SEC Filing - AEye, Inc.

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lidr-20220930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

For the quarterly period ended September 30, 2022


☐			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

AEye, Inc.

(Exact name of registrant as specified in its charter)


Delaware						37-1827430
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

One Park Place, Suite 200, Dublin, CA						94568
(Address of Principal Executive Offices)						(Zip Code)

(925) 400-4366

Registrant’s telephone number, including area code

Not Applicable

(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	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☒

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

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

As of November 8, 2022, the registrant had 161,058,732 shares of common stock, $0.0001 par value per share, outstanding.

AEye, Inc.

Quarterly Report on Form 10-Q

For the Quarterly Period Ended September 30, 2022

TABLE OF CONTENTS


		Page
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS		3

	PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)		4
	Condensed Consolidated Balance Sheets	4
	Condensed Consolidated Statements of Operations and Comprehensive Loss	5
	Condensed Consolidated Statements of Stockholders' Equity (Deficit)	6
	Condensed Consolidated Statements of Cash Flows	7
	Notes To Condensed Consolidated Financial Statements	8
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations		31
Item 3. Quantitative and Qualitative Disclosures About Market Risk		42
Item 4. Controls and Procedures		43
	PART II - OTHER INFORMATION
Item 1. Legal Proceedings		45
Item 1A. Risk Factors		45
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		77
Item 3. Defaults Upon Senior Securities		77
Item 4. Mine Safety Disclosures		77
Item 5. Other Information		77
Item 6. Exhibits		77
Signatures		78

CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (this “Form 10-Q”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which involve substantial risks and uncertainties. These statements reflect the current views of management with respect to future events and our financial performance. In some cases, you can identify these statements by forward-looking words such as “outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “could,” “seeks,” “approximately,” “predicts,” “intends,” “plans,” “estimates,” “anticipates,” or the negative version of these words or other comparable words or phrases, but the absence of these words does not mean that a statement is not forward-looking. These forward-looking statements, which are subject to risks, uncertainties, and assumptions about us, may include projections of our future financial performance, our anticipated growth strategies, and anticipated trends in our business.

These statements are only predictions based on our current expectations and projections about future events. These statements involve known and unknown risks, uncertainties, and other important factors that could cause our actual results, level of activity, performance, or achievements to differ materially from the results, level of activity, performance, or achievements expressed or implied by the forward-looking statements. Given these risks, uncertainties, and other factors, you should not place undue reliance on these forward-looking statements. These factors include the information set forth in Part 1, Item 1A, of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 under the heading “Risk Factors,” and Part II, Item 1A, of this Quarterly Report under the heading “Risk Factors,” which we encourage you to carefully read. Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance, or achievements. We undertake no obligation to update any forward-looking statements made in this Form 10-Q to reflect events or circumstances after the date of this Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law.

PART 1. FINANCIAL INFORMATION

Item 1. Financial statements (Unaudited)


AEYE, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share and par value)
	September 30, 2022		December 31, 2021
	(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	58,490	$	14,183
Marketable securities	53,699		149,824
Accounts receivable, net	624		4,222
Inventories, net	4,024		4,085
Prepaid and other current assets	5,496		5,051
Total current assets	122,333		177,365
Right-of-use assets	15,847		—
Property and equipment, net	7,621		5,129
Restricted cash	2,150		2,150
Other noncurrent assets	2,739		1,509
Total assets	$	150,690	$	186,153

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	1,175	$	2,542
Accrued expenses and other current liabilities	9,888		8,739
Contract liabilities	1,518		2,287
Convertible notes	9,512		—

Total current liabilities	22,093		13,568
Operating lease liabilities, noncurrent	17,058		—
Deferred rent, noncurrent	—		3,032

Other noncurrent liabilities	518		786
Total liabilities	39,669		17,386
COMMITMENTS AND CONTINGENCIES (Note 19)
STOCKHOLDERS’ EQUITY:
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; 160,837,846 and 155,137,237 shares issued and outstanding at September 30, 2022 and December 31, 2021	16		16
Additional paid-in capital	339,408		320,937
Accumulated other comprehensive loss	(1,636)		(391)
Accumulated deficit	(226,767)		(151,795)
Total stockholders’ equity	111,021		168,767
Total liabilities and stockholders’ equity	$	150,690	$	186,153

