AEye, Inc. 10-Q

Item 1. Financial statements (Unaudited) AEYE, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share amounts and par value data) September 30, 2024 December 31, 2023 (Unaudited) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 5,851 $ 16,932 Marketable securities 16,584 19,591 Accounts receivable, net 76 131 Inventories, net 258 583 Prepaid and other current assets 1,482 2,517 Total current assets 24,251 39,754 Right-of-use assets 703 11,226 Property and equipment, net 630 281 Restricted cash — 2,150 Other noncurrent assets 784 906 Total assets $ 26,368 $ 54,317 LIABILITIES AND STOCKHOLDERS’ EQUITY CURRENT LIABILITIES: Accounts payable $ 3,717 $ 3,442 Accrued expenses and other current liabilities 6,960 6,585 Contract liabilities 35 — Total current liabilities 10,712 10,027 Operating lease liabilities, noncurrent 537 14,858 Convertible note 146 — Other noncurrent liabilities 67 409 Total liabilities 11,462 25,294 COMMITMENTS AND CONTINGENCIES (Note 17) STOCKHOLDERS’ EQUITY: Preferred stock—$ 0.0001 par value: 1,000,000 shares authorized; no shares issued and outstanding — — Common stock—$ 0.0001 par value: 600,000,000 shares authorized; 8,940,942 and 6,310,090 shares issued and outstanding at September 30, 2024 and December 31, 2023 1 1 Additional paid-in capital 379,425 366,647 Accumulated other comprehensive income 27 10 Accumulated deficit ( 364,547 ) ( 337,635 ) Total stockholders’ equity 14,906 29,023 Total liabilities and stockholders’ equity $ 26,368 $ 54,317 The accompanying notes are an integral part of these condensed consolidated financial statements. 4 Table of Contents AEYE, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (In thousands, except share amounts and per share data) (Unaudited) Three months ended September 30, Nine months ended September 30, 2024 2023 2024 2023 REVENUE: Prototype sales $ 65 $ 56 $ 91 $ 426 Development contracts 39 132 65 969 Total revenue 104 188 156 1,395 Cost of revenue 306 4,479 729 8,651 Gross loss ( 202 ) ( 4,291 ) ( 573 ) ( 7,256 ) OPERATING EXPENSES: Research and development 3,767 5,654 12,137 20,993 Sales and marketing 74 1,910 482 10,782 General and administrative 3,803 5,380 13,641 20,279 Total operating expenses 7,644 12,944 26,260 52,054 LOSS FROM OPERATIONS ( 7,846 ) ( 17,235 ) ( 26,833 ) ( 59,310 ) OTHER INCOME (EXPENSE): Change in fair value of convertible note and warrant liabilities 9 12 ( 4 ) ( 914 ) Interest income and other 233 354 656 932 Interest expense and other ( 1,102 ) ( 174 ) ( 729 ) ( 9 ) Total other income (expense), net ( 860 ) 192 ( 77 ) 9 Loss before income tax expense ( 8,706 ) ( 17,043 ) ( 26,910 ) ( 59,301 ) Provision for income tax expense — 5 2 43 Net loss $ ( 8,706 ) $ ( 17,048 ) $ ( 26,912 ) $ ( 59,344 ) PER SHARE DATA Net loss per share (basic and diluted) $ ( 1.01 ) $ ( 2.78 ) $ ( 3.90 ) $ ( 10.34 ) Weighted average shares outstanding (basic and diluted) 8,629,683 6,137,251 6,892,910 5,739,425 COMPREHENSIVE LOSS: Net loss $ ( 8,706 ) $ ( 17,048 ) $ ( 26,912 ) $ ( 59,344 ) Change in net unrealized gain on available-for-sale securities, net of tax 35 345 17 1,255 Change in fair value due to instrument-specific credit risk, net of tax — — — ( 21 ) Net losses reclassified into income during the period, net of tax — 46 — 46 Comprehensive loss $ ( 8,671 ) $ ( 16,657 ) $ ( 26,895 ) $ ( 58,064 ) The accompanying notes are an integral part of these condensed consolidated financial statements. 5 Table of Contents AEYE, INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS ’ EQUITY For the nine months ended September 30, 2024 and 2023 (In thousands, except share amounts) (Unaudited) Additional Accumulated Other Total Preferred Stock Common Stock Paid-in Comprehensive Accumulated Stockholders’ Shares Amount Shares Amount Capital Income (Loss) Deficit Equity BALANCE—December 31, 2023 — $ — 6,310,090 $ 1 $ 366,647 $ 10 $ ( 337,635 ) $ 29,023 Stock-based compensation — — — — 3,014 — — 3,014 Issuance of common stock upon vesting of restricted stock units — — 98,623 — — — — — Taxes related to net share settlement of equity awards — — ( 34,694 ) — ( 45 ) — — ( 45 ) Issuance of common stock under the Common Stock Purchase Agreement — — 129,000 — 165 — — 165 Other comprehensive loss, net of tax — — — — — ( 14 ) — ( 14 ) Net loss — — — — — — ( 10,219 ) ( 10,219 ) BALANCE—March 31, 2024 — $ — 6,503,019 $ 1 $ 369,781 $ ( 4 ) $ ( 347,854 ) $ 21,924 Stock-based compensation — — — — 1,740 — — 1,740 Issuance of common stock upon exercise of options — — 44,255 — 134 — — 134 Issuance of common stock upon vesting of restricted stock units — — 167,143 — — — — — Taxes related to net share settlement of equity awards — — ( 1,292 ) — ( 2 ) — — ( 2 ) Issuance of common stock under the Common Stock Purchase Agreements — — 1,693,929 — 5,395 — — 5,395 Stock issuance costs related to Common Stock Purchase Agreements — — — — ( 416 ) — — ( 416 ) Issuance of common stock through Employee Stock Purchase Plan — — 30,679 — 26 — — 26 Other comprehensive loss, net of tax — — — — — ( 4 ) — ( 4 ) Net loss — — — — — — ( 7,987 ) ( 7,987 ) BALANCE—June 30, 2024 — $ — 8,437,733 $ 1 $ 376,658 $ ( 8 ) $ ( 355,841 ) $ 20,810 Stock-based compensation — — — — 2,248 — — 2,248 Issuance of common stock upon vesting of restricted stock units — — 146,463 — — — — — Taxes related to net share settlement of equity awards — — ( 53,767 ) — ( 66 ) — — ( 66 ) Issuance of common stock under Common Stock Purchase Agreements — — 410,513 — 585 — — 585 Other comprehensive income, net of tax — — — — — 35 — 35 Net loss — — — — — — ( 8,706 ) ( 8,706 ) BALANCE—September 30, 2024 — $ — 8,940,942 $ 1 $ 379,425 $ 27 $ ( 364,547 ) $ 14,906 Additional Accumulated Other Total Preferred Stock Common Stock Paid-in Comprehensive Accumulated Stockholders’ Shares Amount Shares Amount Capital Income (Loss) Deficit Equity BALANCE—December 31, 2022 — $ — 5,436,637 $ 1 $ 345,757 $ ( 1,279 ) $ ( 250,509 ) $ 93,970 Stock-based compensation — — — — 6,513 — — 6,513 Issuance of common stock upon exercise of options — — 68,969 — 391 — — 391 Issuance of common stock upon vesting of restricted stock units — — 99,460 — — — — — Taxes related to net share settlement of equity awards — — ( 44,028 ) — ( 867 ) — — ( 867 ) Conversion of convertible note into common stock — — 137,947 — 1,755 — — 1,755 Other comprehensive income, net of tax — — — — — 469 — 469 Net loss — — — — — — ( 26,265 ) ( 26,265 ) BALANCE—March 31, 2023 — $ — 5,698,985 $ 1 $ 353,549 $ ( 810 ) $ ( 276,774 ) $ 75,966 Stock-based compensation — — — — 4,110 — — 4,110 Issuance of common stock upon vesting of restricted stock units — — 85,416 — — — — — Taxes related to net share settlement of equity awards — — ( 29,861 ) — ( 181 ) — — ( 181 ) Conversion of convertible note into common stock — — 270,666 — 1,254 — — 1,254 Issuance of common stock through Employee Stock Purchase Plan — — 22,137 — 118 — — 118 Other comprehensive income, net of tax — — — — — 420 — 420 Net loss — — — — — — ( 16,031 ) ( 16,031 ) BALANCE—June 30, 2023 — $ — 6,047,343 $ 1 $ 358,850 $ ( 390 ) $ ( 292,805 ) $ 65,656 Stock-based compensation — — — — 4,084 — — 4,084 Issuance of common stock upon exercise of stock options — — 11,108 — 59 — — 59 Issuance of common stock upon vesting of restricted stock units — — 77,701 — — — — — Taxes related to net share settlement of equity awards — — ( 27,080 ) — ( 261 ) — — ( 261 ) Conversion of convertible note into common stock — — 93,916 — 329 — — 329 Issuance of common stock under the Common Stock Purchase Agreement — — 19,500 — 136 — — 136 Transaction costs related to Common Stock Purchase Agreement — — — — ( 3 ) — — ( 3 ) Other comprehensive income, net of tax — — — — — 391 — 391 Net loss — — — — — — ( 17,048 ) ( 17,048 ) BALANCE—September 30, 2023 — $ — 6,222,488 $ 1 $ 363,194 $ 1 $ ( 309,853 ) $ 53,343 The accompanying notes are an integral part of these condensed consolidated financial statements. 6 Table of Contents AEYE, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) Nine months ended September 30, 2024 2023 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ ( 26,912 ) $ ( 59,344 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 80 998 (Gain) loss on sale of property and equipment, net ( 12 ) 53 Noncash lease expense relating to operating lease right-of-use assets 905 1,058 Gain on termination of operating lease, net ( 680 ) — Common stock purchase agreement costs 1,136 — Impairment of right-of-use assets — 47 Inventory write-downs, net of scrapped inventory 167 3,666 Change in fair value of convertible note and warrant liabilities 4 914 Realized loss on instrument-specific credit risk — 46 Stock-based compensation 7,002 14,707 Amortization of premiums and accretion of discounts on marketable securities, net of change in accrued interest ( 491 ) 33 Expected credit losses, net of write-off 35 — Changes in operating assets and liabilities: Accounts receivable, net 20 379 Inventories, current and noncurrent, net 157 ( 2,681 ) Prepaid and other current assets 1,035 1,672 Other noncurrent assets 123 133 Accounts payable 275 1,494 Accrued expenses and other current liabilities ( 3,411 ) ( 2,571 ) Operating lease liabilities ( 936 ) ( 1,143 ) Contract liabilities 35 ( 969 ) Other noncurrent liabilities ( 346 ) — Net cash used in operating activities ( 21,814 ) ( 41,508 ) CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment ( 420 ) ( 1,421 ) Proceeds from sale of property and equipment 45 243 Purchases of marketable securities ( 24,241 ) ( 8,736 ) Proceeds from redemptions and maturities of marketable securities 27,756 76,350 Net cash provided by investing activities 3,140 66,436 CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from exercise of stock options 134 450 Proceeds from the issuance of convertible note 146 — Payments for convertible note redemptions — ( 6,235 ) Taxes paid related to the net share settlement of equity awards ( 113 ) ( 1,312 ) Proceeds from issuance of common stock under Common Stock Purchase Agreements 5,863 136 Stock issuance costs related to Common Stock Purchase Agreements ( 613 ) — Proceeds from issuance of common stock through the Employee Stock Purchase Plan 26 118 Net cash provided by (used in) financing activities 5,443 ( 6,843 ) NET (DECREASE) INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH ( 13,231 ) 18,085 CASH, CASH EQUIVALENTS AND RESTRICTED CASH—Beginning of period 19,082 21,214 CASH, CASH EQUIVALENTS AND RESTRICTED CASH—End of period $ 5,851 $ 39,299 SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid for income taxes, net of refund $ ( 2 ) $ 16 Cash paid for interest — 115 SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES: Purchases of property and equipment included in accounts payable and accrued liabilities 42 23 Conversion of convertible notes and accrued interest into Class A common stock — 3,338 Operating lease liabilities extinguished upon termination of lease 16,325 — Operating lease right-of-use asset derecognized upon termination of lease 10,371 — Operating lease right-of-use assets obtained in exchange for lease obligations 753 — Stock issuance costs included in accounts payable and accrued liabilities 657 3 Stock issuance costs through issuance of common stock 282 — Taxes related to net share settlement of equity awards included in accrued liabilities — 1 The accompanying notes are an integral part of these condensed consolidated financial statements. 7 Table of Contents 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 smart industrial applications. AEye’s software-definable 4Sight TM Intelligent Sensing Platform combines solid-state active lidar and integrated deterministic artificial intelligence to capture more intelligent information with less data, enabling faster, more accurate, and more reliable perception of the surroundings. AEye, formerly known as CF Finance Acquisition Corp. III (“CF III”), was originally incorporated in Delaware on March 15, 2016 under the name CF SPAC Re Inc. On February 17, 2021, AEye Technologies, Inc., then known as AEye, Inc., entered into an Agreement and Plan of Merger with CF III. Based on CF III’s business activities, it was a “shell company” as defined under the Securities Exchange Act of 1934, as amended. On August 16, 2021, the business combination contemplated by the Agreement and Plan of Merger was closed and CF III changed its name to AEye, Inc. The Company’s common stock and public warrants are 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. 