilities of a director. Our board of directors has determined that each of Behrooz Abdi, Jacqueline Schneider, Matthew Granade and Omid Tahernia are “independent directors” as defined in the Nasdaq listing standards and applicable SEC rules. Our independent directors will have regularly scheduled meetings at which only independent directors are present.
Composition of the Board of Directors
Our business and affairs are managed under the direction of our board of directors. Our board of directors is staggered in three classes, with two directors in Class I (Jacqueline Schneider and Ryan Benton), two directors in Class II (Matthew Granade and Omid Tahernia), and two directors in Class III (Behrooz Abdi and Joy Weiss).
Board Committees
Our board of directors directs the management of our business and affairs, as provided by Delaware law, and conducts its business through meetings of the board of directors and standing committees. We have a standing audit committee, compensation committee and nominating and corporate governance committee. In addition, from time to time, special committees may be established under the direction of the board of directors when necessary to address specific issues.
Audit Committee
Our audit committee is responsible for, among other things:
•
helping our board of directors oversee corporate accounting and financial reporting processes;
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•
managing the selection, engagement, qualifications, independence and performance of a qualified firm to serve as the independent registered public accounting firm to audit our consolidated financial statements;
•
discussing the scope and results of the audit with the independent registered public accounting firm and reviewing, with management and the independent accountants, our interim and year-end operating results;
•
developing procedures for employees to submit concerns anonymously about questionable accounting or audit matters;
•
reviewing related person transactions;
•
obtaining and reviewing a report by the independent registered public accounting firm at least annually that describes our internal quality control procedures, any material issues with such procedures and any steps taken to deal with such issues when required by applicable law; and
•
approving or, as permitted, pre-approving, audit and permissible non-audit services to be performed by the independent registered public accounting firm.
Our audit committee consists of Jacqueline Schneider, Matthew Granade and Omid Tahernia, with Matthew Granade serving as chair. Rule 10A-3 of the Exchange Act and Nasdaq rules require that our audit committee must be composed entirely of independent members. Our board of directors has affirmatively determined that Jacqueline Schneider, Matthew Granade and Omid Tahernia each meet the definition of “independent director” for purposes of serving on the audit committee under Rule 10A-3 of the Exchange Act and Nasdaq rules. Each member of our audit committee also meets the financial literacy requirements of Nasdaq listing standards. In addition, our board of directors has determined that Matthew Granade qualifies as an “audit committee financial expert,” as such term is defined in Item 407(d)(5) of Regulation S-K. Our board of directors adopted a written charter for the audit committee, which is available on our corporate website at www.tempoautomation.com. The information on any of our websites is deemed not to be incorporated in this prospectus or to be part of this prospectus.
Compensation Committee
Our compensation committee is responsible for, among other things:
•
reviewing and approving the compensation of the chief executive officer, other executive officers and senior management;
•
reviewing and recommending to our board of directors the compensation of directors;
•
administering the incentive award plans and other benefit programs;
•
reviewing, adopting, amending, and terminating incentive compensation and equity plans, severance agreements, profit sharing plans, bonus plans, change-of-control protections and any other compensatory arrangements for the executive officers and other senior management; and
•
reviewing and establishing general policies relating to compensation and benefits of the employees, including the overall compensation philosophy.
Our compensation committee consists of Jacqueline Schneider, Behrooz Abdi and Omid Tahernia, with Jacqueline Schneider serving as chair. Our board of directors has affirmatively determined that Jacqueline Schneider, Behrooz Abdi and Omid Tahernia each meet the definition of “independent director” for purposes of serving on the compensation committee under Nasdaq rules, and are “non-employee directors” as defined in Rule 16b-3 of the Exchange Act. Our board of directors adopted a written charter for the compensation committee, which is available on our corporate website at www.tempoautomation.com. The information on any of our websites is deemed not to be incorporated in this prospectus or to be part of this prospectus.
Nominating and Corporate Governance Committee
Our nominating committee is responsible for, among other things:
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•
identifying and evaluating candidates, including the nomination of incumbent directors for re-election and nominees recommended by stockholders, to serve on our board of directors;
•
considering and making recommendations to our board of directors regarding the composition and chairmanship of the committees of our board of directors;
•
developing and making recommendations to our board of directors regarding corporate governance guidelines and matters, including in relation to corporate social responsibility; and
•
overseeing periodic evaluations of the performance of our board of directors, including its individual directors and committees.
