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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2023

☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

TEMPO AUTOMATION HOLDINGS, INC.

(Exact name of registrant as specified in its charter)


Delaware		81-2154263
(State or other jurisdiction of		(IRS Employer
incorporation or organization)		Identification No.)

2460 Alameda Street
San Francisco, CA 94103
(415) 222-0209

	(Address, including zip code, and telephone number, including area code, of
registrant’s principal executive offices)

Securities registered pursuant to Section 12(b) of the Act:

		Name of each exchange
Title of each class	Trading Symbol(s)	on which registered
Common Stock, par value $0.0001 per share	TMPO	The Nasdaq Stock Market LLC
Warrants, each whole warrant exercisable for one share of common stock at an exercise price of $11.50	TMPO.W	The Nasdaq Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐

Non-accelerated filer	☒	Smaller reporting company	☒

Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of May 10, 2023, 30,751,039 shares of Common Stock, par value $0.0001 per share were issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

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TEMPO AUTOMATION HOLDINGS, INC. AND SUBSIDIARIES

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		Page
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS		3

PART I . FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets	4
	Condensed Consolidated Statements of Operations	5
	Condensed Consolidated Statements of Stockholders’ Deficit	6
	Condensed Consolidated Statements of Cash Flows	7
	Notes to Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	32
Item 4.	Controls and Procedures	34
PART II . OTHER INFORMATION
Item 1.	Legal Proceedings	35
Item 1A.	Risk Factors	35
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds from Registered Securities	36
Item 3.	Defaults Upon Senior Securities	36
Item 4.	Mine Safety Disclosures	36
Item 5.	Other Information	36
Item 6.	Exhibits	38
	Signatures	39

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (this “Report”) 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 (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical facts contained in this Report, 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 Report 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 Report 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 our Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on April 18, 2023 (the “Annual Report”) titled “Item 1A. Risk Factors.” These forward-looking statements are subject to numerous risks, including, without limitation, the following:

●

the ability to maintain the listing of the shares of Common Stock and Warrants on Nasdaq;

●

expectations regarding our business or financial outlook;

●

our previously identified material weaknesses in our internal control over financial reporting and risk of litigation or other risks as a result of the material weaknesses in our internal control over financial reporting;

●

our ability to attract new customers and retain existing customers, including our dependence on a limited number of customers and end markets;

●

expectations regarding the outcome of pending or threatened legal proceedings, as well as the collection of amounts awarded in legal proceedings; and

●

the impact of the COVID-19 pandemic on the financial condition and results of operations of the Company.

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 Report 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.

You should read this Report 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.

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PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Tempo Automation Holdings, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

(in thousands, except share and per share amounts)


	March 31,		December 31,
	2023		2022
ASSETS
Current assets
Cash and cash equivalents	$	2,227	$	7,113
Accounts receivable, net		1,934		2,633
Inventory		2,342		2,578
Contract assets		449		233
Prepaid expenses and other current assets		500		744
Total current assets		7,452		13,301
Property and equipment, net		6,011		6,514
Operating leases - right of use asset		329		371
Restricted cash		320		320
Other noncurrent assets		334		83
Total assets	$	14,446	$	20,589
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Accounts payable	$	11,304	$	10,165
Contract liabilities		2,552		2,595
Accrued liabilities		6,834		7,209
Accrued compensation and related benefits		568		689
Operating lease liability, current		372		516
Finance lease, current		416		1,606
Loan payable – related party, current		600		600
Loan payable, current ($17,374 and $20,101 measured at fair value, respectively)		18,275		20,977
Total current liabilities		40,921		44,357
Operating lease liability, noncurrent		23		30
Finance lease, noncurrent		883		—
Loan payable, noncurrent		438		663
Warrant liabilities		661		389
Earnout liabilities		2,565		1,173
Total liabilities		45,491		46,612
Commitment and contingencies (Note 9)
Stockholders’ deficit
Common stock, $0.0001 par value. 125,000,000 shares authorized at March 31, 2023 and December 31, 2022; 27,148,366 and 26,329,195 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively		3		3
Additional paid in capital		229,502		227,137
Accumulated deficit		(260,550)		(253,163)
Total stockholders’ deficit		(31,045)		(26,023)
Total liabilities and stockholders’ deficit	$	14,446	$	20,589

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Tempo Automation Holdings, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

(in thousands, except share and per share amounts)


