ENOVIX CORP Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-Q) – Marketscreener.com | Episode Movies

The following discussion and analysis provide information that the management of
Enovix Corporation (referred as to "we," "us," "our" and "Enovix") believes is
relevant to an assessment and understanding of Enovix's consolidated results of
operations and financial condition as of October 2, 2022 and for the quarter and
fiscal year-to-date ended October 2, 2022 and should be read together with the
condensed consolidated financial statements that are included elsewhere in this
Quarterly Report on Form 10-Q. This discussion and analysis contain
forward-looking statements based upon our current expectations, estimates and
projections that involve risks and uncertainties. Actual results and timing of
selected events may differ materially from those anticipated in these
forward-looking statements as a result of various factors, including those set
forth in the section titled "Risk Factors" and elsewhere in this Quarterly
Report on Form 10-Q.

Business Overview


We design, develop and have started to commercially manufacture an advanced
silicon-anode lithium-ion battery using our proprietary 3D cell architecture
that increases energy density and maintains high cycle life. This enables us to
use silicon as the only active lithium cycling material in the anode whereas
industry incumbents have historically combined only a modest amount of silicon
(3%-7%) with graphite. We have applied an equally innovative approach to develop
proprietary roll-to-stack production tools for existing lithium-ion battery
manufacturing lines and increase megawatt hour capacity. Our silicon anode
battery architecture allows lithium-ion batteries to be produced smaller,
cheaper and more efficiently at scale than current alternatives.

To date, we have concentrated our operational effort on researching, developing
and commercializing the cutting-edge technology behind our silicon-anode
lithium-ion battery. Over the past several years, we have signed agreements to
provide engineering and proof of concept samples to blue-chip companies in the
consumer electronic industry (smartwatches, augmented reality/virtual reality,
smartphones, fire/life/safety radios, laptops). In addition to those industries,
we are pursuing the deployment of our technology for the electric vehicle ("EV")
market.

We currently lease our headquarters, engineering and manufacturing space in
Fremont, California. In 2020, we started procuring equipment for our first high
volume production line ("Fab-1"). The first of this equipment began arriving in
early 2021. Fab-1 is now operational, and we commenced our planned principal
operations of commercial manufacturing and recorded our first product revenue as
scheduled in the second quarter of 2022. During the third quarter of 2022, we
continued to work closely with three key vendors to further the design of the
critical path elements of our second generation ("Gen2") manufacturing line.
Over the last six months, together with these vendors, we have significantly
advanced the detailed design of these systems, incorporating the learnings from
our existing lines at Fab-1 in Fremont ("Gen1"), to validate the new Gen2 high
speed equipment design concepts. We placed a purchase order for our Gen2
packaging line and expect to place orders for our Gen2 laser patterning systems
and assembly line in the fourth quarter of 2022. Other non-critical path
equipment will be ordered thereafter. Subject to final technical design and
Board approval scheduled for early 2023, we continue to target full delivery of
our Gen2 equipment in the second half of 2023 followed by our Gen2-compatible
pilot line ("Agility Line") for accelerated product development and
qualification.

We anticipate that this generation of toolset will provide a blueprint for
supporting future licensing and joint ventures with existing customers and
battery companies. We plan to bring additional Gen2 lines up over the course of
2024 in conjunction with the timing of customer programs. We expect that certain
customers may require up to several months to qualify the Gen2 line before
accepting product that is manufactured on that line.

business combination


On July 14, 2021 (the "Closing Date"), Enovix Corporation, a Delaware
Corporation ("Legacy Enovix"), Rodgers Silicon Valley Acquisition Corp.
("RSVAC") and RSVAC Merger Sub Inc., a Delaware Corporation and wholly owned
subsidiary of RSVAC ("Merger Sub"), consummated the closing of the transactions
contemplated by the Agreement and Plan of Merger, dated February 22, 2021 (the
"Merger" or the "Business Combination"), by and among RSVAC, Merger Sub and
Legacy Enovix (the "Merger Agreement"), following the approval at a special
meeting of the stockholders of RSVAC held on July 12, 2021 (the "Special
Meeting"). Following the consummation of the Merger on the Closing Date, Legacy
Enovix changed its name to Enovix Operations Inc., and RSVAC changed its name
from Rodgers Silicon Valley Acquisition Corp. to Enovix Corporation ("Enovix").
Enovix raised approximately $373.7 million of net proceeds, after deducting
transaction costs and estimated offering related expenses. Please refer to Note
3 "Business Combination" to the consolidated financial statements for the fiscal
year ended January 2, 2022 included in our Annual Report on Form 10-K for the
fiscal year ended January 2, 2022, filed with the Securities and Exchange
Commission ("SEC") on March 25, 2022 (the "Annual Report"), for further details
of the Business Combination.