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”) for interim financial statements and pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments considered necessary for fair presentation have been included. The accompanying interim unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes thereto for the year ended December 31, 2023 included in the Company's Annual Report on Form 10 -K for the year ended December 31, 2023 . 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. 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 of September 30, 2024 , the Company’s existing sources of liquidity included cash, cash equivalents, and marketable securities of $ 22,435 . ASC 205 - 40, Presentation of Financial Statements - Going Concern , requires management to assess an entity’s ability to continue as a going concern within one year of the date the financial statements are issued. In each reporting period, including interim periods, an entity is required to assess conditions known and reasonably knowable as of the financial statement issuance date to determine whether it is probable an entity will not meet its financial obligations within one year from the financial statement issuance date. These condensed consolidated financial statements have been prepared on a going concern basis. 8 Table of Contents As is common in early-stage companies with limited operating histories, the Company is subject to risks and uncertainties such as its ability to develop and commercialize its products; produce and deliver lidar and software products meeting acceptable performance metrics; attract new and retain existing customers; develop, obtain, or progress strategic partnerships; secure an automotive OEM design win; secure additional capital to support the business plan; and other risks and uncertainties. Since its inception, the Company has incurred net losses and negative cash flows from operations. As of September 30, 2024 , the Company had an accumulated deficit of $ 364,547 . For the nine months ended September 30, 2024 and 2023 , the Company incurred a net loss of $ 26,912 and $ 59,344 , respectively, and the Company had net cash outflows from operating activities of $ 21,814 and $ 41,508 , respectively. As of September 30, 2024 , the Company had $ 22,435 of cash, cash equivalents, and marketable securities. As the Company is still in its early stages, it is expected to incur additional operating losses and negative cash flows as it continues to focus on achieving commercialization of its lidar solutions. As described in Note 17, the Company was served with a complaint related to the alleged default of the lease for the Company’s former headquarters. The former landlord has claimed that the amount owed could be up to $ 8,500 and drew down the standby letter credit of $ 2,150 , which was held as security for payment of rent. Management, with the assistance of legal counsel, has determined that it is remote that the Company would be required to make any payment related to this matter to the former landlord within one year from the financial statement issuance date. Depending on the outcome of this matter, there could be a material adverse effect on the liquidity, financial position, results of operations, or cash flows of the Company. When conditions and events, in the aggregate, impact an entity’s ability to continue as a going concern, management evaluates the mitigating effect of its plans to determine if it is probable that the plans will be effectively implemented, and, when implemented, the plans will mitigate the relevant conditions or events. The Company is dependent upon raising additional capital to provide the cash necessary to continue its ongoing operations and execute against its strategic objectives. During the nine months ended September 30, 2024 , the Company raised $ 6,009 in gross proceeds from financing activities. However, successfully raising capital is outside of management's control and there can be no assurance that the Company will be able to obtain additional financing on terms acceptable to the Company, on a timely basis, or at all. Should the Company not be able to raise additional capital, the Company plans to adjust spending to preserve and extend liquidity over the next 12 months, these plans include managing its workforce to reduce payroll costs and managing other discretionary spending. There can be no assurance that the Company will be successful in these efforts to preserve cash. Management believes that these plans can be successfully implemented and alleviate the substantial doubt that was raised about the Company's ability to continue as a going concern, which will result in sufficient liquidity and cash flows to support its ongoing operations and meet its obligations for at least one year following the date these condensed consolidated financial statements are issued. Reverse Stock Split On December 27, 2023 , the Company effected a 1 -for- 30 reverse stock split of its issued and outstanding shares of common stock (the "Reverse Stock Split"). Pursuant to the Reverse Stock Split, every thirty ( 30 ) shares of issued and outstanding shares of common stock were combined into one ( 1 ) share of common stock. The Company did not issue fractional shares in connection with the Reverse Stock Split. Stockholders who were otherwise entitled to fractional shares of common stock were instead entitled to receive a proportional cash payment. The number of shares of common stock issuable under our equity incentive plans and exercisable under the outstanding warrants were also proportionately adjusted. In connection with the Reverse Stock Split, there was no change to the number of shares authorized or in the par value per share of common stock of $ 0.0001 . Accordingly, all historical per share data, number of shares issued and outstanding, stock awards, and other common stock equivalents for the periods presented in the accompanying condensed consolidated financial statements and notes thereto have been adjusted retroactively, where applicable, to reflect the Reverse Stock Split. 