	Three Months Ended March 31,
	2023		2022
Revenue	$	2,773	$	3,897
Cost of revenue		2,700		3,652
Gross profit		73		245
Operating expenses
Research and development		1,936		3,329
Sales and marketing		1,245		3,219
General and administrative		5,618		4,303
Total operating expenses		8,800		10,851
Loss from operations		(8,727)		(10,606)
Other income (expense), net
Interest expense		(119)		(2,019)
Interest income		77		—
Other income (expense)		930		(4)
Change in fair value of warrants		(272)		128
Change in fair value of debt		2,116		—
Change in fair value of earnout liabilities		(1,392)		—
Total other income (expense), net		1,340		(1,895)
Loss before income taxes		(7,387)		(12,501)
Income tax provision		—		—
Net loss	$	(7,387)	$	(12,501)
Net loss attributable per share to common stockholders, basic and diluted	$	(0.28)	$	(1.85)
Weighted-average shares used to compute net loss attributable per share to common stockholders, basic and diluted		26,331,475		6,748,520

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Tempo Automation Holdings, Inc.

Condensed Consolidated Statements of Stockholders’ Deficit

(Unaudited)

(in thousands, except number of shares)


							Additional				Total
	Convertible Preferred Stock			Common Stock			Paid-in-		Accumulated		Stockholders'
	Shares	Amount		Shares	Amount		Capital		Deficit		Deficit
Balance at January 1, 2023	—	$	—	26,329,195	$	3	$	227,137	$	(253,163)	$	(26,023)
Net loss	—		—	—		—		—		(7,387)		(7,387)
Issuance of common stock upon exercise of stock options	—		—	7,327		—		2		—		2
Issuance of common stock upon exercise of equity line of credit	—		—	350,000		—		276		—		276
Issuance of common stock to capital market advisors	—		—	461,844		—		665		—		665
Stock-based compensation	—		—	—		—		1,422		—		1,422
Balance at March 31, 2023	—	$	—	27,148,366	$	3	$	229,502	$	(260,550)	$	(31,045)


							Additional				Total
	Convertible Preferred Stock			Common Stock			Paid-in-		Accumulated		Stockholders'
	Shares	Amount		Shares	Amount		Capital		Deficit		Deficit
Balance at January 1, 2022	29,520,187	$	75,684	10,037,305	$	—	$	16,117	$	(108,312)	$	(92,195)
Retrospective application of recapitalization	(29,520,187)		(75,684)	(3,291,751)		1		75,683		—		75,684
Adjusted balance, beginning of year	—		—	6,745,554		1		91,800		(108,312)		(16,511)
Net loss	—		—	—		—		—		(12,501)		(12,501)
Issuance of common stock upon exercise of stock options	—		—	4,320		—		29		—		29
Stock-based compensation	—		—	—		—		865		—		865
Balance at March 31, 2022	—	$	—	6,749,874	$	1	$	92,694	$	(120,813)	$	(28,118)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Tempo Automation Holdings, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)


	Three Months Ended March 31,
	2023		2022
Cash flows from operating activities
Net loss	$	(7,387)	$	(12,501)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation and amortization		527		1,642
Stock-based compensation		1,711		865
Loss on disposal of property and equipment		—		3
Noncash operating lease expense		42		211
Change in fair value of warrants		272		(128)
Change in fair value of debt		(2,727)		—
Change in fair value of earnout liabilities		1,392		—
Changes in operating assets and liabilities:
Accounts receivable		699		430
Contract assets		(216)		(309)
Inventory		236		(541)
Prepaid expenses and other current assets		244		(527)
Other noncurrent assets		(251)		(838)
Accounts payable		1,139		204
Contract liabilities		(43)		278
Accrued liabilities		(790)		1,390
Operating lease liabilities		(151)		(263)
Net cash used in operating activities		(5,303)		(10,084)
Cash flows from investing activities:
Purchases of property and equipment		—		(13)
Net cash used in investing activities		—		(13)
Cash flows from financing activities:
Principal payments under finance lease obligations		(307)		(255)
Proceeds from issuance of debt		—		15,000
Payment of debt issuance costs		—		(111)
Debt repayment		(219)		(200)
Proceeds from exercise of stock options		2		29
Proceeds from issuance of common stock		941		—
Payment of deferred transaction costs		—		(102)
Net cash provided by financing activities		417		14,361
Net increase (decrease) in cash, cash equivalents and restricted cash		(4,886)		4,264
Cash, cash equivalents and restricted cash at beginning of period		7,433		3,184
Cash, cash equivalents and restricted cash at end of period	$	2,547	$	7,448

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Tempo Automation Holdings, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(1)Description of Business

Tempo Automation Holdings, Inc. (formerly known as ACE Convergence Acquisition Corp. prior to the consummation of the business combination) (together with its subsidiaries, the “Company,” “Tempo,” “us,” “our” or “we”) is a Printed Circuit Board Assembly (“PCBA”) service company that was incorporated in Delaware in 2022. Tempo provides on-demand PCBA services for prototyping and low volume production. The Company’s proprietary software combines with traditional processes and off-the-shelf software to create a digital thread from estimating to shipping. This digital thread enhances Tempo’s ability to execute complex manufacturing processes quickly and precisely.