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Change in Fiscal Year

In the third quarter of 2021, we changed our fiscal year on a prospective basis
effective on July 1, 2021 and did not adjust operating results for prior
periods. A fiscal year calendar typically consists of four 13-week quarters. Our
2022 fiscal year is comprised of four fiscal quarters ending on April 3, 2022,
July 3, 2022, October 2, 2022 and January 1, 2023, respectively.

Comparability of Financial Information

Our future results of operations and financial position as a result of the merger may not be comparable to historical results.

Important trends, opportunities and uncertainties


We generate revenue from payments received from our customers in connection with
(a) the sale of silicon-anode lithium-ion batteries and battery pack products
("Product Revenue") and (b) executed engineering revenue contracts ("Service
Revenue") for the development of silicon-anode lithium-ion battery technology.
We commenced shipment of commercially manufactured batteries in the second
quarter of 2022. Our performance and future success depend on several factors
that present significant opportunities, but also pose risks and challenges as
described in the section titled "Risk Factors" included elsewhere in this
Quarterly Report on Form 10-Q.

Highlights of Q3 2022:


During the third quarter of 2022, we made steady operational progress in Fab-1
that allowed us to improve yield while also continuing to ship cells from our
production line for qualification programs and pre-production end-product
builds. Production cells were shipped to 25 original equipment manufacturers
(each an "OEM"), including three "Strategic Accounts" (which we define as "mega
cap" technology companies with market capitalizations that exceed $200 billion
and that have the potential to use Enovix batteries in multiple product
applications), as well as a tier one lithium-ion battery OEM and a top 10 global
automotive OEM.

In November 2022, we announced a non-binding memorandum of understanding ("MOU")
with a Strategic Account to incorporate our cells into wearable, mobile, and
computing applications. This follows a purchase order we received from such
Strategic Account earlier in 2022, which led to the testing of our cells and
culminated in the MOU, which establishes a framework for the deployment and
scale-up of our technology across their product portfolio.

Our revenue funnel was $1.4 billion at the end of third quarter of 2022, which
was comprised of $1.0 billion of Engaged Opportunities and $423.0 million of
Active Designs and Design Wins (each as defined below). Our revenue funnel is
defined as the potential value of a full production year for all of the customer
projects for which we have been engaged. The components of the revenue funnel
are:

• Engaged Opportunities: Consists of engaged customers who have found our battery to be a fit for their product and evaluate our technology.

•Active Designs: Consists of customers who have completed the evaluation of our technology, identified the end product, and begun design work.


•Design Win: Consists of customers that have funded a custom battery design or
are qualifying one of our standard batteries for a formally approved product
that will use an Enovix cell. As of the end of the third quarter of 2022, we
have nine Design Wins in the following market applications: wearables (3),
industrial/medical (2), mobile communications (1), computing (1) and augmented
reality/virtual reality ("AR/VR") (2). Two of our nine Design Wins are with
Strategic Accounts and we have opportunities with a total of Six Strategic
Accounts at various stages within our revenue funnel.

The speed at which we convert our sales funnel into orders and revenue will ultimately be determined by how quickly we qualify customers, improve our manufacturing processes, and add capacity.

product development


We have developed and delivered standardized sample (i.e., prototype)
lithium-ion batteries to multiple, industry leading consumer electronics
manufacturers with energy densities higher than industry standard batteries of
similar size. "Energy density" is measured as the product of the power a battery
puts out in watts times the number of hours the battery can put out that power,
divided by the volume (size) of the battery measured in liters. The units of
energy density are thus watt-hours per liter or Wh/l. As of October 2, 2022, we
estimate that our first technology node, called EX-1, which makes batteries
sized for wearables and mobile communications devices, will deliver batteries
with 21%-113% greater energy

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density than the batteries in several categories of currently available consumer
electronics products. Our targeted spec for EX-1 is 714 Wh/l for wearables and
900 Wh/l for our reference size mobile communications devices. We have achieved
714 Wh/l in Fab-1 for wearables and expect to achieve 900 Wh/l for our reference
size mobile communications devices in 2024. In 2023, we expect to build cells
for mobile communications devices that achieve the EX-1 node energy density but
due to their smaller size will be at 882 Wh/l.

Additionally, we are now far along with a new technology node we call EX1.5,
which sits between our first node, EX-1, and our second-generation node, EX-2.
We have hit our EX1.5 target of 772 Wh/l for wearables (965 Wh/l when adjusted
to our reference size mobile communications) and these cells were put into
cycling during the third quarter of 2022. We anticipate sampling this technology
in 2023 to customers, giving us confidence that our architecture will allow
Enovix to continue to move off the industry's long-term trend of meager
improvements.

Our product roadmap also projects that adjusted to our reference size mobile
communications device (900 Wh/l in EX-1), the energy density of our batteries
will improve) to 1,030 Wh/l by 2024 (EX-2 node) and 1,255 Wh/l by 2025 (EX-3
node). Both the EX-2 and EX-3 product families will introduce an added
step-function improvement in Li-ion energy density over the industry. This
energy density breakthrough alters a 30-year Li-ion battery industry trajectory
of modest (4.2%) annual Li-ion battery energy density improvements through 2021.
Assuming this industry improvement rate of 4.2% per year continues, and our
estimated greater energy density, it would require approximately five years for
the industry to reach energy densities equivalent to our batteries at similar
size, based on our contemplated roadmap.