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


AEYE, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (In thousands, except share and per share data) (Unaudited)
	Three months ended September 30,				Nine months ended September 30,
	2022		2021		2022		2021
REVENUE:
Prototype sales	$	652	$	127	$	1,182	$	588
Development contracts	115		—		1,373		615
Total revenues	767		127		2,555		1,203
Cost of revenue	2,708		466		5,617		1,537
Gross loss	(1,941)		(339)		(3,062)		(334)
OPERATING EXPENSES:
Research and development	8,971		7,468		28,309		19,030
Sales and marketing	4,466		2,991		14,405		6,489
General and administrative	7,896		6,086		29,053		13,846
Total operating expenses	21,333		16,545		71,767		39,365
LOSS FROM OPERATIONS	(23,274)		(16,884)		(74,829)		(39,699)
OTHER INCOME (EXPENSE):
Change in fair value of embedded derivative liability and warrant liabilities	16		341		125		222
Gain on PPP loan forgiveness	—		—		—		2,297
Interest income and other	335		69		1,109		74
Interest expense and other	(688)		(919)		(1,338)		(2,871)
Total other income (expense), net	(337)		(509)		(104)		(278)
Provision for income tax expense	13		—		39		—
Net loss	$	(23,624)	$	(17,393)	$	(74,972)	$	(39,977)
PER SHARE DATA
Net loss per common share (basic and diluted)	$	(0.15)	$	(0.15)	$	(0.48)	$	(0.39)
Weighted average common shares outstanding (basic and diluted)	159,312,203		114,891,595		156,702,000		102,953,263
COMPREHENSIVE LOSS:
Net loss	$	(23,624)	$	(17,393)	$	(74,972)	$	(39,977)
Change in net unrealized loss on available-for-sale securities, net of tax	(84)		(42)		(1,322)		(42)
Net losses reclassified into income during the period, net of tax	77		—		77		—
Comprehensive loss	$	(23,631)	$	(17,435)	$	(76,217)	$	(40,019)

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


AEYE, INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT) For the nine months ended September 30, 2022 and 2021 (In thousands, except share data) (Unaudited)
	Preferred Stock			Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Stockholders’ Equity
	Shares	Amount		Shares	Amount


Balance as of December 31, 2021	—	$	—	155,137,237	$	16	$	320,937	$	(391)	$	(151,795)	$	168,767
Stock-based compensation	—	—		—	—		5,340		—		—		5,340
Issuance of common stock upon exercise of stock options	—	—		656,303	—		222		—		—		222







Issuance of common stock upon vesting of restricted stock units	—	—		856,917	—		—		—		—		—
Taxes related to net share settlement of equity awards	—	—		(285,533)	—		(1,149)		—		—		(1,149)
Change in net unrealized loss on available-for-sale securities, net of tax	—	—		—	—		—		(1,056)		—		(1,056)
Net loss	—	—		—	—		—		—		(24,881)		(24,881)
BALANCE—March 31, 2022	—	$	—	156,364,924	$	16	$	325,350	$	(1,447)	$	(176,676)	$	147,243
Stock-based compensation	—	—		—	—		6,557		—		—		6,557
Issuance of common stock upon exercise of stock options	—	—		1,105,298	—		446		—		—		446
Issuance of common stock upon vesting of restricted stock units	—	—		883,318	—				—		—		—
Taxes related to net share settlement of equity awards	—	—		(312,920)	—		(1,431)		—		—		(1,431)
Issuance of common stock under the Common Stock Purchase Agreement	—	—		435,000	—		1,422		—		—		1,422
Issuance of stock upon exercise of public warrants	—	—		10	—		—		—		—		—
Change in net unrealized loss on available-for-sale securities, net of tax	—	—		—	—		—		(182)		—		(182)
Net loss	—	—		—	—		—		—		(26,467)		(26,467)
BALANCE—June 30, 2022	—	$	—	158,475,630	$	16	$	332,344	$	(1,629)	$	(203,143)	$	127,588
Stock-based compensation	—	—		—	—		6,106		—		—		6,106
Issuance of common stock upon exercise of stock options	—	—		1,014,428	—		364		—		—		364
Issuance of common stock upon vesting of restricted stock units	—	—		976,852	—		—		—		—		—
Taxes related to net share settlement of equity awards	—	—		(339,064)	—		(846)		—		—		(846)
Issuance of common stock under the Common Stock Purchase Agreement, net of transaction costs	—	—		710,000	—		1,469		—		—		1,469
Transaction costs related to Common Stock Purchase Agreement	—	—		—	—		(29)		—		—		(29)
Other comprehensive loss, net of tax	—	—		—	—		—		(7)		—		(7)
Net loss	—	—		—	—		—		—		(23,624)		(23,624)
BALANCE—September 30, 2022	—	$	—	160,837,846	$	16	$	339,408	$	(1,636)	$	(226,767)	$	111,021