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 receivable are derived from customers located in the U.S., Europe, and Asia-Pacific. The Company mitigates its credit risks by performing ongoing credit evaluations of its customers’ financial conditions. The Company generally does not require collateral. 9 Table of Contents Recent Accounting Pronouncements In December 2023, the Financial Accounting Standards Board (“FASB”), issued Accounting Standards Update (“ASU”) 2023 - 09, Income Taxes (Topic 740 ) - Improvements to Income Tax Disclosures , to increase the transparency and usefulness of income tax information through improvements to the income tax disclosures primarily related to the rate reconciliation and income taxes paid information. The guidance is effective for fiscal years beginning after December 15, 2024. The Company is currently in the process of evaluating the effects of the new guidance. In November 2023, the FASB issued ASU 2023 - 07, Segment Reporting (Topic 280 ): Improvements to Reportable Segment Disclosures . This standard requires public companies, including entities with a single reportable segment, to disclose information about their reportable segments’ significant expenses and other items on an interim and annual basis to provide more transparency about the expenses they incur from revenue generating business units. The new standard is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024 on a retrospective basis, with early adoption permitted. The Company does not expect the adoption of the new standard to have a material effect on its consolidated financial statements. 2. 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 820” ). ASC 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 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 for identical assets or liabilities. Level 2 —Observable inputs, other than Level 1 inputs, which are observable either directly or indirectly or can be corroborated by observable market data using 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. The Company's financial instruments that are not remeasured at fair value include accounts receivable, prepaid and other current assets, accounts payable, accrued expenses, other current and noncurrent liabilities, and convertible note. The carrying values of these financial instruments approximate their fair values. 10 Table of Contents The Company’s financial assets and liabilities measured at fair value on a recurring basis and the level of inputs used for such measurements were as follows (in thousands): Fair Value Measured as of September 30, 2024 Using: Adjusted Cost Unrealized Gains Fair Value Cash and Cash Equivalent Marketable Securities Assets Level 1 Money market funds $ 4,774 $ — $ 4,774 $ 4,774 $ — Level 2 Corporate bonds 10,469 20 10,489 — 10,489 Commercial paper 3,697 3 3,700 — 3,700 U.S. Government securities 2,391 4 2,395 — 2,395 Total financial assets $ 21,331 $ 27 $ 21,358 $ 4,774 $ 16,584 Liabilities Level 2 Private placement warrant liability $ — $ — $ — $ — $ — Level 3 Derivative warrant liability — — 30 — — Total financial liabilities $ — $ — $ 30 $ — $ — Fair Value Measured as of December 31, 2023 Using: Adjusted Cost Unrealized Gains Fair Value Cash and Cash Equivalent Marketable Securities Assets Level 1 Money market funds $ 16,377 $ — $ 16,377 $ 16,377 $ — Level 2 Corporate bonds 2,880 1 2,881 — 2,881 Commercial paper 8,809 5 8,814 — 8,814 U.S. Government securities 7,892 4 7,896 — 7,896 Total financial assets $ 35,958 $ 10 $ 35,968 $ 16,377 $ 19,591 Liabilities Level 2 Private placement warrant liability $ — $ — $ — $ — $ — Level 3 Derivative warrant liability — — 26 — — Total financial liabilities $ — $ — $ 26 $ — $ — The Company’s financial assets and liabilities subject to fair value procedures were comprised of the following: Money Market Funds: The Company holds financial assets consisting of money market funds. These securities are valued using observable inputs, such as quoted prices in active markets for identical assets or liabilities. 11 Table of Contents Marketable Securities : The Company holds financial assets consisting of fixed-income U.S. government agency securities, corporate bonds, and commercial paper. The securities are valued using prices from independent pricing services based on quoted prices of identical instruments in less active or inactive markets. Additionally, 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 are used to value marketable securities. Derivative Warrant Liability: On September 15, 2022 , the Company entered into a convertible note agreement with a face value of $ 10,500 (the "2022 Note"). The Company’s derivative warrant liability includes the warrants that were issued by the Company as part of the 2022 Note. The warrants are recorded on the condensed consolidated balance sheets at fair value. The fair value is based on unobservable inputs, which represent Level 3 measurements within the fair value hierarchy. The fair value estimate of the warrants was based on a Monte-Carlo simulation model. Inherent in a Monte-Carlo simulation model are assumptions related to price, volatility, risk-free interest rate, term to expiration, and dividend yield. The price is based on the publicly traded price of the Company’s common stock as of the measurement date. The Company estimated the volatility for the warrants based on the historical and implied volatilities of the Company's publicly traded common stock. The risk-free interest rate is based on interpolated U.S. Treasury rates, commensurate with a similar term to the