Our nominating committee consists of Matthew Granade and Behrooz Abdi, with Behrooz Abdi serving as chair. Our board of directors has affirmatively determined that Matthew Granade and Behrooz Abdi each meet the definition of “independent director” under Nasdaq rules. Our board of directors adopted a written charter for the nominating committee, which is available on our corporate website at www.tempoautomation.com. The information on any of our websites is deemed not to be incorporated in this prospectus or to be part of this prospectus.
Risk Oversight
Our board of directors is responsible for overseeing our risk management process. Our board of directors focuses on our general risk management strategy, the most significant risks facing us, and oversees the implementation of risk mitigation strategies by management. Our audit committee is also responsible for discussing our policies with respect to risk assessment and risk management. Our board of directors believes its administration of its risk oversight function has not negatively affected our board of directors’ leadership structure.
Compensation Committee Interlocks and Insider Participation
None of our executive officers serves as a member of the board of directors or compensation committee (or other committee performing equivalent functions) of any entity that has one or more executive officers serving on our board of directors or compensation committee.
Code of Business Conduct and Ethics
We adopted a written code of business conduct and ethics that applies to our directors, officers and employees, including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. A copy of the code is posted on our corporate website at www.tempoautomation.com. In addition, we intend to post on our website all disclosures that are required by law or Nasdaq listing standards concerning any amendments to, or waivers from, any provision of the code. The information on any of our websites is deemed not to be incorporated in this prospectus or to be part of this prospectus.
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EXECUTIVE AND DIRECTOR COMPENSATION
This section discusses the material components of the executive compensation program for our executive officers who are named in the “2022 Summary Compensation Table” below. In 2022, our “named executive officers” and their positions as of December 31, 2022, were as follows:
•
Joy Weiss, our President and Chief Executive Officer;
•
Ryan Benton, our Chief Financial Officer; and
•
Ralph Richart, our Chief Technology and Manufacturing Officer.
Mr. Richart served as our Chief Technology Officer through August 7, 2021 and was appointed as our Chief Technology and Manufacturing Officer effective August 8, 2022.
This discussion may contain forward-looking statements that are based on our current plans, considerations, expectations and determinations regarding future compensation programs. Actual compensation programs that we adopt may differ materially from the currently planned programs summarized in this discussion.
2022 Summary Compensation Table
The following table sets forth information concerning the compensation of our named executive officers for the years ended December 31, 2021 and 2022.
|
Name and Principal Position
|
| |
Year
|
| |
Salary
($)(1) |
| |
Bonus
($) |
| |
Option
Awards ($)(2) |
| |
Stock
Awards ($)(3) |
| |
Non-Equity
Incentive Plan Compensation ($) |
| |
All Other
Compensation ($) |
| |
($) Total
|
| ||||||||||||||||||||||||
|
Joy Weiss
President and Chief Executive Officer |
| | | | 2022 | | | | | | 340,385 | | | | | | 114,230 | | | | | | | | | | | | 2,384,995 | | | | | | — | | | | | | — | | | | | | 2,839,610 | | |
| | | | 2021 | | | | | | 450,075 | | | | | | — | | | | | | 1,545,860 | | | | | | | | | | | | — | | | | | | — | | | | | | 1,995,935 | | | ||
|
Ryan Benton
Chief Financial Officer |
| | | | 2022 | | | | | | 292,308 | | | | | | 85,673 | | | | | | | | | | | | 2,384,995 | | | | | | — | | | | | | — | | | | | | 2,762,976 | | |
| | | | 2021 | | | | | | 375,075 | | | | | | — | | | | | | 508,874 | | | | | | | | | | | | — | | | | | | — | | | | | | 883,949 | | | ||
|
Ralph Richart
Chief Technology and Manufacturing Officer |
| | | | 2022 | | | | | | 276,282 | | | | | | 76,154 | | | | | | | | | | | | 2,384,995 | | | | | | — | | | | | | — | | | | | | 2,737,431 | | |
| | | | 2021 | | | | | | 342,583 | | | | | | — | | | | | | 257,643 | | | | | | | | | | | | — | | | | | | — | | | | | | 600,226 | | | ||
(1)
Amounts represent the aggregate base salary actually paid to our named executive officers in the applicable year.
(2)
Amounts represent the aggregate grant date fair value of stock options granted to our named executive officers during the applicable year computed in accordance with ASC Topic 718. Assumptions used to calculate these amounts for 2022 are included in our consolidated financial statements included in this prospectus.