	Preferred Stock			Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Stockholders’ Equity
	Shares	Amount		Shares	Amount
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	—	—		101,286,645	10		68,549		—		(86,784)		(18,225)
Stock-based compensation	—	—		—	—		1,610		—		—		1,610
Issuance of common stock upon exercise of stock options	—	—		171,724	—		85		—		—		85
Repurchase of common stock	—	—		—	—		—		—		—		—
Net loss	—	—		—	—		—		—		(11,509)		(11,509)
BALANCE—March 31, 2021	—	$	—	101,458,369	$	10	$	70,244	$	—	$	(98,293)	$	(28,039)
Issuance of common stock upon exercise of stock options	—	—		8,478	—		4		—		—		4
Stock-based compensation	—	—		—	—		2,620		—		—		2,620
Net loss	—	—		—	—		—		—		(11,075)		(11,075)
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

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


AEYE, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)
	Nine months ended September 30,
	2022		2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(74,972)	$	(39,977)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	794		769
Noncash lease expense relating to operating lease right-of-use assets	993		—


Inventory write-downs, net of scrapped inventory	576		—
Change in fair value of embedded derivative liability and warrant liabilities	(125)		(222)
Noncash gain on PPP loan forgiveness	—		(2,297)
Stock-based compensation	18,003		6,522
Amortization of debt issuance costs	—		725
Amortization of debt discount	—		752
Realized loss on redemption of marketable securities	77		—
Amortization of premiums on marketable securities, net of change in accrued interest	1,211		47
Other	—		286
Changes in operating assets and liabilities:
Accounts receivable, net	3,598		9
Inventories, current and noncurrent, net	(2,256)		(2,197)
Prepaid and other current assets	(445)		(5,305)
Other noncurrent assets	420		(142)
Accounts payable	(1,236)		840
Accrued expenses and other current liabilities	220		1,417
Operating lease liabilities	(983)		—
Deferred rent	—		(400)
Contract liabilities	(1,400)		(415)
Net cash used in operating activities	(55,525)		(39,588)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment	(3,402)		(713)
Purchase of available-for-sale securities	—		(129,999)
Proceeds from redemptions and maturities of marketable securities	93,592		—
Net cash provided by (used in) operating activities	90,190		(130,712)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options	1,032		100
Proceeds from Business Combination and PIPE financing	—		256,811
Transaction costs related to Business Combination and PIPE financing	—		(50,985)
Proceeds from the issuance of convertible notes	10,000		8,045
Proceeds from bank loan	—		10,000
Principal payments on bank loans	—		(13,333)
Payment of debt issuance costs	—		(717)
Repurchase of stock options	—		(1,500)
Taxes paid related to the net share settlement of equity awards	(4,252)		—
Proceeds from issuance of common stock under the Common Stock Purchase Agreement	2,891		—
Stock issuance costs related to the Common Stock Purchase Agreement	(29)		—