On November 22, 2022, ACE Convergence Acquisition Corp. (“ACE”) and its subsidiary, ACE Convergence Subsidiary Corp, acquired Legacy Tempo via a series of mergers, whereby Legacy Tempo merged into ACE Convergence Subsidiary Corp, (“Merger Sub”), and became a wholly owned subsidiary of ACE (the “Merger”). ACE was renamed Tempo Automation Holdings, Inc. (also referred to herein as “New Tempo”). Prior to the Merger, ACE Convergence Acquisition LLC was the sponsor of ACE (the “Sponsor”) and with the close of the Merger either ACE Convergence Acquisition LLC or affiliated entities, remained a significant shareholder in the Company.

In connection with the execution of the Merger, New Tempo received proceeds from a number of investors (the “PIPE Investors”), pursuant to the Third Amended and Restated Subscription Agreement, whereby such investors agreed to purchase an aggregate of 550,000 shares of common stock (the “Committed PIPE Shares”), for an aggregate purchase price of $5.5 million, in a private placement pursuant to the subscription agreements (the “PIPE”). Of the $5.5 million, New Tempo received a cash inflow of $3.5 million and an existing investor holding $2.0 million in the Trust agreed to participate in the PIPE investment, exchanging its shares in Trust for PIPE shares. Pursuant to the PIPE subscription agreement, an additional 2,000,000 shares of common stock (the “Incentive PIPE Shares”) were issued to the PIPE Investors (including to the LSA PIPE Investors, as discussed below) on a pro-rata basis as an incentive to purchase the shares under the Third Amended and Restated PIPE Subscription Agreement. The funding from the PIPE Investors closed immediately prior to the closing of the Merger.

In addition to the Committed PIPE Shares and Incentive PIPE Shares issued at the closing of the PIPE investment, New Tempo agreed that the newly merged entity would:

●

issue additional shares of common stock to each PIPE Investor (the “Additional Shares”) in the event that the volume weighted average price per share (“Adjustment Period VWAP”) of New Tempo common stock during the 30 days commencing on the date on which a registration statement registering the resale of the shares of New Tempo common stock acquired by such PIPE Investors is declared effective is less than $10.00 per share; and

●

transfer to the PIPE subscribers (to the extent such subscribers committed shares are still outstanding) up to an additional 1,000,000 shares (“Additional Period Shares”) in the event that during the additional period the volume weighted average price per share (“Additional Period VWAP”) is less than the Adjustment Period WVAP during the fifteen month period following closing of the Merger.

Due to the number of PIPE Incentive Shares issued at closing, pursuant to the PIPE subscription agreement no Additional Shares will be issued by New Tempo to any PIPE investor. For the Additional Period Shares which remain subject to issuance, the Company determined that these represent equity linked financial instruments that are liability classified and measured at fair value at each reporting date. At closing of the Merger, the liability associated with such additional period shares was immaterial. The Company remeasured the liability at December 31, 2022, recording $0.8 million within earnout liabilities on the consolidated balance sheet and recorded a loss on remeasurement of $0.8 million for the period from the date of the Merger to December 31, 2022, which is recorded within change in fair value of earnout liabilities on the consolidated statement of operations.

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Immediately prior to the closing of the Merger, all convertible promissory notes converted into Legacy Tempo common stock, all shares of outstanding redeemable convertible preferred stock of Legacy Tempo were automatically converted into shares of Legacy Tempo common stock, and substantially all outstanding warrants for Legacy Tempo shares were net settled into shares of common stock of Legacy Tempo. Upon the consummation of the Merger, each share of Legacy Tempo common stock issued and outstanding was canceled and converted into the right to receive 0.1705 shares (the “Exchange Ratio”) of common stock of ACE.

(2)

Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial reporting and the rules and regulations of the Securities and Exchange Commission (“SEC”). References to ASC and ASU included herein refer to the Accounting Standards Codification and Accounting Standards Update established by the Financial Accounting Standards Board (“FASB”) as the source of authoritative U.S. GAAP. All intercompany balances and transactions have been eliminated in consolidation. Certain prior year amounts have been reclassified to conform to the current year presentation of our condensed consolidated financial statements. These reclassifications had no effect on the reported results of operations and ending shareholders’ equity.