(3)
Amounts represent the aggregate grant date fair value of restricted stock units granted to our named executive officers during the applicable year computed in accordance with ASC Topic 718. Assumptions used to calculate these amounts for 2022 are included in our consolidated financial statements included in this prospectus.
NARRATIVE TO SUMMARY COMPENSATION TABLE
2022 Salaries
The named executive officers receive a base salary to compensate them for services rendered to our company. The base salary payable to each named executive officer is intended to provide a fixed component of compensation reflecting the executive’s skill set, experience, role and responsibilities. For 2022, our named executive officers’ annual base salaries were as follows: Ms. Weiss: $450,000; Mr. Benton: $375,000;
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and Mr. Richart: $350,000; provided, that, beginning on July 25, 2022, the named executive officers’ annual base salaries were temporarily reduced to the following amounts in order to reduce our overall operating cash outflows and as part of a larger effort by our company to preserve working capital prior to the completion of the Business Combination: Ms. Weiss: $300,000; Mr. Benton: $225,000; and Mr. Richart: $200,000. The named executive officers’ annual base salaries were restored to their pre-reduction levels on November 25, 2022.
2022 Bonuses
One-Time Bonuses
On November 30, 2022, each named executive officers was paid a one-time bonus equal to one and one-tenth times (1.10x) the excess of the base salary that the applicable executive would have received during the period beginning on July 25, 2022 and ending on November 25, 2022 (had the temporary salary reductions discussed above not occurred) and the base salary actually paid to such executive during such period. Such one-time bonuses were paid to our named executive officers in order to compensate them for the base salary reductions they took during the period beginning on July 25, 2022 and ending on November 25, 2022.
Annual Performance-Based Bonuses
We also maintained an annual performance-based cash bonus program for 2022 in which our named executive officers participated. Bonus payments under the 2022 bonus program were determined based on achievement of certain corporate performance goals approved by our board of directors, subject to the applicable executive’s continued employment through December 31, 2022. For the year ended December 31, 2022, our named executive officers’ target bonuses (expressed as a percentage of base salary) were as follows: Ms. Weiss: 20%; Mr. Benton: 20%; and Mr. Richart: 20%.
Under our 2022 annual bonus program, the applicable performance metrics consisted of achievement of certain company revenue, bookings and gross margin targets. Due to the Company’s financial position during calendar year 2022, the Company determined not to pay bonuses in respect of 2022 (including to our named executive officers).
Equity Compensation
We have historically granted stock options to our employees under our Amended and Restated 2015 Equity Incentive Plan (the “2015 Plan”), including our named executive officers, in order to attract and retain our employees, as well as to align their interests with the interests of our stockholders. In 2022, however, we determined to grant restricted stock units to our named executive officers and certain other employees in order to encourage retention by diversifying the types of equity incentive awards provided as we became a public company.
On September 9, 2022, we granted to each of our named executive officers under the 2015 Plan an award of 255,790 restricted stock units covering shares of our common stock (“RSUs”). Fifty percent (50%) of the RSUs subject to each award (the “Time-Vest RSUs”) vest based on the applicable executive’s continued service, and the remaining fifty percent (50%) of the RSUs subject to each award (the “Performance-Vest RSUs”) vest based on the attainment of certain performance measures, in each case, as further described below:
•
Time-Vest RSUs: Subject to the applicable executive’s continued service through the applicable vesting date, one-third of the Time-Vest RSUs will vest on the first anniversary of the grant date (the “Initial Vesting Date”) and, thereafter, one-twelfth of the Time-Vest RSUs will vest on each three-month anniversary of the Initial Vesting Date.
•
Performance-Vest RSUs: Subject to the applicable executive’s continued service through the applicable vesting date, (i) fifty percent (50%) of the Performance-Vest RSUs will be eligible to vest with respect to our first fiscal quarter (commencing the first quarter of 2023 and ending with the fourth quarter of 2027) during which we attain $15 million or greater in sales revenue; and (ii) the remaining 50% of the Performance-Vest RSUs shall be eligible to vest with respect to the first fiscal
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quarter (commencing the first quarter of 2023 and ending with the fourth quarter of 2027) during which we attain $5 million or greater in adjusted EBITDA.
Upon the closing of the Business Combination on November 22, 2022, we adopted the Tempo Automation Holdings, Inc. 2022 Incentive Award Plan (the “2022 Plan”). No further awards have been or will be made under the 2015 Plan following the adoption of the 2022 Plan.