To achieve these goals, we plan to drive step-function improvements in 3D cell
architecture to increase overall performance efficiency, while also benefiting
from the adoption of the higher energy density cathodes that are being
continually developed by the industry.

Additionally, we estimate that our batteries can deliver higher storage capacity
(measured in milliampere/hour, or mAh) compared to industry standard batteries
of similar size. As of October 2, 2022, we estimate that EX-1 node delivers
32%-133% greater end-of-life battery storage capacity (based on end-of-life
dimensions) than the batteries in several categories of currently available
consumer electronics products.

External validation of the performance of our samples has led to several Service
Revenue contracts between us and these customers. Pursuant to each of these
agreements, we are developing custom 3D silicon lithium-ion batteries for
specific wearable, computing and mobile communication device applications. We
have also manufactured batteries incorporating our BrakeFlowTM technology. The
design and development phases and the manufacturing of these custom samples are
performed at our headquarters in Fremont, California. In January 2022, we began
shipping 3D silicon lithium-ion batteries for qualification to customers. We
furthered the design of our Gen2 manufacturing equipment with our suppliers
during the second and third quarters of 2022. The Gen2 manufacturing line
("Autoline") is designed to be faster and require less space per battery
produced than Gen1. Our Gen1 and Gen2 engineering teams have identified and
incorporated over 120 process and design improvements into Gen2. Incorporating
these improvements is expected to result in upgraded laser patterning systems,
higher speed manufacturing of our battery (up to 10x compared to our current
capability) and a 6x improvement in changeover time between battery sizes
relative to Gen1. During the third quarter of 2022, we placed a purchase order
for our Gen2 packaging line and expect to place orders for our Gen2 laser
patterning systems and assembly line in the fourth quarter of 2022. Other
non-critical path equipment will be ordered thereafter. Subject to final
technical design approval and Board approval scheduled for early 2023, we
continue to target the full delivery of our Gen2 equipment and installation in
second battery cell factory ("Fab-2") in the second half of 2023 followed by
Agility Line for accelerated product development and custom-cell qualification.

We anticipate that a complete Gen2 Autoline that can produce both small and
large cells will cost between $50 million and $70 million of capital
expenditures and at 80% overall equipment effectiveness ("OEE") will produce
just over nine million cells annually once fully ramped. We have separately
started the development of a dedicated line for wearables-size batteries that
can make four times as many cells.

marketing


We commenced deliveries of commercial cells from Fab-1, but we have experienced
challenges associated with bringing up the manufacturing equipment in Fab-1,
including technical issues negatively impacting yield and volume production, and
extended shipping times, supply chain constraints and intermittent vendor
support during equipment bring-up resulting from COVID-19 travel restrictions
imposed by certain countries in Asia. Fab-1 features a first-of-its-kind line
for battery production. As a result, we regularly face and overcome new
challenges to improve yield and output. Simultaneously, these efforts have
provided and continue to provide valuable learning experiences, allowing us to
improve our processes and equipment for future lines. With production commenced,
our focus in Fab-1 is on increasing volumes and yields. In the third quarter of
2022, we worked to optimize our first production line ("Line 1") at Fab-1 for
higher yield and throughput, bring up our second production line in Fab-1 ("Line
2"), and complete our learnings for Gen2. Given the wide gap in expected
performance between our Gen1 and Gen2 and the slower-than-expected improvements
on our Gen1

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manufacturing equipment, we have concluded that the incremental effort necessary
to drive higher throughput on Gen1 technology is better spent on the critical
yield and productivity learning necessary for a strong launch of our Gen2
Autoline. We expect Fab-1 improvement activities to extend into 2023, but at a
slower rate given the decision to redirect resources to Gen2.

The net proceeds from the Merger and proceeds from the exercise of our Public
Warrants (as defined under the heading "Common Stock Warrants" in Note 8
"Warrants" of the notes to our condensed consolidated financial statements in
Part I of this Quarterly Report on Form 10-Q) have enabled us to complete and
further expand Fab-1, pursue Fab-2, accelerate research and development and
undertake additional initiatives.

Market focus and market expansion


According to industry analyst Avicenne Energy's 2019 estimate, the Li-ion
battery cell market will grow from $45 billion in 2020 to $75 billion in 2025.
Our near-term focus is on the following market applications: wearables
(smartwatches, AR/VR, headsets, medical applications, etc.), computing and
mobile communications. This high value segment represents an addressable market
that is estimated to be $13 billion by 2025, based on our analysis of industry
unit forecasts from industry researchers and our estimates of average selling
prices of such units. We are actively sampling to potential customers in these
markets and have design wins in each. We have also engaged with new customers in
product applications, such as action cameras, portable gaming, smartwatches
built for children, handheld payment terminals, portable routers, and gaming
PCs.