In management’s opinion, the unaudited interim condensed consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements. They include all adjustments, consisting of only normal recurring adjustments, necessary for the fair statement of the Company’s financial position as of March 31, 2023, and its results of operations for the three months ended March 31, 2023 and 2022 and cash flows for the three months ended March 31, 2023, and 2022. The results for the three months ended March 31, 2023 and 2022, are not necessarily indicative of the results expected for the year or any other periods. These interim financial statements should be read in conjunction with Tempo’s Annual Report, where we include additional information on our critical accounting estimates, policies, and the methods and assumptions used in our estimates. The unaudited condensed consolidated balance sheet as of December 31, 2022, has been derived from the Company’s audited financial statements.

Use of Estimates

The preparation of these condensed consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the amounts reported and disclosed in the condensed consolidated financial statements and accompanying notes. Those estimates and assumptions include, but are not limited to, revenue recognition and contract assets and liabilities; allowance for doubtful accounts; determination of fair value of debt; determination of fair value of warrants; determination of fair value of earnout liabilities; accounting for income taxes, including the valuation allowance on deferred tax assets and reserves for uncertain tax positions; accrued liabilities; and the recognition and measurement of contingent liabilities. We evaluate our estimates and assumptions on an ongoing basis using historical experience and other factors and adjust those estimates and assumptions when facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ from these estimates, and those differences could be material to the financial statements.

Risks and Uncertainties

The Company is subject to a number of risks. The Company conducts business in a dynamic high technology industry and believes that changes in any of the following areas could have a material adverse effect on its future financial position, results of operations, or cash flows: advances and trends in new technologies and industry standards; pressures resulting from new applications offered by competitors; delays in applications and functionality development; changes in certain strategic relationships or customer relationships; the Company’s ability to attract new customers or retain existing customers; the length of the Company’s sales cycles and expense related to sales efforts; litigation or claims against the Company based on intellectual property, patent, product, regulatory, or other factors; changes in domestic and international economic or political conditions or regulations; the ability of the Company to finance its operations; and the Company’s ability to attract and retain employees necessary to support its growth. Additionally, the COVID-19 pandemic has negatively impacted the global economy, disrupted supply chains, constrained work force participation, and created significant volatility and disruption of financial markets.

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Liquidity and Going Concern

The Company has experienced negative cash flows from operations since inception and expects negative cash flows from operations to continue for the foreseeable future. The Company had an accumulated deficit of $260.6 million, cash, cash equivalents and restricted cash of $2.5 million and a working capital deficiency of $33.5 million as of March 31, 2023. During the three months ended March 31, 2023, the Company used net cash of $5.3 million in operating activities and incurred a net loss of $7.4 million. Additionally, as of the date these financial statements were available for issuance, the Company had approximately $3.5 million of loan contractual principal payments and finance lease obligations coming due within the next 12 months. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.

In order to fund planned operations while meeting obligations as they come due, the Company will need to secure additional debt or equity financing. These plans for additional financings are intended to mitigate the relevant conditions or events that raise substantial doubt about the Company’s ability to continue as a going concern, however as the plans are outside of management’s control, the Company cannot ensure they will be effectively implemented. As a result, substantial doubt exists about the Company’s ability to continue as a going concern within one year after the date that the financial statements are available to be issued. Failure to secure additional funding may require the Company to modify, delay, or abandon some of its planned future expansion or development, or to otherwise enact additional 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.

The accompanying condensed consolidated financial statements have been prepared in conformity with U.S. GAAP, assuming the Company will continue as a going concern and do not include adjustments that might result from the outcome of this uncertainty. This basis of accounting contemplates the recovery of the Company’s assets and the satisfaction of liabilities in the normal course.

Revenue from Contracts with Customers

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 assembled PCBAs.

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 warranty provides the customers with assurance that the assembled product complies with the agreed upon workmanship specifications and/or standards. Therefore, as the warranty cannot be purchased separately and only provides assurance that the product complies with agreed-upon workmanship specifications and/or standards, the warranty is not considered a separate performance obligation.

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(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 generally 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.

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 March 31, 2023 and December 31, 2022, one customer accounted for 61% of our accounts receivable. No other customers accounted for more than 10% of our accounts receivable, net.

During the three months ended March 31, 2023, one customer accounted for 46% of our total revenue. During the three months ended March 31, 2022, two customers accounted for 40% and 19% of our total revenue, respectively. 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.

Contract Balances

The timing of revenue recognition, billings and cash collections can result in deferred revenue (contract liabilities), unbilled receivables (contract assets), and billed accounts receivable.