Net cash provided by financing activities	9,642		208,421
NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH	44,307		38,121
CASH, CASH EQUIVALENTS AND RESTRICTED CASH—Beginning of period	16,333		16,497
CASH, CASH EQUIVALENTS AND RESTRICTED CASH—Ending	$	60,640	$	54,618
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for income taxes	$	20	$	—
Cash paid for interest	$	—	$	358
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Purchases of property and equipment included in accounts payable and accrued liabilities	$	154	$	26

Taxes related to net share settlement of equity awards included in accrued liabilities	$	9	$	325
Operating lease right-of-use assets obtained in exchange for lease obligations upon adoption of ASC 842	$	16,284	$	—
Operating lease right-of-use assets obtained in exchange for lease obligations	$	556	$	—
Financings costs included in accounts payable and accrued liabilities	$	—	$	1,387
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 in 2021	$	—	$	289
Issuance of Class A common stock in lieu of cash retainer	$	—	$	10

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

AEYE, INC.

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 4SightTM Intelligent Sensing 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 of the surroundings.

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 closed 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 entity 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.

Principle of Consolidation and Liquidity

The accompanying 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 of September 30, 2022, the Company’s existing sources of liquidity included cash, cash equivalents, and marketable securities of $112,189. The Company has incurred losses and negative cash flows from operations. As the Company incurs additional losses in the future, it may need to raise additional capital through issuances of equity and debt. However, management believes that the Company’s existing sources of liquidity are adequate to fund its operations for at least the next 12 months.

Reclassification of Prior Year Presentation

Certain prior year amounts have been reclassified for consistency with the current year presentation. Specifically, Amortization of issuance costs is now presented as amortization of debt issuance costs on the consolidated statements of cash flows. Transaction costs related to Business Combination and PIPE Financing paid prior to close is now presented within Transaction costs related to Business Combination and PIPE Financing on the consolidated statements of cash flows. Advances to suppliers has been broken out from Other within Footnote 6, Prepaid and other current assets. Realized losses on sale of investments within Footnote 13, Interest Expense and other is now presented as Amortization of premiums on marketable securities, net of accretion of discounts.

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 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 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 investments, convertible notes, embedded derivative and warrant liabilities, fair value of common stock, and stock-based compensation.

Segment Reporting

The Company manages its business on the basis of one reportable and operating segment. Operating segments are defined as components of an enterprise with separate financial information, and are evaluated regularly by the chief operating decision maker, which is the Company's Chief Executive Officer (“CEO”). The CEO decides how to allocate resources and assesses the Company’s performance based upon consolidated financial information. All of the Company's sales were made to customers (in USD) located in the U.S., Europe, and Asia through AEye, Inc. Of the $7,621 of net property and equipment as of September 30, 2022, $7,531 is located in the U.S., $66 is located in Europe, and $24 is in Asia.

Concentration of Credit Risk

Financial instruments which potentially subject the Company to concentration of credit risk consist primarily of cash, cash equivalents, and 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, 2022, AEye had three customers, each accounting for 10% or more of AR, and four vendors, each accounting for 10% or more of AP. As of December 31, 2021, AEye had one customer accounting for 10% or more of AR and two vendors accounting for 10% or more of AP. During the nine months ended September 30, 2022 and 2021, the Company did not have any write-offs, and at September 30, 2022 and 2021, did not record an allowance for doubtful accounts as all accounts receivable amounts were expected to be collected.

For the three and nine months ended September 30, 2022 and 2021, 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,
	2022		2021		2022		2021
Customer A	9	%	*		49	%	11	%
Customer B	56	%	*		18	%	*
Customer C	29	%	*		*		*
Customer D	*		*		14	%	*
Customer E	*		*		*		42	%
Customer F	*		35	%	*		20	%
Customer G	*		16	%	*		*
Customer H	*		21	%	*		*
Customer I	*		16	%	*		*
Customer J	*		13	%	*		*

*Customer accounted for less than 10% of total revenue in the period.

