SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2021
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission file number 333-259554
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
One Park Place, Suite 200, Dublin, CA
(Address of Principal Executive Offices)
Registrant's telephone number, including area code
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
|Title of each class||Trading Symbol(s)||Name of each exchange on which registered|
|Common stock, $0.0001 par value per share||LIDR||The Nasdaq Stock Market LLC|
|Warrants to purchase one share of common stock||LIDRW||The Nasdaq Stock Market LLC|
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 and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a 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||☐|
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 Act). Yes ☐ No ☒
As of November 12, 2021, the registrant had 154,595,440 shares of common stock, $0.0001 par value per share, outstanding.
Table of Contents
Part I - Financial Information
Item 1. Financial Statements
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and par value)
|September 30, 2021||December 31, 2020|
|Cash and cash equivalents||$||52,468 ||$||15,275 |
|Marketable securities||129,910 ||— |
|Accounts receivable, net||147 ||156 |
|Inventories, net||4,852 ||2,655 |
|Prepaid and other current assets||6,701 ||1,396 |
|Total current assets||194,078 ||19,482 |
|Property and equipment, net||4,835 ||4,865 |
|Restricted cash||2,150 ||1,222 |
|Other noncurrent assets||169 ||316 |
|Total assets||$||201,232 ||$||25,885 |
|LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)|
|Accounts payable||$||4,039 ||$||1,807 |
|Accrued expenses and other current liabilities||4,077 ||3,356 |
Deferred revenue (including $200 from related parties)
|245 ||660 |
|Convertible notes||— ||29,079 |
|Borrowing - net of issuance costs, current portion||— ||2,693 |
|Total current liabilities||8,361 ||37,595 |
|Deferred rent, noncurrent||3,185 ||3,631 |
|Private placement warrant liability||156 ||— |
|Borrowings - net of issuance costs, noncurrent||— ||2,884 |
|Total liabilities||11,702 ||44,110 |
|COMMITMENTS AND CONTINGENCIES (Note 17)|
|STOCKHOLDERS’ EQUITY (DEFICIT):|
Preferred stock—$0.0001 par value: 1,000,000 shares authorized; no shares issued and outstanding
|— ||— |
Common stock—$0.0001 par value: 300,000,000 shares authorized; 154,565,671 and 101,286,645 shares issued and outstanding at September 30, 2021 and December 31, 2020
|15 ||10 |
|Additional paid-in capital||316,318 ||68,549 |
|Accumulated other comprehensive loss||(42)||— |
|Total stockholders’ equity (deficit)||189,530 ||(18,225)|
|Total liabilities and stockholders’ equity (deficit) ||$||201,232 ||$||25,885 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(In thousands, except share and per share data)
|Three months ended September 30,||Nine months ended September 30,|
Prototype sales (including $0 and $161 from related parties for the three and nine months ended September 30, 2021, respectively)
|$||127 ||$||87 ||$||588 ||$||150 |
Development contracts (including $0 and $500 from related parties for the three and nine months ended September 30, 2021)
|— ||1,050 ||615 ||1,150 |
|Total revenues||127 ||1,137 ||1,203 ||1,300 |
|Cost of revenue||466 ||317 ||1,537 ||464 |
|Gross (loss) profit||(339)||820 ||(334)||836 |
|Research and development||7,468 ||3,247 ||19,030 ||11,207 |
|Sales and marketing||2,991 ||672 ||6,489 ||2,610 |
|General and administrative||6,086 ||1,650 ||13,846 ||4,862 |
|Total operating expenses||16,545 ||5,569 ||39,365 ||18,679 |
|LOSS FROM OPERATIONS||(16,884)||(4,749)||(39,699)||(17,843)|
|OTHER INCOME (EXPENSE):|
|Change in fair value of embedded derivative liability and warrant liabilities||341 ||1,366 ||222 ||1,284 |
|Gain on PPP loan forgiveness||— ||— ||2,297 ||— |
|Interest income and other||69 ||6 ||74 ||19 |
|Interest expense and other||(919)||(401)||(2,871)||(955)|
|Total other income (expense), net||(509)||971 ||(278)||348 |
|Provision for income tax expense||— ||— ||— ||— |
|Net unrealized loss on available-for-sale securities||(42)||— ||(42)||— |
|PER SHARE DATA|
|Net loss per common share (basic and diluted)||$||(0.15)||$||(0.04)||$||(0.39)||$||(0.17)|
|Weighted average common shares outstanding (basic and diluted)||114,891,595 ||103,155,756 ||102,953,263 ||103,054,374 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
Nine Months Ended September 30, 2021 and September 30, 2020
(In thousands, except share data)
|Preferred Stock||Common Stock||Additional Paid-in Capital||Accumulated Other Comprehensive Loss||Accumulated Deficit||Total Stockholders' Equity (Deficit)|
BALANCE—December 31, 2020 (as previously reported)
|16,383,725 ||$||62,639 ||10,838,010 ||$||— ||$||5,920 ||$||— ||$||(86,784)||$||(18,225)|
|Retroactive application of recapitalization (Note 2)||(16,383,725)||(62,639)||90,448,635 ||10 ||62,629 ||— ||— ||— |
Balance as of December 31, 2020, as adjusted (Note 2)
|— ||— ||101,286,645 ||10 ||68,549 ||— ||(86,784)||(18,225)|
|Stock-based compensation||— ||— ||— ||— ||4,230 ||— ||— ||4,230 |
|Issuance of common stock upon exercise of stock options||— ||— ||180,202 ||— ||89 ||— ||— ||89 |
|Net Loss||— ||— ||— ||— ||— ||— ||(22,584)||(22,584)|
|BALANCE—June 30, 2021||— ||$||— ||101,466,847 ||$||10 ||$||72,868 ||$||— ||$||(109,368)||$||(36,490)|
|Stock-based compensation||— ||— ||— ||— ||2,282 ||— ||— ||2,282 |
|Issuance of common stock upon exercise of stock options||— ||— ||23,917 ||— ||11 ||— ||— ||11 |
|Issuance of common stock in lieu of cash retainer||— ||— ||1,171 ||— ||10 ||— ||— ||10 |
|Conversion of convertible notes and accrued interest into Class A common stock ||— ||— ||20,778,097 ||2 ||39,093 ||— ||— ||39,095 |
|Business Combination and PIPE financing||— ||— ||31,894,635 ||3 ||256,808 ||— ||— ||256,811 |