Contract Liabilities

A contract liability results when payments from customers are received in advance for assembly and manufacturing of the goods. The Company recognizes contract liabilities as revenues upon satisfaction of the underlying performance obligations. Deferred revenue that is expected to be recognized as revenue during the subsequent twelve-month period from the date of billing is recorded in contract liabilities and the remaining portion, if any, is recorded in contract liabilities, noncurrent on the accompanying balance sheets at the end of each reporting period. For the three months ended March 31, 2023 and 2022, the Company recognized as revenue of $0.4 million and $0.1 million that was included in the contract liabilities balance at the beginning of the related periods, respectively.

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Contract Assets

Billings scheduled to occur after the performance obligation has been satisfied and revenue recognition has occurred result in contract assets. Unbilled receivables that are expected to be billed during the subsequent twelve-month period from the date of revenue recognition are recorded in contract assets, and the remaining portion, if any, is recorded in other noncurrent assets on the accompanying balance sheets at the end of each reporting period. As of March 31, 2023 and December 31, 2022, there were no amounts attributable to contract assets recorded within other noncurrent assets.

Unbilled receivables represent amounts for which the Company has recognized revenue, pursuant to its revenue recognition policy, for services already performed, but billed in arrears and for which the Company believes it has an unconditional right to payment.

Below are the billed receivables, unbilled receivables, and deferred revenue (in thousands):


	As of March 31,		As of December 31,
	2023		2022
Accounts receivable, net	$	1,934	$	2,633
Contract assets		449		233
Contract liabilities		2,552		2,595

Segment Reporting and Geographic Information

For the three months ended March 31, 2023 and 2022, the Company was managed as a single operating segment in accordance with the provisions in the FASB guidance on segment reporting, which establishes standards for, and requires disclosure of, certain financial information related to reportable operating segments and geographic regions. Furthermore, the Company determined that the Chief Executive Officer is the chief operating decision maker as she is responsible for making decisions regarding the allocation of resources and assessing performance as well as for strategic operational decisions and managing the organization as a whole. Substantially, all of the Company’s revenues are domestic sales and fixed assets are physically located in the United States.

Cash and Cash Equivalents and Restricted Cash

The Company considers all highly liquid securities that mature within three months or less from the original date of purchase to be cash equivalents. The Company maintains the majority of its cash balances with commercial banks in interest bearing accounts. Cash and cash equivalents include cash held in checking and savings accounts and highly liquid securities with original maturity dates of three months or less from the original date of purchase. Cash balances with each commercial bank are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. As of March 31, 2023 and December 31, 2022, the Company had accounts with cash balances outstanding over the FDIC’s $250,000 insurable amount.

The restricted cash balance as of March 31, 2023 and December 31, 2022 represents $0.3 million related to a letter of credit for the Company’s office space lease.


	March 31,		December 31,
	2023		2022
Cash and cash equivalents	$	2,227	$	7,113
Restricted cash		320		320
Total cash, cash equivalents and restricted cash	$	2,547	$	7,433

Financial Institution Risk

The Company has significant cash balances at financial institutions which throughout the year regularly exceed the FDIC’s insured limit of $250,000. Any loss incurred or a lack of access to such funds could have a significant adverse impact on the Company’s financial condition, results of operations, and cash flow

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Net Loss Per Share of Common Stock

Basic and diluted net loss per share attributable to common stockholders is presented in conformity with the two-class method required for participating securities. The Company considers all series of its preferred stock to be participating securities. Net loss is attributed to common stockholders and participating securities based on their participation rights. Net loss attributable to common stockholders is not allocated to the preferred stock as the holders of the preferred stock do not have a contractual obligation to share in any losses.

Under the two-class method, basic net loss per share attributable to common stockholders is computed by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period.

Diluted earnings per share attributable to common stockholders adjusts basic earnings per share for the potentially dilutive impact of preferred stock, stock options, preferred and common stock warrants and convertible notes. As the Company has reported losses for all periods presented, all potentially dilutive securities are antidilutive and accordingly, basic net loss per share equals diluted net loss per share.

Related Parties

As discussed in Note 1 — Organization, in October 2021, ACE entered into a Merger Agreement with Merger Sub and Legacy Tempo. The Chief Financial Officer of New Tempo was also a director of ACE and was therefore considered an interested related party to the business combination. Additionally, the Company issued promissory notes to Point72 Ventures Investments, LLC (“P72”) and Lux Ventures IV, L.P. (“Lux”) and entered into a bridge note with ACE and AEPI during the nine months ended September 30, 2022

Accounting Pronouncements Adopted

In June 2016, the FASB issued Accounting Standards Update No. 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” or ASU 2016-13. The amendments in ASU 2016-13 introduce an approach based on expected losses to estimated credit losses on certain types of financial instruments, modify the impairment model for available-for-sale debt securities and provide for a simplified accounting model for purchased financial assets with credit deterioration since their origination. The new standard requires financial assets measured at amortized cost be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The standard is effective for the Company beginning January 1, 2023 and the implementation of the standard did not have a material impact to the Company’s financial statements.