We believe focusing on these categories ahead of EVs is the right strategy for
any advanced battery company because of the economic and time-to-market
advantages. Entering the EV battery market requires billions of dollars of
capital to build Gigafactories, offers lower prices per kWh than mobile
electronics and demands long qualification cycles. We believe the best approach
is to start in premium markets where we can leverage our differentiated
technology and solidify our manufacturing process while driving toward
profitability At the same time, we are seeding our entry into the EV battery
market by sampling batteries to EV OEMs and continuing work on our three-year
grant with the U.S. Department of Energy to demonstrate batteries featuring our
silicon anode paired with EV-class cathode materials. Our goal is to translate
this work into partnerships (e.g., joint ventures or licensing) with EV OEMs or
battery OEMs in order to commercialize our technology in this end market.

access to capital


Assuming we experience no significant delays in the research and development of
our battery nor any deterioration in capital efficiency, we believe that our
cash resources, including the net proceeds from the completion of the Merger,
are sufficient to fund the continued build-out and production ramp of our Fab-1
manufacturing facility in Fremont, California and lease or purchase and retrofit
an existing facility, as well as our Fab-2 for growth.

regulatory landscape

We operate in an industry subject to many established environmental regulations that have generally become more stringent over time, particularly in relation to the generation and disposal of hazardous waste and pollution control. While we expect certain regulations below President Bidens Administration, if adopted, could facilitate market demand and revenue growth, other potential regulations, if adopted, could result in additional operational costs.

Components of the earnings situation

revenue


In June 2022, we began to generate revenue from our planned principal business
activities. We recognize revenue within the scope of Accounting Standards
Codification ("ASC") 606, Revenue from Contracts with Customers. We generate
revenue from our Product Revenue and Service Revenue for the development of
silicon-anode lithium-ion battery technology.

Service Revenue contracts generally include the design and development efforts
to conform our existing battery technology with customers' required
specifications. Consideration for Service Revenue contracts generally becomes
payable when we meet specific contractual milestones, which include the design
and approval of custom cells, procurement of fabrication tooling to meet the
customer's specifications, and fabrication and delivery of custom cells from our
pilot production line. Within the existing Service Revenue contracts, the amount
of consideration is fixed, the contracts contain a

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single performance obligation, and revenue is recognized at the point in time
the final milestone is met (i.e., a final working prototype meeting all required
specifications) and the customer obtains control of the deliverable.

Product Revenue is recognized once we have satisfied the performance obligations
and the customer obtains control of the goods at a point in time under the
revenue recognition criteria. Product Revenue is recognized in an amount that
reflects the consideration for the corresponding performance obligations for the
silicon-anode lithium-ion batteries or battery pack products transferred.

cost of sales


Cost of revenue includes materials, labor, allocated depreciation expense, and
other direct costs related to Service Revenue contracts and production lines.
Labor consists of personnel-related expenses such as salaries and benefits, and
stock-based compensation. With our production commenced in the second quarter of
2022, we anticipate that cost of revenues will increase significantly as we
optimize our first production line and bring-up our second production line.

Capitalization of certain costs are recognized as an asset if they relate
directly to a customer contract, generate or enhance resources of the entity
that will be used in satisfying future performance obligations, and are expected
to be recovered. If these three criteria are not met, the costs are expensed in
the period incurred. Deferred costs are recognized as cost of revenue in the
period when the related revenue is recognized.

research and development costs


Research and development expenses consist of engineering services, allocated
facilities costs, depreciation, development expenses, materials, labor and
stock-based compensation related primarily to our (i) technology development,
(ii) design, construction, and testing of preproduction prototypes and models,
and (iii) certain costs related to the design, construction and operation of our
pilot plant that are not of a scale economically feasible to us for commercial
production. Research and development costs are expensed as incurred.

To date, research and development expenses have consisted primarily of
personnel-related expenses for scientists, experienced engineers and technicians
as well as costs associated with the expansion and ramp up of our engineering
and manufacturing facility in Fremont, California, including the material and
supplies to support the product development and process engineering efforts. As
we ramp up our engineering operations to complete the development of batteries
and required process engineering to meet customer specifications, we anticipate
that research and development expenses will continue to increase for the
foreseeable future as we expand hiring of scientists, engineers and technicians
and continue to invest in additional plant and equipment for product
development, building prototypes and testing of batteries. We are establishing a
research and development center in India that will initially focus on developing
machine learning algorithms.

selling, general and administrative expenses


Selling, general and administrative expenses consist of personnel-related
expenses, marketing expenses, allocated facilities expenses, depreciation
expenses, travel expenses, and professional services expenses, including legal,
human resources, audit, accounting and tax-related services. Personnel related
costs consist of salaries, benefits and stock-based compensation. Facilities
costs consist of rent and maintenance of facilities.