|Offering cost in connection with Business Combination and PIPE financing||— ||— ||— ||— ||(52,661)||— ||— ||(52,661)|
|Net settlement of common stock and Series A preferred stock warrants||— ||— ||240,806 ||— ||— ||— ||— ||— |
|Assumption of the private placement warrant liability in connection with Business Combination||— ||— ||— ||— ||(268)||— ||— ||(268)|
|Repurchase of stock options||— ||— ||— ||— ||(1,500)||— ||— ||(1,500)|
|Issuance of common stock upon vesting of restricted stock units||— ||— ||197,759 ||— ||— ||— ||— ||— |
|Taxes related to net share settlement of equity awards||— ||— ||(37,561)||— ||(325)||— ||— ||(325)|
|Unrealized loss on available-for-sale securities||— ||— ||— ||— ||— ||(42)||— ||(42)|
|Net loss||— ||— ||— ||— ||— ||— ||(17,393)||(17,393)|
BALANCE—September 30, 2021
|— ||$||— ||154,565,671 ||$||15 ||$||316,318 ||$||(42)||$||(126,761)||$||189,530 |
|Preferred Stock||Common Stock||Additional Paid-in Capital||Accumulated Deficit||Total Stockholders' Equity (Deficit)|
BALANCE—December 31, 2019 (as previously reported)
|16,383,725 ||$||62,639 ||11,283,838 ||$||— ||$||3,305 ||$||(60,233)||$||5,711 |
|Retroactive application of recapitalization (Note 2)||(16,383,725)||(62,639)||91,661,644 ||10 ||62,629 ||— ||— |
Balance as of December 31, 2019, as adjusted (Note 2)
|— ||— ||102,945,482 ||10 ||65,934 ||(60,233)||5,711 |
|Stock-based compensation||— ||— ||— ||— ||543 ||— ||543 |
|Issuance of common stock upon exercise of stock options||— ||— ||298,873 ||— ||82 ||— ||82 |
|Net loss||— ||— ||— ||— ||— ||(13,717)||(13,717)|
|BALANCE—June 30, 2020||— ||$||— ||103,244,355 ||$||10 ||$||66,559 ||$||(73,950)||$||(7,381)|
|Stock-based compensation||— ||— ||— ||— ||272 ||— ||272 |
|Issuance of common stock upon exercise of stock options||— ||— ||91,163 ||— ||46 ||— ||46 |
|Repurchase of common stock||— ||— ||(3,536,070)||— ||— ||— ||— |
|Net loss||— ||— ||— ||— ||— ||(3,778)||(3,778)|
BALANCE—September 30, 2020
|— ||$||— ||99,799,448 ||$||10 ||$||66,877 ||$||(77,728)||$||(10,841)|
The accompanying notes are an integral part of these condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|Nine months ended September 30,|
|CASH FLOWS FROM OPERATING ACTIVITIES:|
|Adjustments to reconcile net loss to net cash used in operating activities:|
|Depreciation and amortization ||769 ||679 |
|Change in fair value of embedded derivative liability and warrant liabilities||(222)||(1,284)|
|Noncash gain on PPP loan forgiveness||(2,297)||— |
|Stock-based compensation||6,522 ||815 |
|Amortization of issuance costs||725 ||45 |
|Amortization of debt discount||752 ||509 |
|Amortization of premiums on marketable securities||47 ||— |
|Other||286 ||116 |
|Changes in operating assets and liabilities:|
|Accounts receivable, net||9 ||(91)|
|Inventories, net ||(2,197)||(414)|
|Prepaid and other current assets||(5,305)||3,832 |
|Other noncurrent assets ||(142)||108 |
|Accounts payable ||840 ||(230)|
|Accrued expenses and other current liabilities||1,417 ||44 |
|Net cash used in operating activities||(39,588)||(13,958)|
|CASH FLOWS FROM INVESTING ACTIVITIES:|
|Purchase of property and equipment||(713)||(4,017)|
|Purchase of available-for-sale securities||(129,999)||— |
|Net cash used in investing activities||(130,712)||(4,017)|
|CASH FLOWS FROM FINANCING ACTIVITIES:|
|Proceeds from the exercise of stock options||100 ||128 |
|Proceeds from Business Combination and PIPE financing||256,811 ||— |
|Transaction costs related to Business Combination and PIPE financing||(47,775)||— |
|Proceeds from the issuance of convertible notes||8,045 ||12,596 |
|Proceeds from bank loans||10,000 ||2,270 |
|Principal payments on bank loans||(13,333)||(444)|
|Transaction costs related to Business Combination and PIPE financing paid prior to the close||(3,210)||— |
|Payments of debt issuance costs||(717)||(122)|
|Repurchase of stock options||(1,500)||— |
|Net cash provided by financing activities||208,421 ||14,428 |
|NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH||38,121 ||(3,547)|
|CASH, CASH EQUIVALENTS AND RESTRICTED CASH—Beginning of period||16,497 ||8,205 |
|CASH, CASH EQUIVALENTS AND RESTRICTED CASH—Ending||$||54,618 ||$||4,658 |
|SUPPLEMENTAL CASH FLOW INFORMATION:|
|Cash paid for interest||$||358 ||$||148 |
|SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:|
|Changes in purchases of property and equipment recorded in accounts payable and accrued liabilities||26 ||(3,159)|
|Financings costs included in accounts payable and accrued liabilities||1,387 ||72 |
|Conversion of Series A and Series B preferred stock into Class A common stock||62,639 ||— |
|Conversion of Convertible notes and accrued interest into Class A common stock||39,095 ||— |
|Assumption of the private placement warrant liability in connection with Business Combination||268 ||— |
|Transaction costs paid in 2020, previously recorded to other non-current assets and reclassified to additional paid-in capital||289 ||— |
|Issuance of Class A common stock in lieu of cash retainer||10 ||— |
|Taxes related to net settlement of restricted stock units included in accrued liabilities||325 ||— |
The accompanying notes are an integral part of these condensed consolidated financial statements.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|(in thousands, except share and per share data or otherwise stated)|
1.ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
AEye, Inc. (the "Company" or “AEye”) is a provider of high-performance, active LiDAR systems for vehicle autonomy, advanced driver-assistance systems (ADAS), and robotic vision applications. AEye’s software-definable iDAR™ (Intelligent Detection and Ranging) platform combines solid-state active LiDAR, an optionally fused low-light HD camera, and integrated deterministic artificial intelligence to capture more intelligent information with less data, enabling faster, more accurate, and more reliable perception.