In October 2021, the FASB issued Accounting Standards Update No. 2021-08, “Accounting for Contract Assets and Contract Liabilities from Contracts with Customers”, which requires accounting for contract assets and liabilities from contracts with customers in a business combination to be accounted for in accordance with ASC 606. The standard is effective for the Company beginning January 1, 2023 and the implementation of the standard did not have a material impact to the Company’s financial statements.

(3)

Fair Value Measurements

The following table provides a summary of all financial instruments measured at fair value on a recurring basis as of March 31, 2023 and December 31, 2022 (in thousands):


	March 31, 2023
	Level 1		Level 2		Level 3		Total
Financial Liabilities:
Warrant liabilities	$	661	$	—	$	—	$	661
Earnout liability – Tempo Earnout		—		—		1,770		1,770
Earnout liability – Additional Period Shares		—		—		795		795
A&R LSA (as defined below) Borrowings		—		—		17,374		17,374
Total	$	661	$	—	$	19,939	$	20,600

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	December 31, 2022
	Level 1		Level 2		Level 3		Total
Financial Liabilities:
Warrant liabilities	$	—	$	389	$	—	$	389
Earnout liability – Tempo Earnout		—		—		410		410
Earnout liability – Additional Period Shares		—		—		763		763
A&R LSA (as defined below) Borrowings		—		—		20,101		20,101
Total	$	—	$	389	$	21,274	$	21,663

In determining the fair value of the number of earnout shares issuable to eligible Tempo equity holders (the “Tempo Earnout Shares”), the Company used the following inputs and assumptions:


	As of March 31, 2023
Volatility	11.5 % - 35.0	%
Discount rate	8.3 % - 17.3	%
Expected term	4.5 years

On July 6, 2022, the Company entered into those certain Second Amended and Restated Subscription Agreements with each of the investors named therein (collectively, the “PIPE Investors”) whereby each PIPE Investor was entitled to receive a number of additional shares of Common Stock based on the Company reaching certain volume weighted average price (“VWAP”) thresholds for each share of Common Stock during an adjustment period after the closing of the business combination (such additional shares, the “Additional Period Shares”). In determining the fair value of the Additional Period Shares, the Company used the following inputs and assumptions:


	As of March 31, 2023
Volatility	51.8	%
Discount rate	4.7	%
Expected term	0.9 years

(4) Other Balance Sheet Components

(a)

Inventory

Inventory consists of the following (in thousands):


	March 31,		December 31,
	2023		2022
Raw materials	$	2,271	$	2,127
Work in progress		71		451
Total inventory	$	2,342	$	2,578

(b)

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consist of the following (in thousands):


	March 31,		December 31,
	2023		2022
Prepaid expense	$	454	$	401
Other current assets		46		343
Total prepaid expenses and other current assets	$	500	$	744

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(c)

Other Noncurrent Assets

Other noncurrent assets consist of the following (in thousands):


	March 31,		December 31,
	2023		2022
Deposits	$	251	$	—
Advance rent and prepaids		83		83
Total other noncurrent assets	$	334	$	83

(d)

Accrued Liabilities

Accrued liabilities consist of the following (in thousands):


	March 31,		December 31,
	2023		2022
Accrued legal fees⁽¹⁾	$	4,935	$	4,053
Accrued professional fees⁽¹⁾		1,421		2,446
Accrued sales and business taxes		158		221
Accrued cost of revenue		172		176
Other accrued liabilities		148		313
Total accrued expenses	$	6,834	$	7,209

(1)

These accrued legal and professional fees primarily relate to the business combination. In addition to the amounts included above, as of March 31, 2023, the Company also recorded $5.3 million and $0.2 million of legal fees and professional fees related to the business combination, respectively, within accounts payable in the consolidated balance sheets. As of December 31, 2022, the Company recorded $5.9 million and $1.2 million of legal fees and professional fees related to the business combination, respectively, within accounts payable in the consolidated balance sheets.

(e)

Accrued Compensation and Related Benefits


	March 31,		December 31,
	2023		2022
Accrued payroll	$	217	$	380
Accrued vacation		276		244
Accrued commissions		31		39
Accrued payroll taxes		44		26
Total accrued compensation and related benefits	$	568	$	689

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(5)

Borrowing Arrangements

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.