Other Elements of Compensation Retirement Plan
We currently maintain a 401(k) retirement savings plan for our employees, including our named executive officers, who satisfy certain eligibility requirements. Our named executive officers are eligible to participate in the 401(k) plan on the same terms as other full-time employees. The Code allows eligible employees to defer a portion of their compensation, within prescribed limits, on a pre-tax basis through contributions to the 401(k) plan. We believe that providing a vehicle for tax-deferred retirement savings through our 401(k) plan adds to the overall desirability of our executive compensation package and further incentivizes our employees, including our named executive officers, in accordance with our compensation policies. We did not make any discretionary matching contributions in 2022.
Employee Benefits
All of our full-time employees, including our named executive officers, are eligible to participate in our health and welfare plans, including:
•
medical, dental and vision benefits;
•
medical and dependent care flexible spending accounts;
•
short-term and long-term disability insurance;
•
life insurance; and
•
employee assistance program.
We believe the benefits described above are necessary and appropriate to provide a competitive compensation package to our named executive officers.
No Tax Gross-Ups
We do not make gross-up payments to cover our named executive officers’ personal income taxes that may pertain to any of the compensation or perquisites paid or provided by our company.
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Outstanding Equity Awards at Fiscal Year-End
The following table summarizes the number of shares of common stock underlying outstanding equity incentive plan awards for each named executive officer as of December 31, 2022.
| | | | | | | | | | | | | | | | | | |
Option Awards
|
| |
Stock Awards
|
| |||||||||||||||||||||||||||||||||||||||||||||
|
Name
|
| |
Grant Date
|
| |
Vesting
Start Date |
| |
Notes
|
| |
Number of
Securities Underlying Unexercised Options (#) Exercisable |
| |
Number of
Securities Underlying Unexercised Options (#) Unexercisable |
| |
Number of
Securities Underlying Unexercised Unearned Options (#) |
| |
Option
Exercise Price ($) |
| |
Option
Expiration Date |
| |
Number of
Shares or Units of Stock That Have Not Vested (#) |
| |
Market
Value of Shares or Units of Stock That Have Not Vested ($) |
| |
Equity
Incentive Plan Awards: Number of Unearned Shares, Units, or Other Rights That Have Not Vested (#) |
| |
Equity
Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units, or Other Rights That Have Not Vested ($) |
| ||||||||||||||||||||||||||||||
|
Joy Weiss
|
| | | | 4/27/2015 | | | | | | 1/26/2015 | | | |
(1)(5)(6)(8)
|
| | | | 5,328 | | | | | | | | | | | | | | | 0.27 | | | | | | 4/26/2025 | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 1/20/2016 | | | | | | 12/17/2015 | | | |
(1)(5)(6)(8)
|
| | | | 10,231 | | | | | | | | | | | | | | | 1.94 | | | | | | 1/19/2026 | | | | | | | | | | | | | | | | | | | | | | | | | | | ||
| | | | 1/24/2018 | | | | | | 12/18/2017 | | | |
(1)(5)(6)(8)
|
| | | | 17,052 | | | | | | | | | | | | | | | 5.69 | | | | | | 1/23/2028 | | | | | | | | | | | | | | | | | | | | | | | | | | | ||
| | | | 11/8/2019 | | | | | | 9/23/2019 | | | |
(1)(5)(6)
|
| | | | 259,065 | | | | | | | | | | | | | | | 8.57 | | | | | | 11/7/2029 | | | | | | | | | | | | | | | | | | | | | | | | | | | ||
| | | | 3/29/2021 | | | | | | N/A | | | |
(2)(6)
|
| | | | 86,666 | | | | | | | | | | | | | | | 5.52 | | | | | | 3/28/2031 | | | | | | | | | | | | | | | | | | | | | | | | | | | ||
| | | | 3/29/2021 | | | | | | 9/23/2021 | | | |
(1)(5)(6)
|
| | | | 108,332 | | | | | | | | | 65,000 | | | | | | 5.52 | | | | | | 3/28/2031 | | | | | | | | | | | | | | | | | | | | | | | | | | | ||
| | | | 9/27/2022 | | | | | | 9/9/2022 | | | |
(10)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 127,895 | | | | | $ | 100,014 | | | | | | 127,895 | | | | | $ | 100,014 | | | ||
|
Ryan Benton
|
| | | | 7/29/2020 | | | | | | N/A | | | |
(2)(5)(6)
|
| | | | 44,058 | | | | | | | | | | | | | | | 5.52 | | | | | | 7/28/2030 | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 7/29/2020 | | | | | | 7/13/2020 | | | |
(3)(6)(7)
|
| | | | 79,856 | | | | | | | | | 52,320 | | | | | | 5.52 | | | | | | 7/28/2030 | | | | | | | | | | | | | | | | | | | | | | | | | | | ||
| | | | 7/3/2021 | | | | | | 7/2/2021 | | | |
(3)(5)(6)
|