On February 17, 2021, AEye Technologies, Inc., then known as AEye, Inc. ("AEye Technologies"), entered into the Agreement and Plan of Merger (the "Merger Agreement") with CF Finance Acquisition Corp. III, a Delaware corporation ("CF III"), now known as AEye, Inc., and Meliora Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of CF III ("Merger Sub"). Based on CF III's business activities, it was a "shell company" as defined under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). On August 16, 2021 (the "Closing Date"), CF III consummated the business combination (the "Business Combination," and together with the other transactions contemplated by the Merger Agreement, the "Transactions") pursuant to the Merger Agreement, and Merger Sub was merged with and into AEye Technologies with AEye Technologies surviving the merger as a wholly owned subsidiary of CF III. On the Closing Date, and in connection with the closing of the Transactions (the "Closing"), CF III changed its name to AEye, Inc.
The Company's common stock and public warrants are now listed on the Nasdaq Stock Market LLC ("Nasdaq") under the symbols "LIDR" and "LIDRW", respectively. Unless otherwise specified, "we", "us", "our", "AEye", and the "Company" refers to AEye, Inc., the combined company following the Business Combination. Refer to Note 2 for further discussion of the Business Combination.
Unaudited Condensed Consolidated Financial Statements
The accompanying condensed consolidated financial statements are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") and include all adjustments necessary to the fair presentation of the Company’s condensed consolidated financial position, results of operations, and cash flows for the period presented under the rules and regulations of the Securities and Exchange Commission ("SEC") for interim financial reporting. The accompanying interim unaudited condensed consolidated financial statements and accompanying notes have been prepared in accordance with U.S. GAAP along with instructions to Form 10-Q and Article 10 of SEC Regulation S-X.
The Business Combination is accounted for as a reverse recapitalization, as AEye Technologies was determined to be the accounting acquirer under Financial Accounting Standards Board (FASB)’s Accounting Standards Codification Topic 805, Business Combinations (ASC 805). The determination is primarily based on the evaluation of the following facts and circumstances:
•the equity holders of AEye Technologies hold the majority of voting rights in the Company;
•the board of directors of AEye Technologies represent a majority of the members of the board of directors of the Company;
•the senior management of the AEye Technologies became the senior management of the Company; and
•the operations of AEye Technologies comprise the ongoing operations of the Company.
In connection with the Business Combination, outstanding capital stock of AEye Technologies was converted into common stock of the Company, par value $0.0001 per share, representing a recapitalization, and the net
assets of the Company were acquired at historical cost, with no goodwill or intangible assets recorded. The consolidated assets and liabilities and results of operations prior to the Closing are those of AEye Technologies. The shares and corresponding capital amounts and net loss per share available to common stockholders, prior to the Business Combination, have been retroactively restated as shares reflecting the Exchange Ratio (as defined below) established in the Merger Agreement. The number of shares of preferred stock was also retroactively converted into common shares based on the Exchange Ratio.
Principle of Consolidation and Liquidity
The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
The Company has funded its operations primarily through the Business Combination and issuances of stock. As discussed in Note 2 the Company consummated the Business Combination with CF Finance Acquisition Corp. III on August 16, 2021 for proceeds of $256,811, net of transaction expenses of $52,661, from the transaction. As of September 30, 2021, the Company’s existing sources of liquidity included cash and cash equivalents and marketable securities of $182,378. The Company has a limited history of operations and has incurred negative cash flows from operating activities and losses from operations in the past as reflected in the accumulated deficit of $126,761 and net current assets of $185,717 as of September 30, 2021. During the nine months ended September 30, 2021, the Company incurred a net loss of $39,977 and had negative cash flows from operating activities of $39,588. The Company expects to continue to incur operating losses due to the investments it intends to make in its business, including product development. Management believes that existing cash and cash equivalents and marketable securities will be sufficient to fund operating and capital expenditure requirements through at least 12 months from the date of issuance of these financial statements.
Future capital may be required to grow the business, however, and this will depend on many factors, including sales volume, the timing and extent of spending to support research and development efforts, the expansion of sales and marketing activities, and market adoption of new and enhanced products and features. From time to time, the Company may seek to raise additional funds through debt or equity issuances. If the Company is unable to raise additional capital when desired and on reasonable terms, the business, results of operations, and financial condition could be adversely affected. The Company’s long-term success is dependent upon its ability to successfully market its products and services; generate revenue; maintain or reduce its operating costs and expenses; meet its obligations; obtain additional capital when needed; and, ultimately, achieve profitable operations.
Reclassification of Prior Year Presentation
Certain prior year amounts have been reclassified for consistency with the current year presentation. Specifically, restricted cash is now presented as a separate line item on the condensed consolidated balance sheets and was previously included within other noncurrent assets; all other changes made were immaterial.
Significant Risks and Uncertainties
The Company is subject to those risks common in the technology industry and also those risks common to early stage companies including, but not limited to, the possibility of not being able to successfully develop or market its products, technological obsolescence, competition, dependence on key personnel and key external alliances, the successful protection of its proprietary technologies, compliance with government regulations, and the possibility of not being able to obtain additional financing when needed.
In December 2019, a novel strain of coronavirus (COVID-19) began to impact the population of China and expanded into a worldwide pandemic during 2020, leading to significant business and supply chain disruptions. While the quarantine, social distancing and other regulatory measures instituted or recommended in response to COVID-19 are expected to be temporary, the duration of the business disruptions, and related financial impact, cannot be estimated at this time. Nevertheless, COVID-19 presents material uncertainty and
risk with respect to the Company, its performance, and its financial results and could adversely affect the Company’s financial position and results.
Emerging Growth Company
The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the independent registered public accounting firm attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected to take advantage of the benefits of the extended transition period for new or revised financial accounting standards. This may make it difficult or impossible to compare the Company’s financial results with the financial results of another public company that is either not an emerging growth company or is an emerging growth company that has chosen not to take advantage of the extended transition period exemptions because of the potential differences in accounting standards used.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant items subject to such estimates and assumptions include the useful lives of fixed assets; the valuation of deferred tax assets, fixed assets, inventory, investments, embedded derivative, fair value of common stock, and share-based compensation.