warrants. The term to expiration was calculated as the contractual term of the warrants of four years. Finally, the Company does not currently anticipate paying a dividend. Any changes in these assumptions can change the valuation significantly. Changes in fair value are recognized in other income (expense) for each reporting period. Derivative Warrant Liability is included within other noncurrent liabilities on the condensed consolidated balance sheets. Private Placement Warrant Liability : The Private Placement Warrants are recorded on the condensed consolidated balance sheets at fair value. The fair value is based on observable Level 2 inputs, specifically, the observable input of the Company's public warrants, as terms of both warrants are substantially similar. Any changes in the fair value of the liability are reflected in other income (expense), net, on the condensed consolidated statements of operations and comprehensive loss. Private Placement Warrant liability is included within other noncurrent liabilities on the condensed consolidated balance sheets. For the nine months ended September 30, 2024 , there were no net transfers between Level 1 and Level 2 inputs. 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, 2024 (in thousands): Derivative Warrant Liability Balance at December 31, 2023 $ 26 Additions — Change in fair value included in other income (expense), net 4 Balance at September 30, 2024 $ 30 The key inputs into the Monte-Carlo simulation model for the derivative warrant liability valued at September 30, 2024 are as follows: September 30, 2024 Expected term (years) 2.0 Expected volatility 227.7 % Risk-free interest rate 3.7 % Dividend yield — % Exercise price $ 105.00 If factors or assumptions change, the estimated fair values could be materially different. The value of the Company’s derivative warrant liability would increase if a higher risk-free interest rate was used and would decrease if a lower risk-free interest rate was used. Similarly, a higher volatility assumption would increase the value of the liability, and a lower volatility assumption would decrease the value of the liability. 12 Table of Contents 3. CASH, CASH EQUIVALENTS, AND RESTRICTED CASH Cash, cash equivalents, and restricted cash as of September 30, 2024 and December 31, 2023 were as follows (in thousands): September 30, 2024 December 31, 2023 (unaudited) Cash and cash equivalents $ 5,851 $ 16,932 Restricted cash — 2,150 Total cash, cash equivalents, and restricted cash $ 5,851 $ 19,082 Restricted cash of $ 2,150 as of December 31, 2023 consisted of funds that were contractually restricted as to usage or withdrawal due to a contractual agreement. The Company had a letter of credit in the amount of $ 2,150 with Citibank N.A. as security for the payment of rent on its headquarters. In August 2024, the landlord drew down on the letter of credit and the restricted cash was used to offset the letter of credit draw (see further discussion in Note 6, Leases). 4. INVENTORIES Inventory, net of write-downs, as of September 30, 2024 and December 31, 2023 were as follows (in thousands): September 30, 2024 December 31, 2023 (unaudited) Raw materials $ 181 $ 405 Work in-process 65 159 Finished goods 12 19 Total inventory, net $ 258 $ 583 The Company also had $ 209 and $ 208 of noncurrent inventory (raw materials), net of write-downs, classified within other noncurrent assets on the condensed consolidated balance sheet as of September 30, 2024 and December 31, 2023 , respectively. The Company’s current and noncurrent inventory as of September 30, 2024 and December 31, 2023 was written down by $ 4,485 and $ 5,062 , respectively, in order to reduce inventory to the lower of cost or net realizable value. 5. PREPAID AND OTHER CURRENT ASSETS Prepaid and other current assets as of September 30, 2024 and December 31, 2023 were as follows (in thousands): September 30, 2024 December 31, 2023 (unaudited) Prepaid expenses $ 1,414 $ 2,386 Advances to suppliers — 79 Other 68 52 Total prepaid and other current assets $ 1,482 $ 2,517 The Company’s advances to suppliers as of September 30, 2024 and December 31, 2023 were written down by $ 1,433 and $ 1,385 , respectively, associated with the winding down of its existing industrial product as part of its revised strategic plan. See Note 15, Restructuring, for further details. 13 Table of Contents 6. LEASES The Company leases office facilities in Northern California under non-cancelable operating leases. In July 2024 , the Company entered into two new long-term leases, one of which the Company uses as its headquarters. In August 2024 , one of the Company's existing leases, originally set to expire on November 30, 2026 , was terminated early. In conjunction with the early termination, the Company recorded a net gain of $ 680 on termination of the operating lease. The net gain included a gain of $ 5,954 , comprised of a $ 16,325 net liability reduction, partially offset by a $ 10,371 decrease in its remaining right of use asset. Additionally, in accordance with terms in the lease agreement and based on certain assumptions, the Company recorded a lease termination loss of $ 5,274 , representing estimated unpaid rent for the remaining term. The net gain was recorded in general and administrative expenses in the condensed consolidated statement of operations and comprehensive loss. The lease termination liability was reduced by the draw-down of the $ 2,150 letter of credit by the landlord in August 2024 ; the remaining lease termination liability of $ 3,124 is recorded in accrued expenses and other current liabilities in the condensed consolidated balance sheets. See Note 15, Restructuring, and Note 17, Commitments and Contingencies, for further discussion. The components of operating lease expenses, excluding the gain on lease termination, net, of $ 680 , for the three and nine months ended September 30, 2024 and 2023 were as follows (in thousands): Three months ended September 30, Nine months ended September 30, 2024 2023 2024 2023 Operating lease cost $ 264 $ 593 $ 1,435 $ 1,797 Variable lease cost 32 89 201 248 Total operating lease cost $ 296 $ 682 $ 1,636 $ 2,045 Maturities of lease liabilities are as follows (in thousands): Operating leases Years ending - December 31: (unaudited) 2024 (remaining three months) $ 31 2025 275 2026 283 2027 258 Total lease payments 847 Less amount to discount to present value ( 82 ) Present value of lease liabilities $ 765 7. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES Accrued expenses and other current liabilities as of September 30, 2024 and December 31, 2023 were as follows (in thousands): September 30, 2024 December 31, 2023 (unaudited) Lease termination liability $ 3,124 $ — Accrued bonuses 1,806 2,053 Accrued payroll 371 540 Operating lease liabilities 228 2,415 Accrued severance — 402 Accrued payroll taxes 117 317 Warranty reserve 96 102 Income tax payable 75 75 Accrued other 1,143 681 Total accrued expenses and other current liabilities $ 6,960 $ 6,585 8. CONVERTIBLE NOTES 2022 Convertible Note On September 14, 2022 , the Company entered into a Securities Purchase Agreement with an investor allowing for the sale and issue of up to two convertible notes, each with a principal balance of $ 10,500 and gross cash proceeds of $ 10,000 , for a total of $ 20,000 in proceeds between the two issuances (each, a “Note Closing”). The first Note Closing (“First Closing”) occurred on September 15, 2022 , and the Company entered into a Senior Unsecured Convertible Note with the investor pursuant to which the Company issued to the investor one convertible note ( “2022 Note”) with a principal balance of $ 10,500 for net cash proceeds of $ 9,850 . As part of the First Closing, the Company also issued warrants to the investor. The second Note Closing (“Second Closing”) could have occurred up to March 15, 2024 , upon which the Company’s right to effect a Second Closing automatically terminated. As of March 15, 2024 , the Company did not effect a Second Closing. The 2022 Note bore interest at an annual rate of 5.0 %, in addition to an original issue discount of 4.76 %, and had an initial maturity date of March 15, 2024 . Beginning December 14, 2022 , and the first trading day of each subsequent month (each a “Monthly Redemption Date” or an “Installment Date”), the Company was required to redeem the Monthly Redemption Amount until the 2022 Note was fully redeemed. The Monthly Redemption Amount, in most instances, was 1/15th of the original principal amount, plus any amount accelerated pursuant to the 2022 Note, accrued but unpaid interest, and late fees, if any. The principal and interest could be settled in cash or, so long as certain equity conditions were met and at the option of the Company, shares of common stock, which was payable together with the Monthly Redemption Amount. If the Company elected to settle the Monthly Redemption Amount in shares of common stock, the number of shares to be settled was based on an Installment Conversion Price equal to the lower of (i) $ 2.50 or (ii) 95 % of the lowest daily volume weighted average price of the common stock during the five trading days immediately preceding the applicable Monthly Redemption Date. If the Company elected to settle the Monthly Redemption Amount in cash, the Monthly Redemption Amount would have included a 5 % premium. 14 Table of Contents The investor was permitted to accelerate up to four Monthly Redemption Amounts in any calendar month (each, an “Acceleration”, and each such amount, an “Acceleration Amount”, and the Conversion Date of any such Acceleration, each an “Acceleration Date”) at the Acceleration Conversion Price, subject to a $ 2,800 limit per month. The Acceleration Conversion Price was the lower of (i) the Installment Conversion Price for such current Installment Date or (ii) the greater of $ 9.00 and 95 % of the lowest daily volume weighted average price of the common stock during the five trading days immediately preceding the Acceleration Date. If either the relevant Installment Conversion Price or Acceleration Conversion Price, as applicable, was less than $ 9.00 per share, then a Conversion Floor Price Condition existed and the Company must deliver to the investor the Conversion Installment Floor Amount in cash, in addition to the required number of shares, which were valued at $ 9.00 regardless of the actual trading price of the Company’s shares. The Conversion Installment Floor Amount was an amount in cash equal to the product obtained by multiplying (A) the higher of (i) the highest price that the common stock traded at on the Trading Day immediately preceding the relevant Share Delivery Date and (ii) the applicable Installment Conversion Price or Acceleration Conversion Price and (B) the difference obtained by subtracting (i) the number of shares of common stock delivered to the investor on the applicable Share Delivery Date with respect to such Conversion from (ii) the quotient obtained by dividing ( x ) the applicable Installment or Acceleration amount subject to such Conversion, by (y) the applicable Installment Conversion Price. Interest payments were also trued-up in cash when the value of the Company’s shares was below $ 9.00 per share. The Company elected to apply the fair value option to the measurement of the 2022 Note. As a result of adopting the fair value option, no embedded derivatives were bifurcated from the 2022 Note. The Company classified the 2022 Note as a liability at fair value and remeasured the 2022 Note to fair value at each reporting period. The fair value measurement included the assumption of accrued interest and expense and thus a separate amount was not reflected on the condensed consolidated statement of operations. The 2022 Note was fully settled through Monthly Redemptions and Accelerations in 2023. As part of the debt extinguishment, the Company reclassified the accumulated change in fair value due to instrument-specific credit risk out of accumulated other comprehensive loss on the condensed consolidated balance sheet and into interest expense and other on the condensed consolidated statement of operations and comprehensive loss. 2024 Promissory Note On May 10, 2024 , the Company entered into a Securities Purchase Agreement with an investor for the sale and issuance of 330,823 shares of common stock and a 5 -year promissory note with a principal balance of $ 146 ( “May 2024 Note”) for total gross cash proceeds of $ 1,000 . The May 2024 Note bears interest at an annual rate equal to the Secured Overnight Financing Rate plus 1.0 %, which is compounded quarterly in arrears, and has a maturity date of June 4, 2029 . At maturity, the principal balance and accrued, unpaid and uncapitalized interest can be settled in cash, shares of common stock based on the closing price of the common stock as of the immediately preceding trading day, or any combination of the foregoing at the option of the investor.  