| | | | 16,630 | | | | | | | | | 30,327 | | | | | | 8.86 | | | | | | 7/2/2031 | | | | | | | | | | | | | | | | | | | | | | | | | | | ||
| | | | 9/27/2022 | | | | | | 9/9/2022 | | | |
(10)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 127,895 | | | | | $ | 100,014 | | | | | | 127,895 | | | | | $ | 100,014 | | | ||
|
Ralph Richart
|
| | | | 8/3/2018 | | | | | | 8/2/2018 | | | |
(1)(5)(6)
|
| | | | 1,278 | | | | | | | | | | | | | | | 5.69 | | | | | | 8/2/2028 | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 7/25/2019 | | | | | | 4/30/2019 | | | |
(3)(5)(6)
|
| | | | 17,193 | | | | | | | | | 1,564 | | | | | | 8.57 | | | | | | 7/24/2029 | | | | | | | | | | | | | | | | | | | | | | | | | | | ||
| | | | 7/29/2020 | | | | | | 7/29/2020 | | | |
(4)(5)(6)
|
| | | | 16,908 | | | | | | | | | 11,078 | | | | | | 5.52 | | | | | | 7/28/2030 | | | | | | | | | | | | | | | | | | | | | | | | | | | ||
| | | | 11/4/2020 | | | | | | 11/4/2020 | | | |
(4)(5)(6)
|
| | | | 20,466 | | | | | | | | | 18,830 | | | | | | 5.52 | | | | | | 11/3/2030 | | | | | | | | | | | | | | | | | | | | | | | | | | | ||
| | | | 3/29/2021 | | | | | | N/A | | | |
(6)(9)
|
| | | | 21,666 | | | | | | | | | 21,667 | | | | | | 5.52 | | | | | | 3/28/2031 | | | | | | | | | | | | | | | | | | | | | | | | | | | ||
| | | | 9/27/2022 | | | | | | 9/9/2022 | | | |
(10)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 127,895 | | | | | $ | 100,014 | | | | | | 127,895 | | | | | $ | 100,014 | | | ||
(1)
Represents an option vesting with respect to 1/24th of the shares subject thereto on each monthly anniversary of the applicable vesting start date, subject to the applicable executive’s continued service through the applicable vesting date.
(2)
This option vested as to 100% of the shares subject thereto upon the closing of the Business Combination.
(3)
Represents an option vesting with respect to 25% of the shares subject thereto on the first anniversary of the vesting start date, and with respect to 1/48th of the shares subject to the option on each monthly anniversary of the applicable vesting start date thereafter, subject to the applicable executive’s continued service through the applicable vesting date.
(4)
Represents an option vesting with respect to 1/48th of the shares subject thereto on each monthly anniversary of the applicable vesting start date, subject to the applicable executive’s continued service through the applicable vesting date.
(5)
The option will vest in full (to the extent then-unvested) upon (i) a termination of the applicable executive’s service by the company without “cause” or by the executive for “good reason”, in either case, within three months before or eighteen months after a “change in control” or “corporate transaction” of the company (each as defined in the 2015 Plan), or (ii) a termination of the applicable executive’s service due to the executive’s death or disability within eighteen months after a “change in control” or “corporate transaction” of the company. The foregoing accelerated vesting is subject to the satisfaction of certain conditions (including the executive’s execution of a release) set forth in the
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applicable executive’s offer letter (as described in more detail below under “Executive Compensation Arrangements — Offer Letters”).
(6)
The option will vest in full, to the extent then-unvested, upon a “change in control” or “corporate transaction” of the company (within the meaning of the 2015 Plan or any successor plan), or any other event in which such options would otherwise be terminated, subject to the applicable executive’s continued employment with the company through such event.
(7)
Upon a termination of the applicable executive’s service by the company without “cause” or by the executive for “good reason”, in either case, more than three months before or more than eighteen months after a “change in control” or “corporate transaction” of the company (each as defined in the 2015 Plan), the option will vest with respect to the number of shares that would, absent the applicable executive’s termination of service, otherwise vest during the six-month period following such termination. The foregoing accelerated vesting is subject to the satisfaction of certain conditions (including the executive’s execution of a release) set forth in the applicable executive’s offer letter (as described in more detail below under “Executive Compensation Arrangements — Offer Letters”).