We manage our business on the basis of one reportable and operating segment. Operating segments are defined as, components of an enterprise which separate financial information, is evaluated regularly by the chief operating decision maker, which is our Chief Executive Officer (“CEO”). The CEO decides how to allocate resources and assesses the Company’s performance based upon condensed consolidated financial information. All of our sales were made to customers (in USD) located in the United States, Europe, and Asia through AEye, Inc., and all property and equipment is located in the United States.
Cash and Cash Equivalents and Marketable Securities
The Company considers all highly liquid investments, such as treasury bills, commercial paper, certificates of deposit, and money market instruments with maturities of three months or less at the time of acquisition to be cash equivalents. Cash equivalents primarily consist of amounts held in interest-bearing money market accounts that were readily convertible to cash. Cash equivalents are stated at cost, which approximates fair market value.
Marketable securities have been classified as available-for-sale and are carried at estimated fair value as determined based upon quoted market prices or pricing models for similar securities. Unrealized gains and
losses in fair value of the available-for-sale ("AFS") debt securities are reported in other comprehensive income (loss). When the AFS debt securities are sold, cost is based on the specific identification method, and the realized gains and losses are included in other income (expense), net in the condensed consolidated statements of operations. The Company determines the appropriate classification of its investments at the time of purchase and reevaluates such designation at each balance sheet date. The Company considers all AFS debt securities as available for use to support current operations, including those with maturity dates beyond one year and are classified as current assets under marketable securities in the accompanying condensed consolidated balance sheets. AFS debt securities included in marketable securities on the condensed consolidated balance sheets consist of securities with original maturities greater than three months at the time of purchase. Interest on marketable securities is included within interest income.
Restricted cash of $2,150 and $1,222 as of September 30, 2021 and December 31, 2020, respectively consists of funds that are contractually restricted as to usage or withdrawal due to a contractual agreement. In 2020, the Company had a letter of credit to the amount of $2,150 with Silicon Valley Bank as security for the payment of rent on its new headquarters in Dublin, CA. During the year ended December 31, 2020, as a result of COVID-19, the Company agreed to a rent payment restructuring arrangement with the landlord, whereby restricted cash under the letter of credit was released and $928 was used to fund rental payments during the period from May 1, 2020 through December 31, 2020. At December 31, 2020, the Company had an available letter of credit of $928. As part of the restructuring arrangement, the Company replenished the letter of credit back by paying $928 in January 2021.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to concentration of credit risk consist primarily of cash and cash equivalents, marketable securities, and accounts receivable. The Company places its cash and cash equivalents with major financial institutions, which management assesses to be of high credit quality, to limit the exposure of each investment. The Company's marketable securities have investment grade ratings when purchased which mitigates risk.
The Company’s accounts receivables are derived from customers located in the U.S., Europe, and Asia. The Company mitigates its credit risks by performing ongoing credit evaluations of its customers’ financial conditions. The Company generally does not require collateral.
The Company’s concentration of risk related to accounts receivable and accounts payable was determined by evaluating the number of customers and vendors accounting for 10% or more of accounts receivable ("AR") and accounts payable ("AP"). As of September 30, 2021, AEye had three customers accounting for 10% or more of AR and two vendors accounting for 10% or more of AP. As of December 31, 2020, AEye had four customers accounting for 10% or more of AR and three vendors accounting for 10% or more of AP.
For the three and nine months ended September 30, 2021 and 2020, revenue from the Company’s major customers representing 10% or more of total revenue was as follows:
|Three months ended September 30,||Nine months ended September 30,|
|Customer A||*||92 ||%||*||81 ||%|
|Customer B||21 ||%||*||*||*|
|Customer C||16 ||%||*||*||*|
|Customer D||13 ||%||*||*||*|
|Customer E||16 ||%||*||*||*|
|Customer F||35 ||%||*||20 ||%||*|
|Customer G||*||*||42 ||%||*|
|Customer H||*||*||11 ||%||*|
*Customer accounted for less than 10% of total revenue in the period.
Fair Value of Financial Instruments
The Company defines fair value as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that is determined based on assumptions that market participants would use in pricing an asset or liability.
The Company accounts for derivative instruments in accordance with Accounting Standards Codification (“ASC”) 815, Derivatives and Hedging. The Company’s objectives and strategies for using derivative instruments, and how the derivative instruments and related hedged items are accounted for affect the financial statements.
The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risk. Terms of convertible debt instruments are reviewed to determine whether they contain embedded derivative instruments that are required under ASC 815 to be accounted for separately from the host contract and recorded on the condensed consolidated balance sheets at fair value.
An evaluation of specifically identified conditions is made to determine whether the fair value of the derivative issued is required to be classified as equity or as a derivative liability. The fair value of derivative liabilities is required to be revalued at each reporting date, with corresponding changes in fair value recorded in current period operating results.
Accounts Receivable, net
Accounts receivable are recorded at the invoiced amount and do not bear interest. Amounts collected on accounts receivable are included in net cash provided by operating activities in the condensed consolidated statements of cash flows.
Accounts receivable are reduced by an allowance for doubtful accounts, which is the Company’s best estimate of the amount of credit losses inherent in its existing accounts receivable. The Company reviews the need for an allowance for doubtful accounts quarterly based on historical experience with each customer and the specifics of each arrangement. On September 30, 2021 and December 31, 2020, the Company did not have an allowance for doubtful accounts or write-offs.
Inventories consist of raw materials, work in progress and finished goods. Inventories are stated at the lower of cost and net realizable value and costs are computed under the standard cost method. Prototype inventory cost consists of the associated raw material, direct and indirect labor. The Company evaluates the need for inventory write-downs associated with obsolete, slow moving, and non-sellable inventory by reviewing estimated net realizable values on a periodic basis and records a provision for excess and obsolete inventory to adjust the carrying value of inventory as needed. The Company recorded an allowance to write down inventory of $546 and $298 as of September 30, 2021 and December 31, 2020 respectively, to reduce inventory to the lower of cost or to its net realizable value.
Deferred Transaction Costs
The Company capitalized qualified legal, accounting, and other direct costs related to the Business Combination which were deferred until completion of the Business Combination. In August 2021, upon the completion of the Business Combination, all deferred costs were offset against proceeds from the Business Combination and the private investment in public equity ("PIPE") financing.