Significant Accounting Policies

The Company's significant accounting policies are disclosed in its Annual Report on Form 10-K for the year ended December 31, 2021. Other than the accounting policies discussed below, there have been no material changes to the Company's significant accounting policies during the nine months ended September 30, 2022.

Leases

The Company determines if an arrangement is or contains a lease at inception. The Company evaluates the classification of leases at commencement, and, as necessary, at modification. Operating leases, consisting of office leases, are included in Right-of-use ("ROU") assets, Accrued expenses and other current liabilities, and Operating lease liabilities, noncurrent, on the Company's consolidated balance sheets. The Company did not have any finance leases as of September 30, 2022 and December 31, 2021. ROU assets represent the Company's right to an underlying asset for the lease term, and lease liabilities represent the Company's obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. The operating lease ROU asset also includes any lease payments made prior to lease commencement and initial direct costs and excludes lease incentives. Variable lease payments not dependent on an index or a rate are expensed as incurred and are not included within the ROU asset and lease liability calculation. Variable lease payments primarily include reimbursements of costs incurred by lessors for common area maintenance and utilities. As most of the Company's leases do not include an implicit rate, the Company uses the incremental borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments at commencement date in determining the present value of future payments. The incremental borrowing rate is a hypothetical rate based on the Company's understanding of what its credit rating would be for a secured borrowing when the lease was executed. The Company's lease term includes the noncancelable period, any rent-free periods provided by the lessor, and options to extend or terminate the lease when it is reasonably certain that it will exercise that option. At lease inception, and in subsequent periods as necessary, the Company estimates the lease term based on its assessment of extension and termination options that are reasonably certain to be exercised. Operating lease expense for lease payments is recognized on a straight-line basis over the lease term and is included in operating expenses on the consolidated statements of operations and

comprehensive loss. The Company elected to exclude from its balance sheets recognition of leases having a term of 12 months or less (short-term leases) and elected to not separate lease components and non-lease components for its long-term real estate leases.

Warrant Liability

The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant's specific terms and applicable authoritative guidance. The warrants assumed in connection with the 2022 convertible note are accounted for in accordance with ASC 815-40, Derivatives and Hedging—Contracts in Entity’s Own Equity, under which the warrants do not meet the criteria for equity treatment and must be recorded as liabilities. Accordingly, the Company classifies the warrants as liabilities at their fair value and adjusts the warrants to fair value at each reporting period. This liability is subject to remeasurement at each balance sheet date until exercised, and any change in fair value is recognized in the condensed consolidated statements of operations.

Convertible Notes

The Company elected to early adopt Accounting Standards Update (“ASU”) 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”). The Company has elected to apply the fair value option to the 2022 convertible note on the date that the Company first recognized the convertible note on September 15, 2022. The Company acknowledges that its election to apply the fair value option is irrevocable. The Company recognized costs incurred upon issuance of the 2022 convertible note as an expense in its consolidated income statement for the nine months ended September 30, 2022. The 2022 convertible note will be classified and presented as a current liability on the Consolidated Balance Sheet as of September 30, 2022. Changes in fair value will be recorded in the condensed consolidated statements of operations and changes in fair value related to credit risk will be recorded in other comprehensive loss.

Recent Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board, ("FASB"), issued Accounting Standards Update ("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 consolidated financial statements and related disclosures and will adopt the guidance on January 1, 2023, as permitted for smaller reporting companies.

Recently Adopted Accounting Guidance

In February 2016, the FASB established Topic 842, Leases, by issuing ASU No. 2016-02. FASB Accounting Standards Codification ("ASC") Topic 842, Leases (“ASC 842”) supersedes the previous accounting guidance for leases included within 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 guidance requires a modified retrospective transition approach with application in all comparative periods presented (the “Comparative Method”), or alternatively, as of the effective date as the date of initial application without restating comparative period financial statements (the “Effective Date Method”).