The loan bears a cash interest of 8.95% per annum. Interest is payable on the first day of the month. If the loan is in default, it shall bear interest at a rate of an additional 5% per annum. The loan interest expense and discount amortization interest for the year ended December 31, 2022 was $0.1 million and $34 thousand, respectively. The Company was in compliance with the covenants as of March 31, 2023 and December 31, 2022.

In conjunction with entering into the equipment loan and security agreement, the Company entered into a warrant agreement with the lender and issued 18,417 warrants exercisable for the Company’s common stock at $5.51. For further details on the warrants issued in conjunction with the equipment loan and security agreement, see Note 8.

November 2022 Amended and Restated LSA

On November 22, 2022, in connection with the closing of the Merger, the Company entered into that certain First Amended and Restated Loan and Security Agreement (“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 that certain Loan and Security Agreement, dated as of October 13, 2021, by and among the Company and the lenders party thereto. The A&R LSA bears interest equal to a per annum rate of the greater of (i) 9.75%, and (ii) 4.25% plus the prime rate then in effect. Additionally, the A&R LSA bears a PIK interest of 3.25% per annum with PIK interest capitalized, compounded, and added to the principal balance monthly in arrears. As of December 31, 2022, the Company had $0.1 million of accrued PIK interest associated with A&R LSA. Repayments of the principal balance outstanding from the A&R LSA commence in December 2023. The A&R LSA Facility matures on December 1, 2025, but if this loan is not fully repaid by May 15, 2024, the Company would be required to pay an exit fee equal to 80% of the principal. As of March 31, 2023 and the filing date of this Quarterly Report, the Company was not able to maintain Unrestricted Cash (as defined in the A&R LSA) of $5.0 million at all times (the “Unrestricted Cash Covenant)” and was not in compliance with the Unrestricted Cash Covenant. The Company has elected to account for borrowings under the A&R LSA under the fair value option. Additionally, the Company has elected to account for the interest expense derived from the A&R LSA through the change in fair value of debt in the consolidated statement of operations. The Company had interest expense of $0.6 million during the three months ended March 31, 2023 which was expensed through the change in fair value of debt.

The following table sets forth the net carrying amount of borrowings as of March 31, 2023 (in thousands):


	Loan Payable,		Loan Payable,
	Current		Noncurrent		Total
SQN Equipment Loan	$	901	$	438	$	1,339
A&R LSA (FVO)		17,374		—		17,374
Total loan payable	$	18,275	$	438	$	18,713

The following table sets forth the net carrying amount of borrowings as of December 31, 2022 (in thousands):


	Loan Payable,		Loan Payable,
	Current		Noncurrent		Total
SQN Equipment Loan	$	876	$	663	$	1,539
A&R LSA (FVO)		20,101		—		20,101

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Total loan payable

20,977

663

21,640

SQN Equipment Loan


	As of March 31, 2023
Total notes payable	$	1,254
Add: accretion of final interest payable		115
Less: loan payable, current		(901)
Less: unamortized debt discount		(30)
Total loan payable, noncurrent	$	438


	As of December 31, 2022
Total notes payable	$	1,472
Add: accretion of final interest payable		106
Less: loan payable, current		(876)
Less: unamortized debt discount		(39)
Total loan payable, noncurrent	$	663

A&R LSA (FVO)


	Fair Value – Level 3
Balance, January 1, 2023	$	20,101
Additions		—
Less: Payments		—
Change in fair value		(2,727)
Balance, March 31, 2023	$	17,734


	Fair Value – Level 3
Balance, January 1, 2022	$	—
Additions		20,000
Less: Payments		(250)
Change in fair value		351
Balance, December 31, 2022	$	20,101

In determining the fair value of the A&R LSA as of March 31, 2023, the Company used the following inputs and assumptions:


	March 31, 2023
Expected term	2.7 years
Discount rate	25.6	%

The notes payable future contractual principal payments are as follows during the years noted (in thousands):


	As of
	March 31, 2023
2023 (remaining)	$	1,016
2024		4,789
2025		15,449
Total future principal payments	$	21,254

(6) Borrowing Arrangements – Related Party

Asia-IO

On August 12, 2020, the Company entered into a $0.6 million working capital facility (the “Working Capital Facility”) with ASIA-IO Advisors Limited, a related party. The Working Capital Facility does not bear interest and does not have a maturity date. As of March 31, 2023 and December 31, 2022, the Company has not repaid the $0.6 million Working Capital Facility.