Property and Equipment, net
Property and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, which range from 3 to 7 years. Leasehold improvements are amortized over the shorter of the lease term or expected useful life of the improvements.
Impairment of Long-Lived Assets
The Company evaluates its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. There are no impairment charges recorded in the condensed consolidated statements of operations and comprehensive loss for the three and nine months ended September 30, 2021 and 2020.
The Company rents office space and vehicles under long-term leases that are accounted for as operating leases following ASC 840, Leases. Rent expense is recognized on a straight-line basis over the expected lease term. The difference between straight-line rent expense and amounts paid are recorded as a deferred rent liability. Lease incentives, including tenant improvement allowances, are also recorded as a deferred rent liability and amortized as a reduction of rent expense on a straight-line basis over the expected term of the lease.
In 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (ASC 606) (collectively, “ASC 606”). ASC 606 requires companies to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those
goods or services. In addition, ASC 606 requires disclosures of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.
The Company generates revenues from the sale of prototype systems and from R&D and collaboration arrangements with automakers and suppliers to automakers. Under ASC 606, the Company accounts for such arrangements as contracts with customers and accordingly recognizes revenue by applying the following steps:
•Identification of the contract, or contracts, with a customer
•Identification of the performance obligations in the contract
•Determination of the transaction price
•Allocation of the transaction price to the performance obligations in the contract
•Recognition of revenue when, or as, the Company satisfies a performance obligation
See Note 15, Revenue, for additional information related to the application of ASC 606 to the Company’s primary revenue streams.
Sales taxes collected from customers and remitted to governmental authorities are accounted for on a net basis and therefore are excluded from revenues in the condensed consolidated statements of operations.
Contract liabilities relate to deferred revenue. Deferred revenue consists of amounts that have been invoiced with cash received but for which revenue not been recognized. This generally includes unrecognized revenue balances for technology development. Deferred revenue that will be realized during the succeeding 12-month period is recorded within current liabilities and the remaining deferred revenue is recorded as noncurrent liabilities.
Arrangements with Multiple Performance Obligations
When a contract involves multiple performance obligations, the Company accounts for individual products and services separately if the customer can benefit from the product or service on its own or with other resources that are readily available to the customer and the product or service is separately identifiable from other promises in the arrangement. The consideration is allocated between separate performance obligations in proportion to their estimated standalone selling price.
Significant Financing Component
In certain arrangements, the Company receives payment from a customer either before or after the performance obligation has been satisfied. The expected timing difference between the payment and satisfaction of performance obligations for all of the Company’s contracts is one year or less; therefore, the Company applies a practical expedient and does not consider the effects of the time value of money. The Company’s contracts with customer prepayment terms do not include a significant financing component because the primary purpose is not to receive financing from the customers.
Collaboration and Development Agreements
The Company considers whether an arrangement qualified as a collaborative arrangement under ASC 808, Collaborative Arrangements, by assessing whether the arrangement between the parties have joint operating activities where both are (i) active participants in the activity; and (ii) have exposure to significant risks and rewards dependent on the commercial success of the activity. When both criteria are met, the arrangement is considered a collaborative arrangement and accounted for under ASC 808.
To qualify and present consideration as revenue within the scope of ASC 606, consideration exchanged in a collaborative arrangement must originate from a customer. The Company refers to ASU 2018-18, Clarifying
the Interaction between Topic 808 and Topic 606, which clarifies when participants of a collaborative arrangement are within the scope of ASC 606 (and a customer relationship exists in the context of a unit of account).
The Company evaluates the unit of account for each arrangement and determines if the collaboration partner is considered a customer (defined as a party contracted with the entity to obtain goods and services which are outputs from the entity's ordinary course of business, in exchange for consideration). When this definition is met, the Company applies the ASC 606 guidance, including recognition, measurement, presentation, and disclosure requirements to the unit of account. When a portion of a bundle unit of account (i.e., multiple promises which are not individually distinct) is not with a customer, the entire unit of account is not accounted for under the scope of ASC 606. For such arrangements, the Company may choose to analogize to the recognition and measurement guidance of ASC 606 whereby the consideration associated with revenue from non-ASC 606 elements are recognized together with revenue to be recognized under ASC 606, as appropriate.
Cost of Revenue
Cost of revenue primarily consists of costs directly associated with the production of those prototypes that are held for sale and costs associated with collaboration arrangements. Such costs are direct materials, direct labor, indirect labor, and allocation of overhead. Direct and indirect labor includes personnel-related costs, including associated stock-based compensation, and packaging and procurement respectively associated with the production of prototypes. Other costs such as indirect manufacturing costs are recognized in research and development and general and administrative expenses on the condensed consolidated statements of operations.
Research and Development Expenses
Research and development expenses include personnel costs (including salaries, benefits, bonuses, and stock-based compensation), new hardware and software materials to the extent no future economic benefits are expected, other related expenses such as lab equipment, third party development-related contractors, and allocated overhead expenses. Substantially all the R&D expenses are related to the development of new products and services, including contract development expenses. They are expensed as incurred and included in the condensed consolidated statements of operation and comprehensive loss.
Sales and Marketing Expenses
Sales and marketing expenses include personnel costs (including salaries, benefits, bonuses, and stock-based compensation) for employees associated with business development and account management, trade shows expenses, and advertising and promotions expenses for press releases, other public relations services, and allocated overhead expenses.
General and Administrative Expenses
General and administrative expenses consist primarily of personnel costs (including salaries, benefits, bonuses, and stock-based compensation) for executive management and employees related to finance, legal, technical support, and other administrative personnel. General and administrative expenses also include management consulting, accounting and legal professional fees, insurance, software, computer equipment costs, general office expenses, and allocated overhead expenses.
The Company accounts for stock-based compensation by measuring and recognizing compensation expense for all share-based awards based on estimated grant-date fair values. The Company uses the straight-line attribution method to allocate compensation cost to reporting periods over each optionee’s requisite service period, which is generally the vesting period, and estimates the fair value of share-based awards using the Black-Scholes option-valuation model. The Black-Scholes option-valuation model requires the input of
subjective assumptions, including the option’s expected term and the price volatility of the underlying stock. The Company's policy is to recognize stock-based compensation net of estimated forfeitures, based on historical forfeiture rates. The Company measures nonemployee awards at the date of grant, which generally is the date at which a grantor and a grantee reach a mutual understanding of the key terms and conditions of a share-based payment award. The fair value of the restricted stock units, or "RSUs," is equal to the fair market value of the Company’s common stock on the grant date. The fair value of the stock-based compensation is recognized on a straightline basis over the requisite service period, which is generally the vesting period of the award.