We are expanding our personnel headcount to support the ramping up of commercial
manufacturing and being a public company. Accordingly, in addition to
non-recurring costs associated with the Business Combination and anticipated
costs of being a public company, we expect our selling, general and
administrative expenses to increase significantly in the near term and for the
foreseeable future.

Other Income (Expense), net

Other income and expense, net primarily consists of dividends, interest income,
interest expense, fair value adjustments for outstanding convertible preferred
stock warrants and fair value adjustments for outstanding common stock warrants.

Income Tax Expense (Benefit)

Our income tax provision consists of an estimate for US State and federal income taxes based on applicable tax rates adjusted for allowable credits, deductions, contingent tax positions, changes in deferred tax assets and liabilities, and changes in tax laws. We retain an allowance against the full value of ours US and disclose net deferred tax assets because we believe it is unlikely that the tax assets will be recoverable.

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Results of Operations

Comparison of the ended quarter October 2, 2022 at the end of the prior-year quarter
October 3, 2021

The following table shows our summarized consolidated results of operations for the periods presented below (in thousands):

                                                     Quarters Ended
                                             October 2,          October 3,
                                                2022                2021             Change ($)              % Change

Revenue                                     $        8          $        -          $        8                         N/M

Cost of revenue                                  6,629                 104               6,525                         N/M
Gross margin                                    (6,621)               (104)             (6,517)                        N/M
Operating expenses:
Research and development                        13,948              10,301               3,647                       35  %
Selling, general and administrative             13,110               8,791               4,319                       49  %
Total operating expenses                        27,058              19,092               7,966                       42  %
Loss from operations                           (33,679)            (19,196)            (14,483)                      75  %
Other income (expense):
Change in fair value of convertible
preferred stock warrants and common stock
warrants                                       (50,160)              8,460             (58,620)                        N/M

Interest expense, net                                -                 (52)                 52                         N/M
Other income (expense), net                      1,826                 (50)              1,876                         N/M
Total other income (expense), net              (48,334)              8,358             (56,692)                        N/M
Net loss                                    $  (82,013)         $  (10,838)         $  (71,175)                     657  %


N/M - Not meaningful

Revenue

Revenue for the quarter ended October 2, 2022 was immaterial. As of October 2,
2022 and January 2, 2022, we had $4.3 million and $7.9 million, respectively, of
deferred revenue on our Condensed Consolidated Balance Sheets.

cost of sales


Cost of revenue for the quarter ended October 2, 2022 was $6.6 million, compared
to $0.1 million during the quarter ended October 3, 2021. The increase in cost
of revenue of $6.5 million was attributable to $3.7 million of labor costs, $2.4
million of allocated depreciation expense and other miscellaneous direct costs
since we commenced our production in the second quarter of 2022. As of
October 2, 2022 and January 2, 2022, we had $1.5 million and $4.6 million,
respectively, of deferred contract costs on our Condensed Consolidated Balance
Sheets.

In the execution of satisfying the single performance obligation per the
existing revenue contracts, certain costs are recognized as an asset if they
relate directly to a customer contract, generate or enhance resources of the
entity that will be used in satisfying future performance obligations and are
expected to be recovered. If these three criteria are not met, the costs are
expensed in the period incurred. Deferred contract costs are recognized as cost
of revenue in the period when the related revenue is recognized.

In the beginning of June of 2022, we completed construction of our first
production line and placed this equipment in service. As a result, we began
depreciating this production equipment over its estimated useful life. We also
began capitalizing inventory and recognizing factory overhead expenses in cost
of revenue, which are largely fixed overhead costs (idle costs) that were
previously recognized in research and development expenses. We expect equipment
depreciation and idle costs to continue to increase from the second quarter of
2022 going forward. A full quarter of depreciation and idle costs was included
in the third quarter of 2022 and no such costs were included in the
corresponding period of 2021. In addition, we anticipate our factory overhead
expenses will continue to increase in the next 12 months as

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We continue to hire additional staff to support the expansion of additional production lines and to service our new manufacturing facilities.

research and development costs


Research and development expenses for the quarter ended October 2, 2022 were
$13.9 million, compared to $10.3 million during the quarter ended October 3,
2021. The increase of $3.6 million, or 35%, was primarily attributable to an
increase in our research and development employee headcount resulting in a $1.5
million increase in salaries and employee benefits, a $2.1 million increase in
stock-based compensation expenses, a $0.8 million increase in subcontractors
costs and a $0.7 million increase in tooling and materials, which were partially
offset by decreases in other miscellaneous research and development expenses as
some of the overhead costs were classified as cost of revenue in third quarter
of 2022 instead of research and development expense in the corresponding period
in 2021.

selling, general and administrative expenses


Selling, general and administrative expenses for the quarter ended October 2,
2022 were $13.1 million, compared to $8.8 million during the quarter ended
October 3, 2021. The increase of $4.3 million, or 49%, was primarily
attributable to an increase in our selling, general and administrative employee
headcount resulting in a $0.6 million increase in salaries and employee benefits
and a $2.5 million increase in stock-based compensation expenses. The remaining
increase of $1.2 million was primarily comprised of a $1.7 million increase in
legal and professional fees, a $0.8 million increase in subcontractors costs and
a $0.4 million increase in insurance expense, which were partially offset by
decreases in marketing, recruiting and other miscellaneous expenses.