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(7) Stockholders’ Deficit

The Company has reserved shares of common stock for issuance related to stock options and restricted stock units (“RSUs”), warrants, shares reserved for future grants and earnout shares:


		As of
		March 31,
		2023
Warrants to purchase common stock		18,106,559
Options to purchase common stock and RSUs		5,706,845
Shares reserved for future grants		1,916,425
Earnout shares		7,000,000
Total shares of common stock reserved		32,729,829

(8)

Warrants

Equity Classified Warrants

The following equity classified warrants were outstanding as of March 31, 2023 and December 31, 2022:


Warrants to purchase	Shares	Exercise Price		Issuance Date	Expiration Date
Common Stock	11,499,987	$	11.50	7/27/2020	11/21/2027

Liability Classified Warrants

As of March 31, 2023 and December 31, 2022, the Company has the following liability-classified warrants outstanding:


Warrants to purchase	# of Shares	Exercise Price		Issuance Date	Expiration Date
Common Stock	6,572	$	16.17	10/13/2017	10/13/2027
Common Stock	4,759,536	$	11.50	7/27/2020	11/21/2027
Common Stock	468,750	$	11.50	7/27/2020	11/21/2027
Common Stock	891,714	$	11.50	7/27/2020	11/21/2027
Common Stock	480,000	$	11.50	7/27/2020	11/21/2027
	6,606,572

The following tables details the changes in fair value of the liability-classified warrants, for the three months ended March 31, 2023 and 2022 (in thousands):


	Fair Value
Warrants outstanding – January 1, 2023	$	389
Change in fair value		272
Warrants outstanding – March 31, 2023	$	661


	Fair Value
Warrants outstanding - January 1, 2022	$	5,573
Warrants issued		1,377
Change in fair value		(128)
Warrants outstanding – March 31, 2022	$	6,822

The change in fair value as shown in the table above is recorded as a change in fair value of warrants in the condensed statements of operations.

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(9)

Stock-Based Compensation

Amended And Restated 2015 Equity Incentive Plan

In April 2015, the board of directors of Legacy Tempo prior to the Merger adopted the 2015 Equity Incentive Plan (“the 2015 Plan”), which was subsequently approved by the Legacy Tempo’s stockholders. The 2015 Plan was terminated in connection with the closing of the Merger, and accordingly, no shares are currently available for grant under the 2015 Plan. The 2015 Plan continues to govern outstanding awards granted thereunder.

2022 Incentive Award Plan

In November 2022, the board of directors of Tempo adopted the Tempo Automation Holdings, Inc. 2022 Incentive Award Plan (“the 2022 Plan”), which was subsequently approved by the Company’s stockholders. As of March 31, 2023, there were 1,916,425 shares of common stock available for issuance under the 2022 Plan.

Option Activity

A summary of cumulative option activity under the 2015 Plan and the 2022 Plan is as follows:


	Options outstanding
		Weighted		Weighted
		average		average	Aggregate
	Number of	exercise price		contractual term	intrinsic value
	shares	per share		(in years)	(in thousands)

Outstanding – December 31, 2022	2,754,199	$	4.73	7.46	$	77
Options granted	1,441,763		1.33
Options exercised	(7,327)		0.27
Options forfeited	(38,519)		2.50
Options expired	(63,261)		9.63
Outstanding – March 31, 2023	4,086,855		4.48	7.81		77
Vested during the period	188,168		3.70	9.02		—
Vested at end of period	2,017,112		6.25	6.06		77
Exercisable at the end of the period	2,017,112		6.25	6.06		77
Shares expected to vest	2,069,743		2.74	9.53		—
Vested and expected to vest	4,086,855		4.48	7.81		77

RSU Activity

A summary of the 2015 Plan RSU activity is as follows:


		Weighted-
	Number of Awards	Average
	Outstanding	Grant Date Fair Value
Unvested Balance – December 31, 2022 & March 31, 2023	1,619,990	$	22.25

Determination of Fair Value

The Company estimates the fair value of share-based compensation for stock options and restricted stock units utilizing the BSM option pricing model, which is dependent upon several variables, discussed below. These amounts are estimates and, thus, may not be reflective of actual future results, nor amounts ultimately realized by recipients of these grants. The Company recognizes compensation using the straight-line basis over the requisite service period, which is generally the vesting period of the respective award.

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.

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Expected 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 it considers to be comparable to its business over a period equivalent to the expected term of the stock option grants.

Risk-Free-Interest-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.

Expected Dividend: 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.

The following assumptions were used to calculate the fair value of options granted during the three months ended March 31, 2023:


	Three Months Ended
	March 31,
	2023
Weighted-average expected term	5.77
Weighted-average expected volatility	67.48	%
Weighted-average risk-free interest rate	3.64	%
Weighted-average expected dividends	—	%

Stock-based compensation expense

The following table summarizes stock-based compensation expense and its allocation within the accompanying statements of operations during the three months ended March 31, 2023 and 2022 (in thousands):