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases, as well as net operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
The Company recognizes deferred tax assets to the extent that these assets are more likely than not to be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If the Company determines that it would be able to realize deferred tax assets in the future in excess of their net recorded amount, an adjustment to the deferred tax asset valuation allowance would be made to reduce the provision for income taxes.
The Company records uncertain tax positions in accordance with ASC 740 on the basis of a two-step process in which determinations are made (1) whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, the Company recognizes the largest amount of tax benefit that is more than 50% likely to be realized upon ultimate settlement with the related tax authority.
The Company recognizes interest and penalties related to unrecognized tax benefits on the income tax expense line in the accompanying condensed consolidated statements of operations. Accrued interest and penalties are included on the related tax liability line in the condensed consolidated balance sheets. As of and for the three and nine months ended September 30, 2021 and September 30, 2020 there were no interest or penalties recorded.
Net Loss per Share
Basic net loss per share is computed using net loss available to common stockholders divided by the weighted average number of common shares outstanding during the period. Diluted net loss per share reflects the dilutive effects of stock options, restricted stock units, preferred stocks, convertible notes, and public and private placement warrants outstanding during the period to the extent such securities would not be anti-dilutive and is determined using the if-converted and treasury stock methods. The Company calculates basic and diluted net loss per share attributable to common stockholders in conformity with the two-class method required for participating securities as the Company’s preferred stock is considered a participating security. The two-class method requires income (loss) available to common stockholders for the period to be allocated between common and participating securities based upon their respective rights to share in the earnings as if all income (loss) for the period had been distributed. Under the two-class method, the 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 losses. Basic and diluted net loss per share attributable to common stockholders was the same for all periods presented as the inclusion of all potentially dilutive securities outstanding was anti-dilutive.
Comprehensive loss includes all changes in equity (net assets) from non-owner sources during a period and net unrealized gains (losses) on available-for-sale securities.
Recently Issued Accounting Pronouncements
In February 2016, the FASB established Topic 842, Leases, by issuing Accounting Standards Update (ASU) No. 2016-02. ASC 842 supersedes the previous accounting guidance for leases included within Accounting Standards Codification 840, "Leases" ("ASC 840"). The new guidance generally requires an entity to recognize operating and financing lease liabilities and corresponding right-of-use assets on its balance sheet, as well as recognize the associated lease expenses on its statements of operations in a manner similar to that required under current accounting rules.
The new standard is effective for us on January 1, 2022, with early adoption permitted. The new standard initially required a modified retrospective transition approach for all leases existing at the date of initial application. However, in July 2018, FASB issued Accounting Standards Update No. 2018-11, "Targeted Improvements to ASC 842" ("ASU 2018-11"), which provides entities with the option to begin applying ASC 842 at the adoption date rather than at the beginning of the earliest period presented (the "Effective Date Method"). Entities using the Effective Date Method recognize a cumulative-effect adjustment to the opening balance of retained earnings (or accumulated deficit) in the period of adoption. We expect to adopt the new standard on January 1, 2022 and use the effective date as our date of initial application. Consequently, financial information will not be updated and the disclosures required under the new standard will not be provided for dates and periods before January 1, 2022. Management’s evaluation of the new standard is underway, and we have identified the significant changes between the current guidance and the new guidance and expect to elect certain available transitional practical expedients.
The Company plans to adopt ASC 842 using the Effective Date Method by recording additional operating liabilities and right-of-use ("ROU") assets to the balance sheet based on the present value of the remaining minimum rental payments under current leasing standards for existing operating leases. The Company continues to evaluate the impact of ASC 842 on its condensed consolidated financial statements and accounting processes. Based on these ongoing evaluations, the Company currently expects the most significant changes will be related to the recognition of new ROU assets and lease liabilities on our balance sheet in the amounts of approximately $8,500 to $12,500. We expect that this standard will have a material effect on our financial statements. We do not expect a significant change in our leasing activities between now and adoption.
In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments, which has subsequently been amended by ASU No. 2018-19, ASU No. 2019-04, ASU No. 2019-05, ASU No. 2019-10, and ASU No. 2019-11. The objective of the guidance in ASU 2016-13 is to allow entities to recognize estimated credit losses in the period that the change in valuation occurs. ASU 2016-13 requires an entity to present financial assets measured on an amortized cost basis on the balance sheet net of an allowance for credit losses. Available-for-sale and held to maturity debt securities are also required to be held net of an allowance for credit losses. For public business entities, this standard is effective for fiscal years beginning after December 15, 2019. For smaller reporting companies, the standard is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact this standard will have on its condensed consolidated financial statements and related disclosures and will adopt the guidance on January 1, 2023 as permitted for smaller reporting companies.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This standard simplifies the accounting for income taxes by, among other things, eliminating certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis
differences. ASU 2019-12 is effective for public business entities for fiscal years beginning after December 15, 2021, with early adoption permitted. Upon adoption, the Company must apply certain aspects of this standard retrospectively for all periods presented while other aspects are applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. The Company is currently evaluating the impact this standard will have on its condensed consolidated financial statements and related disclosures and will adopt the guidance January 1, 2022 as permitted for smaller reporting companies.
As discussed in Note 1, on August 16, 2021, AEye Technologies and CF III consummated the Business Combination, with AEye Technologies surviving the Business Combination as a wholly owned subsidiary of CF III. As part of the consummation of the Business Combination, CF III changed its name to AEye, Inc. and AEye Technologies changed its name to AEye Technologies, Inc..
Immediately prior to the closing of the Business Combination, the Company’s certificate of incorporation was amended and restated to, among other things, increase the total number of authorized shares of capital stock to 301,000,000 shares, of which 300,000,000 shares were designated common stock, $0.0001 par value per share, and of which 1,000,000 shares were designated preferred stock, $0.0001 par value per share.