We anticipate that our overhead expenses will continue to increase in the next
12 months as we continue to hire additional personnel to support and maintain
our new manufacturing facilities, as well as for our operation expansion.

Change in Fair Value of Convertible Preferred Stock Warrants and Convertible Common Stock Warrants


The change in fair value of common stock warrants of $(50.2) million for the
quarter ended October 2, 2022 was attributable to an increase, during the
quarter, in the fair value of the 6,000,000 common stock warrants that are held
by Rodgers Capital, LLC (the "Sponsor") and certain of its members (the "Private
Placement Warrants"). The change in fair value of common stock warrants of $8.5
million for the quarter ended October 3, 2021 was attributable to a decrease,
during the quarter, in the fair value of the Private Placement Warrants. As of
October 2, 2022, there were 6,000,000 common stock warrants outstanding and no
Legacy Enovix convertible preferred stock warrants outstanding.


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Year-to-date comparison ended October 2, 2022 to the previous financial year ended to date October 3, 2021

The following table shows our summarized consolidated results of operations for the periods presented below (in thousands):

                                                 Fiscal Years-to-Date Ended
                                                                     October 3,
                                             October 2, 2022            2021              Change ($)              % Change

Revenue                                     $        5,109          $        -          $     5,109                         N/M

Cost of revenue                                     12,883               1,847               11,036                         N/M
Gross margin                                        (7,774)             (1,847)              (5,927)                        N/M
Operating expenses:
Research and development                            42,506              25,413               17,093                       67  %
Selling, general and administrative                 36,545              17,500               19,045                      109  %
Total operating expenses                            79,051              42,913               36,138                       84  %
Loss from operations                               (86,825)            (44,760)             (42,065)                      94  %
Other income (expense):
Change in fair value of convertible
preferred stock warrants and common stock
warrants                                            44,040               3,679               40,361                         N/M

Interest expense, net                                    -                (187)                 187                         N/M
Other income (expense), net                          2,344                 (38)               2,382                         N/M
Total other income (expense), net                   46,384               3,454               42,930                         N/M
Net loss                                    $      (40,441)         $  (41,306)         $       865                       (2) %


N/M - Not meaningful

Revenue

Revenue for the fiscal year-to-date ended October 2, 2022 was $5.1 million,
comprised of $5.1 million of Service Revenue and an immaterial amount of Product
Revenue. Service Revenue was primarily attributed to the satisfaction of our
final performance obligations for and our deliveries of (a) pilot cells and (b)
battery packs to two customers under our Service Revenue customer contracts.
Customer A represented $5.0 million of our total revenue for the fiscal
year-to-date ended October 2, 2022.

A portion was previously recorded as deferred revenue on our condensed consolidated balance sheet. away October 2, 2022 and January 2, 2022we had
$4.3 million and $7.9 millionor deferred revenue in our condensed consolidated balance sheets.

cost of sales


Cost of revenue for the fiscal year-to-date ended October 2, 2022 was $12.9
million, compared to $1.8 million during the prior fiscal year-to-date ended
October 3, 2021. The increase in cost of revenue of $11.0 million was
attributable to $4.7 million of labor costs, $3.3 million of allocated
depreciation expense and other miscellaneous direct costs since we began our
production in the second quarter of 2022. As of October 2, 2022 and January 2,
2022, we had $1.5 million and $4.6 million, respectively, of deferred contract
costs on our Condensed Consolidated Balance Sheets.

In the execution of satisfying the single performance obligation per the
existing revenue contracts, certain costs are recognized as an asset if they
relate directly to a customer contract, generate or enhance resources of the
entity that will be used in satisfying future performance obligations, and are
expected to be recovered. If these three criteria are not met, the costs are
expensed in the period incurred. Deferred contract costs are recognized as cost
of revenue in the period when the related revenue is recognized.

In the beginning of June of 2022, we completed construction of our first
production line and placed this equipment in service. As a result, we began
depreciating this production equipment over its estimated useful life. We also
began capitalizing inventory and recognizing factory overhead expenses in cost
of revenue, which are largely fixed overhead costs (idle costs) that were
previously recognized in research and development expenses. We expect equipment
depreciation and idle costs to continue to increase from the second quarter of
2022 going forward. Approximately four

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months of depreciation and idle costs was included in the fiscal year-to-date
ended October 2, 2022 and no such costs were included in the corresponding
period of 2021. In addition, we anticipate our factory overhead expenses will
continue to increase in the next 12 months as we continue to hire additional
personnel to support the build-out of additional production lines and maintain
our new manufacturing facilities.