(8)
Represents an option granted to Ms. Weiss in respect of her service, prior to Ms. Weiss becoming our President and Chief Executive Officer, as an advisor and member of Tempo’s board of directors.
(9)
Represents an option with respect to which: (i) 50% of the shares subject to the option vested and became exercisable upon the closing of the Business Combination, and (ii) thereafter, the remaining 50% of the shares subject to the option will vest and become exercisable in equal monthly installments on each of the first twelve monthly anniversaries of the closing of the Business Combination, subject to the applicable executive’s continued service as an executive officer of Tempo through the applicable vesting date.
(10)
Represents awards of RSUs that vest as follows: (i) One-third of the Time-Vest RSUs will vest on the Initial Vesting Date and, thereafter, one-twelfth of the Time-Vest RSUs will vest on each three-month anniversary of the Initial Vesting Date, subject to the applicable executive’s continued service through the applicable vesting date; and (ii) with respect to the Performance-Vest RSUs, (x) fifty percent (50%) of the Performance-Vest RSUs will be eligible to vest with respect to our first fiscal quarter (commencing the first quarter of 2023 and ending with the fourth quarter of 2027) during which we attain $15 million or greater in sales revenue, and (y) the remaining 50% of the Performance-Vest RSUs shall be eligible to vest with respect to the first fiscal quarter (commencing the first quarter of 2023 and ending with the fourth quarter of 2027) during which we attain $5 million or greater in adjusted EBITDA, in each case, subject to the applicable executive’s continued service through the applicable vesting date.
Executive Compensation Arrangements
Offer of Employment Letters
During 2022, we were party to offer of employment letters with each of our named executive officers, the material terms of which are summarized below.
Joy Weiss Offer Letter
We are party to an employment offer letter, dated March 10, 2021, with Ms. Weiss, pursuant to which Ms. Weiss serves as our President and Chief Executive Officer. Ms. Weiss’s offer letter sets forth the terms and conditions of her employment, including her base salary, target annual bonus opportunity, eligibility to participate in our employee benefit plans, and reimbursement for business expenses in accordance with company policy.
Ms. Weiss’s offer letter provides that if her employment is terminated by Tempo without “cause” (as defined in her offer letter, and other than due to her disability or death) or due to Ms. Weiss’s resignation for “good reason” (as defined in her offer letter), subject to Ms. Weiss’s execution and non-revocation of a release of claims in favor of Tempo, resignation from Tempo’s board of directors, and continued compliance with certain post-termination obligations (including applicable restrictive covenants), she will become entitled to severance benefits consisting of: (i) an amount equal to six (6) months of her base salary, and (ii) company-subsidized healthcare continuation coverage for up to six (6) months following the date of
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termination. In addition, if Ms. Weiss’s employment is terminated by the company without “cause” or due to her resignation for “good reason,” in any case, within three months before, or eighteen months after, a “change in control” or “corporate transaction” of the company (each as defined in the 2015 Plan or any successor equity incentive plan), or if Ms. Weiss’s employment terminates due to her death or disability within eighteen months after any such event, then, subject to the satisfaction of the conditions described above, Ms. Weiss will be entitled to full vesting of her then-outstanding time-vesting equity awards upon such termination.
Ms. Weiss’s offer letter includes a Code Section 280G “best pay” provision, pursuant to which any “parachute payments” that become payable to her in connection with a change in control of the company will either be paid in full or reduced so that such payments are not subject to the excise tax imposed under Code Section 4999, whichever results in the better after-tax treatment for Ms. Weiss.
Pursuant to the terms of her offer letter, Ms. Weiss also entered into a separate agreement which includes standard invention assignment provisions, confidential information and non-disclosure covenants, an employee non-solicitation covenant effective during employment and for one year following the termination of Ms. Weiss’s employment, and a covenant not to compete with the company during the term of Ms. Weiss’s employment.
Ryan Benton Offer Letter
We are party to an employment offer letter with Mr. Benton, dated June 9, 2020, pursuant to which Mr. Benton serves as our Chief Financial Officer. Mr. Benton’s offer letter sets forth the terms and conditions of his employment, including his base salary, target annual bonus opportunity, eligibility to participate in our employee benefit plans, and reimbursement for business expenses in accordance with company policy.