The Company adopted this new standard on January 1, 2022 using the Effective Date Method. Upon adoption, the Company recorded net ROU assets and lease liabilities of $16,284 and $19,921, respectively, and a reversal of deferred rent of $3,032; there were no cumulative effect adjustments as of January 1, 2022. The standard did not have a material effect on the Company's consolidated statements of operations and comprehensive loss and the consolidated statement of cash flows. The Company elected the transition practical expedient package, which among other things, allows the carryforward of historical lease classifications. The Company will continue to apply ASC Topic 840, Leases, prior to January 1, 2022, including Topic 840 disclosure requirements, in the comparative periods presented. The Company did not elect to apply the hindsight practical expedient, which permits entities to use hindsight in determining the lease term and assessing impairment of right-of-use assets.

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. The Company adopted ASU 2019-12 as of January 1, 2022, and the Company's adoption did not have a material impact on the consolidated financial statements.

In August 2020, the FASB issued ASU 2020-06, which simplifies the guidance on accounting for convertible debt instruments by removing the separation models for: (1) convertible debt with a cash conversion feature; and (2) convertible instruments with a beneficial conversion feature. Also, ASU 2020-06 requires the application of the if-converted method for calculating diluted earnings per share and the treasury stock method will be no longer available. The provisions of ASU 2020-06 are applicable for fiscal years beginning after December 15, 2023 for smaller reporting companies, with early adoption permitted no earlier than fiscal years beginning after December 15, 2020. The Company adopted this standard using the modified retrospective method, effective January 1, 2022, and the Company's adoption did not have a material impact on the consolidated financial statements.

2.RECAPITALIZATION

As discussed in Note 1, on August 16, 2021, AEye Technologies and CF III closed the Business Combination, with AEye Technologies surviving the Business Combination as a wholly owned subsidiary of CF III. As part of the closing of the Business Combination, CF III changed its name to AEye, Inc. (the “Combined Entity”).

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 under FASB ASC Topic 805, Business Combinations (“ASC 805”). This determination is primarily based on AEye Technologies’ stockholders comprising a 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 converted into 3.7208 shares (the “Exchange Ratio”).

Immediately prior to the closing of the Business Combination, all outstanding principal and unpaid accrued interest of the 2020 Notes were ultimately converted into 5,584,308 shares of AEye Technologies’ common stock and subsequently converted to Class A common stock of the Company (see Note 12). Separately, each issued and outstanding share of AEye Technologies’ 16,383,725 redeemable convertible preferred stock was converted into shares of AEye Technologies’ common stock based on a one-to-one ratio. The 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 common stock of the Company. Upon the closing 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 of 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 Technologies common stock and 7,353 Series A preferred warrants into 6,949 shares of AEye Technologies common stock at the Transaction Price of 37.21 per share. Upon the Closing, the combined 64,719 shares were cancelled and exchanged for 240,806 shares of the 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 Class A common stock).

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 has initiated litigation to enforce the terms of that investor's PIPE Subscription Agreement.

Redemption

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 5 years after the completion of the Business Combination or earlier upon redemption or liquidation. The Public Warrants are classified as equity and valued based on the instrument’s publicly listed trading price. The Private Placement Warrants are classified as liabilities and measured at fair value, with changes in fair value each period reported in the consolidated statements of operations and comprehensive loss. The Company uses the Public Warrants listed trading price to value the Private Placement Warrants each reporting period.

Transaction Costs

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 closing of the Business Combination. Transaction costs that were not directly related to the Business Combination of approximately $2,198 were expensed.

Transaction Proceeds

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 consolidated statements of cash flows and the consolidated statements of changes in stockholders’ deficit for period ended December 31, 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 closing of the Business Combination were:


CF III Class A common stock, outstanding prior to Business Combination			23,000,000
Less: redemption of CF III Class A common stock			19,355,365
Class A common stock of CF III			3,644,635
CF III founder shares			5,750,000
CF III Private Placement shares			500,000
CF III Shares issued in PIPE			22,000,000
Business Combination and PIPE shares			31,894,635
Legacy AEye shares