research and development costs


Research and development expenses for the fiscal year-to-date ended October 2,
2022 were $42.5 million, compared to $25.4 million during the prior fiscal
year-to-date ended October 3, 2021. The increase of $17.1 million, or 67%, was
primarily attributable to an increase in our research and development employee
headcount resulting in a $5.5 million increase in salaries and employee
benefits, a $5.5 million increase in stock-based compensation expenses, a $3.5
million increase in subcontractor costs and a $1.7 million increase in tooling
and materials. The remaining increase was primarily due to travel expenses and
other miscellaneous research and development expenses, which were partially
offset by a decrease in overhead costs that were classified as cost of revenue
starting in June 2022 instead of research and development expense for the prior
fiscal year-to-date of 2021.

selling, general and administrative expenses


Selling, general and administrative expenses for the fiscal year-to-date period
ended October 2, 2022 were $36.5 million, compared to $17.5 million during the
prior fiscal year-to-date ended October 3, 2021. The increase of $19.0 million,
or 109%, was primarily attributable to an increase in our selling, general and
administrative employee headcount resulting in a $2.6 million increase in
salaries and employee benefits and a $8.8 million increase in stock-based
compensation expenses. The remaining increase of $7.6 million was primarily
comprised of a $5.1 million increase in legal and professional fees, a $2.5
million increase in subcontractors costs and a $1.6 million increase in
insurance expense, which were partially offset by decreases in marketing,
recruiting and other miscellaneous expenses.

We anticipate that our overhead expenses will continue to increase in the next
12 months as we continue to hire additional personnel to support and maintain
our new manufacturing facilities, as well as for our operation expansion.

Change in Fair Value of Convertible Preferred Stock Warrants and Convertible Common Stock Warrants


The net change in fair value of convertible preferred stock warrants and common
stock warrants was comprised of a change in fair value of common stock warrants
of $44.0 million for the fiscal year-to-date period ended October 2, 2022 and a
net change in fair value of common stock warrants and convertible preferred
stock warrants of $3.7 million for the prior fiscal year-to-date ended
October 3, 2021.

For the fiscal year-to-date period ended October 2, 2022, the change in fair
value of common stock warrants of $44.0 million was attributable to a decrease
in the fair value of the 6,000,000 Private Placement Warrants.

On February 22, 2021, all 10,160,936 Legacy Enovix's Series D convertible
preferred stock warrants were exercised at $0.01 per share for a total of $0.1
million. The increase in the fair value of the convertible preferred stock
warrants, up to February 22, 2021, was due to the increase in Legacy Enovix's
enterprise value throughout 2020 and the first quarter of 2021. The change in
the fair value of the convertible preferred stock warrants of $4.8 million was
recorded as other expense for the prior fiscal year-to-date ended October 3,
2021. This change was partially offset by a decrease in fair value of $8.5
million of common stock warrants for the prior fiscal year-to-date ended
October 3, 2021.

Non-GAAP Financial Measures


While we prepare our condensed consolidated financial statements in accordance
with U.S. generally accepted accounting principles ("GAAP"), we also utilize and
present certain financial measures that are not based on GAAP. We refer to these
financial measures as "Non-GAAP" financial measures. In addition to our
financial results determined in accordance with GAAP, we believe that EBITDA,
and Adjusted EBITDA, and Free Cash Flow (each as defined below), are useful
measures in evaluating our financial and operational performance distinct and
apart from financing costs, certain non-cash expenses and non-operational
expenses.

These Non-GAAP financial measures should be considered in addition to results
prepared in accordance with GAAP but should not be considered a substitute for
or superior to GAAP. We endeavor to compensate for the limitation of the
Non-GAAP financial measures presented by also providing the most directly
comparable GAAP measures.

We use Non-GAAP financial information to evaluate our ongoing operations and for
internal planning, budgeting and forecasting purposes. We believe that Non-GAAP
financial information, when taken collectively, may be helpful to investors in
assessing our operating performance and comparing our performance with
competitors and other comparable companies. You should review the
reconciliations below but not rely on any single financial measure to evaluate
our business.

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EBITDA and Adjusted EBITDA

"EBITDA" is defined as earnings (net loss) adjusted for interest expense; income
taxes; depreciation expense, and amortization expense. "Adjusted EBITDA"
includes additional adjustments to EBITDA such as stock-based compensation
expense; change in fair value of convertible preferred stock warrants, common
stock warrants and convertible promissory notes; loss on early debt
extinguishment and other special items as determined by management which it does
not believe to be indicative of its underlying business trends. EBITDA and
Adjusted EBITDA are intended as supplemental financial measures of our
performance that are neither required by, nor presented in accordance with GAAP.
We believe that the use of EBITDA and Adjusted EBITDA provides an additional
tool for investors to use in evaluating ongoing operating results and trends,
and in comparing our financial measures with those of comparable companies,
which may present similar Non-GAAP financial measures to investors.