Mr. Benton’s offer letter provides that if his employment is terminated by the company without “cause” (as defined in his offer letter, and other than due to his disability or death) or due to Mr. Benton’s resignation for “good reason” (as defined in his offer letter), subject to Mr. Benton’s execution and non-revocation of a release of claims in favor of the company and continued compliance with certain post-termination obligations (including applicable restrictive covenants), he will become entitled to severance benefits consisting of: (i) an amount equal to six (6) months of his base salary, (ii) a pro-rated target annual bonus for the year of termination, (iii) company-subsidized healthcare continuation coverage for up to six (6) months following the date of termination, and (iv) unless such termination occurs within three months before, or eighteen months after, a “change in control” or “corporate transaction” (as discussed in the following sentence), six months’ accelerated vesting of his then-outstanding time-vesting equity awards. In addition, if Mr. Benton’s employment is terminated by the company without “cause” or due to his resignation for “good reason,” in any case, within three months before, or eighteen months after, a “change in control” or “corporate transaction” of the company (each as defined in the 2015 Plan or any successor equity incentive plan), or if Mr. Benton’s employment terminates due to his death or disability within eighteen months after any such event, then, subject to the satisfaction of the conditions described above, Mr. Benton will be entitled to full vesting of his then-outstanding time-vesting equity awards upon such termination.
Mr. Benton’s offer letter includes a Code Section 280G “best pay” provision, pursuant to which any “parachute payments” that become payable to him in connection with a change in control of the company will either be paid in full or reduced so that such payments are not subject to the excise tax imposed under Code Section 4999, whichever results in the better after-tax treatment for Mr. Benton.
Pursuant to the terms of his offer letter, Mr. Benton also entered into a separate agreement which includes standard invention assignment provisions, confidential information and non-disclosure covenants, an employee non-solicitation covenant effective during employment and for one year following the termination of Mr. Benton’s employment, and a covenant not to compete with the company during the term of Mr. Benton’s employment.
Ralph Richart Offer Letter
We are party to an employment offer letter with Mr. Richart, dated April 15, 2021, pursuant to which Mr. Richart serves as our Chief Technology and Manufacturing Officer. Mr. Richart’s offer letter sets forth
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the terms and conditions of his employment, including his base salary, target annual bonus opportunity, eligibility to participate in our employee benefit plans, and reimbursement for business expenses in accordance with applicable company policy.
Mr. Richart’s offer letter provides that if his employment is terminated by the company without “cause” (as defined in his offer letter, and other than due to his disability or death) or due to Mr. Richart’s resignation for “good reason” (as defined in his offer letter), subject to Mr. Richart’s execution and non-revocation of a release of claims in favor of the company and continued compliance with certain post-termination obligations (including applicable restrictive covenants), he will become entitled to severance benefits consisting of: (i) an amount equal to six (6) months of his base salary, and (ii) company-subsidized healthcare continuation coverage for up to six (6) months following the date of termination. In addition, if Mr. Richart’s employment is terminated by the company without “cause” or due to his resignation for “good reason,” in any case, within three months before, or eighteen months after, a “change in control” or “corporate transaction” of the company (each as defined in the 2015 Plan or any successor equity incentive plan), or if Mr. Richart’s employment terminates due to his death or disability within eighteen months after any such event, then, subject to the satisfaction of the conditions described above, Mr. Richart will be entitled to full vesting of his time-vesting stock option granted in 2020 upon such termination.
Mr. Richart’s offer letter includes a Code Section 280G “best pay” provision, pursuant to which any “parachute payments” that become payable to him in connection with a change in control of the company will either be paid in full or reduced so that such payments are not subject to the excise tax imposed under Code Section 4999, whichever results in the better after-tax treatment for Mr. Richart.
Pursuant to the terms of his offer letter, Mr. Richart also entered into a separate agreement which includes standard invention assignment provisions, confidential information and non-disclosure covenants, an employee non-solicitation covenant effective during employment and for one year following the termination of Mr. Richart’s employment, and a covenant not to compete with the company during the term of Mr. Richart’s employment.