The Business Combination is accounted for as a reverse recapitalization, with no goodwill or other intangible assets recorded, in accordance with US GAAP. Under this method of accounting, AEye Technologies was treated as the accounting acquirer and CF III was treated as the acquired company for financial reporting purposes. This determination is primarily based on AEye Technologies' stockholders comprising a relative majority of the voting power of the combined entity, and having the ability to nominate the majority of the governing body of the combined entity, AEye Technologies' senior management comprising the senior management of the combined entity and AEye Technologies' operations comprising the ongoing operations of the combined entity. Accordingly, for accounting purposes, the financial statements of the combined entity represented a continuation of the financial statements of AEye Technologies and the Business Combination was treated as the equivalent of AEye Technologies issuing stock for the net assets of CF III, accompanied by a recapitalization. The net assets of CF III are stated at historical cost, with no goodwill or other intangible assets recorded. Operations prior to the Business Combination will be those of AEye Technologies in future reports of the combined entity. Loss per share and stockholders' equity (deficit), prior to the Business Combination, have been retroactively stated as shares reflecting the Exchange Ratio.
Immediately prior to the closing of the Business Combination, all outstanding principal and unpaid accrued interest of the 2020 Notes were converted into 5,584,308 shares of AEye Technologies' preferred stock and subsequently converted to common stock of the Company (see Note 10). Each issued and outstanding share of AEye Technologies' redeemable convertible preferred stock was converted into shares of common stock based on a one-to-one ratio. The condensed consolidated financial statements are accounted for with a retrospective application of the Business Combination that results in 16,383,725 shares of redeemable convertible preferred stock converting into the same number of shares of AEye Technologies common stock.
Upon the consummation of the Business Combination, each share of AEye Technologies common stock issued and outstanding was canceled and converted into the right to receive 3.7208 shares (the "Exchange Ratio") of the CF III's common stock (the “Per Share Merger Consideration”).
Immediately prior to the closing of the Business Combination, the Board approved the Net-Exercise of common stock warrants and Series A preferred warrants which provides for the cashless exercise of 61,612 common stock warrants into 57,770 shares of AEye common stock and 7,353 Series A preferred warrants into 6,949 shares of AEye common stock at the Transaction Price of $37.21 per Company share. Upon the Closing, the combined 64,719 shares were cancelled and exchanged for 240,806 Company’s Class A common stock, after giving effect to the Exchange Ratio.
Immediately prior to the Closing of the Business Combination, CF III’s amended and restated certificate of incorporation, dated November 12, 2020 (the “Charter”), was further amended and restated to eliminate the Class B common stock (after giving effect to the conversion of each outstanding share of Class B common stock immediately prior to the Closing of the Business Combination into one share of common stock).
2021 Equity Incentive Plan
As previously reported in the Current Report on Form 8-K filed with the SEC on August 16, 2021, at the special meeting of stockholders held in connection with the Business Combination, the CF III stockholders considered and approved the CF Finance Acquisition Corp. III 2021 Equity Incentive Plan (the “Incentive Plan”) and reserved 15,440,430 shares of common stock for issuance thereunder. The Incentive Plan was previously approved, subject to stockholder approval, by the board of directors of CF III on February 17, 2021. The Incentive Plan became effective immediately upon the Closing of the Business Combination. The number of shares of common stock reserved for issuance under the Incentive Plan will automatically increase on January 1 of each year, beginning on January 1, 2022 and continuing through January 1, 2032, by 5% of the total number of shares of common stock outstanding on December 31, 2021 for the first year and by 3% of the total number of shares of common stock outstanding on December 31 of the preceding calendar year for each year thereafter, or a lesser number of shares as may be determined by the Board.
Outstanding stock options and restricted stock units, whether vested or unvested, under the AEye Technologies 2014 Equity Incentive Plan, the 2016 Equity Incentive Plan, and the 2021 Equity Incentive Plan (collectively the "Plans") (see Note 14) automatically converted into stock options and restricted stock units for shares of the Company’s common stock upon the same terms and conditions that were in effect with respect to such awards immediately prior to the Business Combination, after giving effect to the Exchange Ratio.
PIPE Subscription Agreement
Contemporaneously with the execution of the Merger Agreement, CF III entered into separate PIPE Subscription Agreements in a private placement with a number of PIPE investors, pursuant to which the PIPE Investors agreed to purchase, and CF III agreed to sell to the PIPE Investors, an aggregate of 22,000,000 shares of common stock, for a purchase price of $10.00 per share and an aggregate purchase price of $220,000. CF III also entered into a PIPE Subscription Agreement for 500,000 shares of common stock, for a purchase price of $10.00 per share and an aggregate purchase price of $5,000 with an investor who defaulted on the Closing under the PIPE Subscription Agreement. The Company plans to pursue its available remedies with respect to such investor.
Certain CF III shareholders exercised their right to redeem certain of their outstanding shares for cash, resulting in the redemption of 19,355,365 shares of CF III Class A common stock for an aggregate payment of $195,498, at a redemption price of $10.10 per share based on the Trust Account balance as of August 11, 2021.
Public and Private Placement Warrants
CF III Warrants issued in connection with the IPO (“Public warrants”) and in connection with the private placement units held by the Sponsor (“Private Placement warrants”) to purchase shares of the Company’s common stock, at an exercise price of $11.50 per share, remained outstanding after the closing of the Business Combination. The warrants became exercisable 30 days after the completion of the Business Combination, subject to other conditions, including with respect to the effectiveness of a registration statement covering the shares of common stock underlying such warrants, and will expire five years after the completion of the Business Combination or earlier upon redemption or liquidation. The Public warrants are equity-classified and valued based on the instrument's publicly listed trading price.
In connection with the Business Combination, the Company incurred direct and incremental costs of approximately $52,661 related to the equity issuance, consisting primarily of investment banking, legal, accounting, and other professional fees, which were recorded to additional paid-in capital as a reduction of proceeds upon the consummation of the Business Combination. Transaction costs that were not directly related to the Business Combination of approximately $2,198 were expensed.