However, you should be aware that when evaluating EBITDA, and Adjusted EBITDA,
we may incur future expenses similar to those excluded when calculating these
measures. In addition, the presentation of these measures should not be
construed as an inference that our future results will be unaffected by unusual
or nonrecurring items. Our computation of EBITDA and Adjusted EBITDA may not be
comparable to other similarly titled measures computed by other companies,
because all companies may not calculate EBITDA and Adjusted EBITDA in the same
fashion.

The following is a reconciliation of GAAP net loss to non-GAAP financial measures EBITDA and Adjusted EBITDA for the periods presented below (in thousands):


                                                   Quarters Ended                      Fiscal Years-to-Date Ended
                                           October 2,          October 3,                                  October 3,
                                              2022                2021             October 2, 2022            2021
Net loss                                  $  (82,013)         $  (10,838)         $      (40,441)         $  (41,306)
Interest expense, net                              -                  52                       -                 187

Depreciation and amortization                  2,995                 687                   4,795               1,062
EBITDA                                       (79,018)            (10,099)                (35,646)            (40,057)
Stock-based compensation expense               8,699               3,042                  22,117               6,717
Change in fair value of convertible
preferred stock warrants and common stock
warrants                                      50,160              (8,460)                (44,040)             (3,679)

Loss on early debt extinguishment                  -                  60                       -                  60
Adjusted EBITDA                           $  (20,159)         $  (15,457)         $      (57,569)         $  (36,959)


Free Cash Flow

We define "Free Cash Flow" as (i) net cash from operating activities less (ii)
capital expenditures, net of proceeds from disposals of property and equipment,
all of which are derived from our Condensed Consolidated Statements of Cash
Flow. The presentation of non-GAAP Free Cash Flow is not intended as an
alternative measure of cash flows from operations, as determined in accordance
with GAAP. We believe that this financial measure is useful to investors because
it provides investors to view our performance using the same tool that we use to
gauge our progress in achieving our goals and it is an indication of cash flow
that may be available to fund investments in future growth initiatives. Below is
a reconciliation of net cash used in operating activities to the Free Cash Flow
financial measures for the periods presented below (in thousands):

                                                    Fiscal Years-to-Date 

Completed

                                              October 2, 2022          October 3, 2021
Net cash used in operating activities     $      (60,903)             $        (34,514)
Capital expenditures                             (31,366)                      (31,509)
Free Cash Flow                            $      (92,269)             $        (66,023)

liquidity and capital resources


We have incurred operating losses and negative cash flows from operations since
inception through October 2, 2022 and expect to incur operating losses for the
foreseeable future. As of October 2, 2022, we had cash and cash equivalents of
$349.0 million, a working capital of $338.0 million and an accumulated deficit
of $373.6 million. Prior to the Business

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Combination, we had financed our operations primarily from the sales of
convertible preferred stock, borrowing from convertible promissory notes, and
borrowing from the Secured Promissory Note (as defined under the heading
"Related Party Loans" in Note 11 "Related Party" of our notes to our condensed
consolidated financial statements in Part I, Item 1 of this Quarterly Report on
Form 10-Q). In connection with the Business Combination in July 2021, we raised
approximately $373.7 million of net proceeds, after deducting transaction costs
and estimated offering related expenses. Please refer to Note 3 "Business
Combination" of the notes to the consolidated financial statements for the
fiscal year ended January 2, 2022 included in the Annual Report for more
information. In December 2021, we received $77.2 million of gross proceeds from
the exercises of the Public Warrants (as defined under the heading "Common Stock
Warrants" in Note 8 "Warrants" of the notes to our condensed consolidated
financial statements in Part I of this Quarterly Report on Form 10-Q), which
were being traded in the Nasdaq Global Select Market ("Nasdaq"). In January
2022, we received $52.8 million of net proceeds from the exercise of the Public
Warrants. We plan to use the proceeds from the exercises of the Public Warrants
for general corporate purposes.

Material cash requirements


As of October 2, 2022, we had cash and cash equivalents of $349.0 million. We
currently use cash to fund operations, meet working capital requirements and
fund our capital expenditures. In fiscal year 2022 and over the next several
years, we expect that our research and development expenses and selling, general
and administrative expenses will continue to increase.

For the fiscal year-to-date ended October 2, 2022, we purchased $31.4 million of
property and equipment. We will continue to increase our property and equipment
purchases in the near future to support the build-out of our manufacturing
facilities and our battery manufacturing production. See more discussion on
contractual obligations and commitments section.

Based on the anticipated spending, cash received from the Business Combination
and net proceeds from the exercises of the Public Warrants, and timing of
expenditures, we currently expect that our cash will be sufficient to meet our
funding requirements over the next twelve months from the date this Quarterly
Report on Form 10-Q is filed. We believe we will meet longer-term expected
future cash requirements and obligations through a combination of available
cash, cash equivalents and future debt financings, and access to other public or
private equity offerings as well as potential strategic arrangements. We have
made our estimates on historical experience and various other relevant factors
and we believe that they are reasonable. Actual results may be differ from our
estimates, and we could utilize our available capital resources sooner than we
expect.

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