Director Compensation
During our fiscal year ended December 31, 2022, only two of our non-employee directors (Matthew Granade and Jaqueline Schneider) received compensation for their services on our board of directors. None of our other non-employee directors, including Behrooz Abdi, Omid Tahernia, Sri Chandrasekar and Zavain Dar, received compensation from the company during 2022 in respect of their services on our board. Ms. Weiss (who served as our President and Chief Executive Officer in 2022) and Jeff McAlvay (who served as Principal Data Analyst in 2022) also served on our board of directors during 2022, but they did not receive any additional compensation for their service as directors during 2022. Messrs. McAlvay, Chandrasekar and Dar resigned, and Messrs. Abdi, Benton and Tahernia, each of whom were previously members of the board of directors of ACE Convergence Acquisition Corp., were appointed, as members of our board of directors upon the closing of the Business Combination (which occurred on November 22, 2022).
We have not historically maintained a formal non-employee director compensation program; however, we have previously made stock option grants to non-employee directors from time to time. During 2022, the Company granted RSUs to each of Mr. Granade and Ms. Schneider for their service as non-employee directors during 2022, as described below.
On September 9, 2022, we granted to each of Mr. Granade and Ms. Schneider an award of 42,630 RSUs. Such RSUs vest in accordance with the same vesting schedule applicable to the awards of RSUs granted to our named executive officers during fiscal year 2022, as described above under “Narrative to Summary Compensation Table — Equity Compensation”.
No other compensation was paid, and no options or other stock awards were granted, to our non-employee directors during 2022 in respect of their service as non-employee directors.
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2022 Director Compensation Table
The following table sets forth information concerning the compensation of the company’s directors for the year ended December 31, 2022.
|
Name
|
| |
Fees Earned or Paid
in Cash ($) |
| |
Stock Awards
($)(1)(2) |
| |
All Other
Compensation ($) |
| |
Total ($)
|
| ||||||||||||
|
Behrooz Abdi
|
| | | | | | | | | | | | | | | | | | | | | | | | |
|
Sri Chandrasekar
|
| | | | | | | | | | | | | | | | | | | | | | | | |
|
Zavain Dar
|
| | | | | | | | | | | | | | | | | | | | | | | | |
|
Matthew Granade
|
| | | | — | | | | | | 397,484 | | | | | | — | | | | | | 397,484 | | |
|
Jacqueline Dee Schneider
|
| | | | — | | | | | | 397,484 | | | | | | | | | | | | 397,484 | | |
|
Omid Tahernia
|
| | | | | | | | | | | | | | | | | | | | | | | | |
(1)
Amount represents the aggregate grant date fair value of stock options granted to our non-employee directors during 2021 computed in accordance with ASC Topic 718. Assumptions used to calculate these amounts are included in our consolidated financial statements included in this prospectus.
(2)
As of December 31, 2022, Mr. Granade and Ms. Schneider held options covering 52,109 and 22,990 shares of our common stock, respectively, and 42,630 and 42,630 RSUs, respectively. No other options, RSUs or stock awards were held by our non-employee directors as of December 31, 2022.
Director Compensation Program
We intend to adopt a compensation program for our non-employee directors (the “Director Compensation Program”), pursuant to which we expect that the non-employee directors of the Board will be eligible to receive equity compensation for their services on our Board. The material terms of the Director Compensation Program, as currently contemplated, are summarized below. Note that we have not adopted or approved the Director Compensation Program and, accordingly, these terms are subject to change.
Annual Awards. Each non-employee director who is serving on the Board as of the date of an annual meeting of stockholders and will continue to serve as a non-employee director immediately following such meeting will automatically be granted (A) an award of RSUs with an aggregate grant date value of $50,000 and (B) an option to purchase 10,000 shares of Company common stock (each, an “Annual Award”). Each Annual Award will vest in full on the earlier of the first anniversary of the applicable grant date and the date of our next annual shareholder meeting following the grant date, subject to the applicable director’s continued service on the Board through the applicable vesting date.
Additional Awards. In addition to the Annual Awards, each non-employee director will be granted additional RSUs for his or her service as Chairperson of the Board or as Chair or member of a subcommittee of the Board, as set forth in the following table (such RSUs, the “Additional Awards”):
| | | |
Number of RSUs
|
| |||
|
• Additional RSUs for service as the Chairperson of the Board
|
| | | | 10,000 | | |
| • Additional RSUs for service as the Chair of a Committee of the Board: | | | | | | | |
|
• Audit Committee
|
| | | | 8,800 | | |
|
• Compensation Committee
|
| | | | 6,600 | | |
|
• Nominating and Governance Committee
|
| | | | 4,400 | | |
| • Additional RSUs for service as a member (non-Chair) of a Committee of the Board: | | | | | | | |
|
• Audit Committee
|
| | | | 4,400 | | |
|
• Compensation Committee
|
| | | | 3,300 | | |