Upon closing of the Business Combination, the Company received gross proceeds of $256,811 from the Business Combination and PIPE financing, offset by offerings costs of $52,661. The following table reconciles the elements of the Business Combination to the condensed consolidated statements of cash flows and the condensed consolidated statements of changes in stockholders’ equity for period ended September 30, 2021 (in thousands, except share data):
|Cash - CF III's trust and cash (net of redemption)||$||36,811 |
|Cash - Private offering||220,000 |
|Less: transaction costs and advisory fees paid ||(52,661)|
|Net Business Combination and private offering ||$||204,150 |
The number of shares of common stock issued immediately following the consummation of the Business Combination were:
CF III Class A common stock, outstanding prior to Business Combination
Less: redemption of CF III Class A common stock
Class A common stock of CF III
CF III founder shares
|CF III Private Placement shares||500,000 |
CF III Shares issued in PIPE
Business Combination and PIPE shares
Legacy AEye shares
|Total shares of Class A common stock immediately after Business Combination at August 16, 2021||154,404,302 |
The number of Legacy AEye shares was determined as follows:
AEye shares, effected for Exchange Ratio
Balance at December 31, 2019
|11,283,838 ||41,984,908 |
Recapitalization applied to Convertible preferred stock outstanding at December 31, 2019
|16,383,725 ||60,960,574 |
Exercise of common stock options - 2020
|504,524 ||1,877,233 |
|Repurchase of common stock - 2020||(950,352)||(3,536,070)|
Exercise of common stock options - 2021 (pre-Closing)
|54,859 ||204,119 |
Conversion of Convertible Notes and Accrued Interest – 2021
|5,584,308 ||20,778,097 |
|Exercise of common stock and Series A preferred stock warrants - 2021||64,719 ||240,806 |
3.FAIR VALUE MEASUREMENTS
The fair value of the Company’s financial assets and liabilities is determined in accordance with the fair value hierarchy established in FASB ASC Topic 820, Fair Value Measurements and Disclosures. ASC Topic 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The fair value hierarchy of ASC Topic 820 requires an entity to maximize the use of observable inputs when measuring fair value and classifies those inputs into three levels:
Level 1—Observable inputs, such as quoted prices in active markets
Level 2—Inputs, other than the quoted prices in active markets, which are observable either directly or indirectly or pricing based on quoted prices for similar assets or liabilities.
Level 3—Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions
Our financial instruments that are not re-measured at fair value include accounts receivable, accounts payable, accrued and other current liabilities, convertible notes, and long-term debt. The carrying values of these financial instruments approximate their fair values.
Financial assets and liabilities measured at fair value on a recurring basis as (in thousands):
As of September 30, 2021
|Adjusted cost||Unrealized losses||Fair value||Cash and Cash Equivalent||Marketable Securities|
|Asset-backed securities||$||26,599 ||$||(10)||$||26,589 ||$||— ||$||26,589 |
|Corporate bonds||43,261 ||(24)||43,237 ||— ||43,237 |
|Commercial paper||45,123 ||— ||45,123 ||— ||45,123 |
|U.S. Government securities||14,969 ||(8)||14,961 ||— ||14,961 |
|Total financial assets||$||129,952 ||$||(42)||$||129,910 ||$||— ||$||129,910 |
|Private placement warrant liability||$||— ||$||— ||$||156 ||$||— ||$||— |
|Total financial liabilities||$||— ||$||— ||$||156 ||$||— ||$||— |
As of December 31, 2020
|Adjusted cost||Unrealized losses||Fair value||Cash and Cash Equivalent||Marketable Securities|
|Common stock and series A preferred stock warrant liability||$||— ||$||— ||$||93 ||$||— ||$||— |
|Embedded derivative liability||— ||— ||17 ||— ||— |
|Total financial liabilities||$||— ||$||— ||$||110 ||$||— ||$||— |
As of September 30, 2021, the Company's financial assets and liabilities subject to fair value procedures were comprised of the following:
Marketable Securities: The Company holds financial assets consisting of fixed-income U.S. government agency securities, corporate bonds, and asset-backed securities. The securities are valued using prices from independent pricing services based on quoted prices of identical instruments in less active or inactive market, quoted prices of similar instruments in active market or industry models using data inputs such as interest rates and prices that can be directly observed or corroborated in active markets.
Private Placement Warrant Liability: The fair value of the private placement warrant liability is based on significant unobservable inputs, which represent Level 3 measurements within the fair value hierarchy. In determining the fair value of the private placement warrant liability, the Company used the Black-Scholes option-pricing model to estimate the fair value using unobservable inputs including the expected term, expected volatility, risk-free interest rate and expected dividend yield.
As of December 31, 2020, the Company's financial liabilities subject to fair value procedures were comprised of the following:
Common Stock and Series A Preferred Stock Warrant Liability: The fair value of the redeemable convertible preferred stock warrant liability is based on significant unobservable inputs, which represent Level 3 measurements within the fair value hierarchy. In determining the fair value of the redeemable convertible preferred stock warrant liability, the Company used the Black-Scholes option-pricing model to estimate the fair value using unobservable inputs including the expected term, expected volatility, risk-free interest rate and expected dividend yield.
Embedded Derivative Liability: During 2020, the Company entered into a convertible note agreement under which the Company may issue convertible equity instruments (“2020 Notes”). The 2020 Notes contain an embedded redemption feature, which is considered to be a derivative that is required to be separately accounted for at fair value and subsequently remeasured to fair value at each reporting date. The fair value of the embedded derivative liability was estimated using a with and without method. This method isolates the value of the embedded derivative liability by measuring the difference in the host contract’s value with and without the isolated feature. The resulting cash flows are discounted at the Company’s borrowing rate, as adjusted for fluctuations in the market interest rate from the inception of the Company’s comparative borrowings to the reporting date, to measure the fair value of the embedded derivative. The valuation for the conversion portion of the derivative factors in the expected timing and probability of a financing that would result in the conversion of the underlying, plus accrued interest discounted to the financing price per share. The probability and timing of a financing are estimated at each reporting date.
Upon the closing of the Business Combination, the embedded derivative was settled as the 2020 Notes and accrued interest were converted into the Company's Class A common stock. (See Note 2 Recapitalization)
For the nine months ended September 30, 2021 and year ended December 31, 2020, there were no transfers between Level 1 and Level 2 inputs. There were no transfers in or out of Level 3 inputs. There were no issuances, purchases, sales, or settlements of Level 3 inputs, other than as disclosed below.
The following table presents a summary of the changes in fair value of the Company's Level 3 financial instruments for the nine months ended September 30, 2021 (in thousands):
|Embedded Derivative Liability||Common Stock and Series A Preferred Stock Warrant Liability||Private Placement Warrant Liability||Total|
Balance at December 31, 2020
|$||17 ||$||93 ||$||— ||$||$||110 |
|Private placement warrant liability acquired as part of the Business Combination||— ||— ||268 |