9. INTEREST EXPENSE AND OTHER Interest expense and other for the three and nine months ended September 30, 2024 and 2023 consisted of the following (in thousands): Three months ended September 30, Nine months ended September 30, 2024 2023 2024 2023 Common stock purchase agreements costs $ 1,136 $ — $ 1,136 $ — Amortization of premiums (accretion of discounts) on marketable securities, net ( 149 ) ( 1 ) ( 590 ) ( 230 ) Expected credit losses 1 — 35 — Loss on disposal of assets — 105 — 105 Impairment of right-of-use assets — — — 47 Realized loss on instrument-specific credit risk — 46 — 46 Other 114 24 148 41 Interest expense and other $ 1,102 $ 174 $ 729 $ 9 10. STOCKHOLDERS' EQUITY New Circle Principal Investments LLC ( “ New Circle ” ) Common Stock Purchase Agreement (the “ CSPA ” ) On July 25, 2024 , the Company entered into a CSPA and a Registration Rights Agreement with New Circle. Under the terms and subject to the conditions of the CSPA, the Company has the right, but not the obligation, to sell to New Circle, and New Circle is obligated to purchase up to the lesser of (i) $ 50,000 of the Company’s common stock, or (ii) the Exchange Cap equal to 1,721,755 shares of the Company's common stock, unless the Company’s stockholders approve the issuance of shares in excess of the Exchange Cap, or the average price of all applicable sales of common stock to New Circle equals or exceeds $1.41 per share. The Company has sole discretion to initiate such sales of common stock over a period of 36 months. In all instances, the Company may not sell shares of its common stock to New Circle under the CSPA if doing so would result in New Circle beneficially owning more than 4.99 % of the Company's common stock. The purchase price per share to be purchased by New Circle shall equal either (i) the lowest volume-weighted average price for common stock over a one -day trading period or intraday trading period on the applicable purchase date multiplied by 96.5 %, or (ii) the volume-weighted average price for common stock for the three consecutive trading days commencing on the purchase notice date multiplied by 97.5 %. The maximum number of shares the Company may sell to New Circle on any single business day is the lesser of (i) the number of shares equal to 100.0 % of the average daily trading volume of the common stock of the Company during the five trading days immediately preceding the purchase notice, and (ii) 400,000 shares of common stock. In connection with the CSPA, the Company issued to New Circle 225,563 shares of common stock in the Company as commitment shares for the facility. At issuance, the 225,563 shares of common stock had a fair value of $ 282 and were recorded to Interest expense and other in the Company’s condensed consolidated statements of operations and comprehensive loss. The Company determined that the right to sell additional shares represents a freestanding put option under ASC 815, Derivatives and Hedging , and as such, the financial instrument was classified as a derivative asset with a fair value of zero at inception of the CSPA on July 25, 2024 . As of September 30, 2024 , other than the commitment shares, the Company had issued 150 shares of its common stock to New Circle under the CSPA. Alliance Global Partners ( “ A.G.P. ” ) At Market Issuance Sales Agreement (the “ ATM Agreement ” ) On September 12, 2024 , the Company entered into the ATM and a Registration Rights Agreement with A.G.P. Under the terms and subject to the conditions of the ATM Agreement, the Company may issue and sell through AGP the Company’s common stock having an aggregate offering price of up to $ 2,600 ("Placement Shares") from time to time through an "at-the-market" equity offering program. The Company has sole discretion to initiate such sales of common stock over a period of 36 months. Under the terms and subject to the conditions of the ATM Agreement, the Company will set the parameters for the sale of shares, including the number or dollar amount of Placement Shares to be issued, the time period during which sales are requested to be made, any limitation on the number or dollar amount of Placement Shares that may be sold in any one trading day and any minimum price below which sales may not be made. The Company will pay a cash commission rate of up to 3.0 % of the gross proceeds from the sale of Placement Shares sold pursuant to the ATM Agreement. As of September 30, 2024 , the Company had sold 10,000 shares through A.G.P. under the ATM Agreement. 11. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) The changes in accumulated other comprehensive income (loss) by component for the nine months ended September 30, 2024 and 2023 are as follows (in thousands): Unrealized gains (losses) on available-for-sale securities Balance at December 31, 2023 $ 10 Other comprehensive loss, net of tax ( 14 ) Balance at March 31, 2024 $ ( 4 ) Other comprehensive loss, net of tax ( 4 ) Balance at June 30, 2024 $ ( 8 ) Other comprehensive income, net of tax 35 Balance at September 30, 2024 $ 27 15 Table of Contents Unrealized gains (losses) on available-for-sale securities Change in fair value due to instrument-specific credit risk Total Balance at December 31, 2022 $ ( 1,254 ) $ ( 25 ) $ ( 1,279 ) Other comprehensive income (loss), net of tax 490 ( 21 ) 469 Balance at March 31, 2023 $ ( 764 ) $ ( 46 ) $ ( 810 ) Other comprehensive income, net of tax 420 — 420 Balance at June 30, 2023 $ ( 344 ) $ ( 46 ) $ ( 390 ) Other comprehensive loss before reclassifications, net of tax 345 — 345 Amounts reclassified from accumulated other comprehensive loss, net of tax — 46 46 Other comprehensive income 345 46 391 Balance at September 30, 2023 $ 1 $ — $ 1 12. NET LOSS PER SHARE The following table sets forth the basic and diluted net loss per share attributable to common stockholders for the periods presented (in thousands, except share amounts and per share data): Three months ended September 30, Nine months ended September 30, 2024 2023 2024 2023 Numerator: Net loss attributable to common stockholders $ ( 8,706 ) $ ( 17,048 ) $ ( 26,912 ) $ ( 59,344 ) Denominator: Weighted average common shares outstanding - Basic 8,629,683 6,137,251 6,892,910 5,739,425 Weighted average common shares outstanding - Diluted 8,629,683 6,137,251 6,892,910 5,739,425 Net loss per share attributable to common stockholders - Basic and Diluted $ ( 1.01 ) $ ( 2.78 ) $ ( 3.90 ) $ ( 10.34 ) Due to net losses for the nine months ended September 30, 2024 and 2023 , basic and diluted net loss per share were the same, as the effect of all potentially dilutive securities would have been anti-dilutive. The following table sets forth the anti-dilutive common share equivalents for the periods listed: Nine months ended September 30, 2024 2023 Common stock options issued and outstanding 143,683 313,177 Unvested restricted stock units 540,996 787,265 Warrants 319,443 319,443 Common Stock Purchase Agreement 27,045,121 971,180 Conversion of convertible notes 131,196 — ESPP 71,565 43,406 Total 28,252,004 2,434,471 16 Table of Contents 13. STOCK-BASED COMPENSATION The following table summarizes stock-based compensation expense recorded in each financial statement line item in the Company’s condensed consolidated statements of operations and comprehensive loss for the three and nine months ended September 30, 2024 and 2023 (in thousands): Three months ended September 30, Nine months ended September 30, 2024 2023 2024 2023 Cost of revenue $ — $ 32 $ — $ 127 Research and development 926 1,720 2,634 5,528 Sales and marketing 37 653 222 2,695 General and administrative 1,285 1,679 4,146 6,357 Total stock-based compensation $ 2,248 $ 4,084 $ 7,002 $ 14,707 The Company uses the Monte-Carlo simulation model to estimate the grant date fair value of awards with a market condition, which requires the input of subjective assumptions such as expected term, expected stock price volatility, risk-free interest rate, and dividend yield as discussed below. Expected Term —The expected term for awards with a market condition is the length of time from the grant date to the date the market condition expires. Expected Volatility —Expected volatility is estimated using a combination of the average historical volatility of the Company's own stock and those of comparable companies’ stock at the time of the grant. Risk-Free Interest Rate —The risk-free interest rates are based on US Treasury yields in effect at the grant date for notes with comparable terms as the awards. Dividend Yield —The expected dividend-yield assumption is based on the Company’s current expectations about its anticipated dividend policy. There were no awards granted with a market condition during the nine months ended September 30, 2024 . 14. REVENUE Sale of Prototypes The Company recorded revenue for prototype sales of $ 65 and $ 91 in the three and nine months ended September 30, 2024 , respectively, and $ 56 and $ 426 in the three and nine months ended September 30, 2023 , respectively. The Company does not incur significant contract costs in fulfilling or obtaining its contracts with customers. D evelopment Contracts The Company has entered into research and development contracts as well as a sales, marketing and technical support services contract with companies primarily in the automotive industry. The Company assessed the number of performance obligations associated with the promises under each agreement, primarily the delivery of customized 4Sight TM perception-related goods and services, and recognized $ 39 and $ 65 in revenue for performance obligations satisfied during the three and nine months ended September 30, 2024 , respectively, and $ 132 and $ 969 during the three and nine months ended September 30, 2023 , respectively, in the condensed consolidated statements of operations and comprehensive loss. 17 Table of Contents Disaggregation of Revenue The Company recognized the following revenues by geographic area based on the primary billing address of the customer and by the timing of the transfer of goods or services to customers (point in time or over time), as it believes such criteria best depict how the nature, amount, timing, and uncertainty of its revenue and cash flows are affected by economic factors. Total revenue based on the disaggregation criteria described above is as follows (in thousands): Three months ended September 30, Nine months ended September 30, 2024 2023 2024 2023 Revenue by primary geographical market: United States $ 39 $ 164 $ 80 $ 1,154 Europe 65 24 76 184 Asia-Pacific — — — 57 Total $ 104 $ 188 $ 156 $ 1,395 Revenue by timing of recognition: Recognized at a point in time $ 65 $ 56 $ 91 $ 426 Recognized over time 39 132 65 969 Total $ 104 $ 188 $ 156 $ 1,395 Contract Liabilities The Company had $ 35 and $ 0 contract liabilities as of September 30, 2024 and December 31, 2023 , respectively. The following table shows the significant changes in contract liabilities balance for the nine months ended September 30, 2024 and 2023 (in thousands): Nine months ended September 30, 2024 2023 Beginning balance $ — $ 987 Revenue recognized that was included in the contract liabilities beginning balance — ( 969 ) Increase due to cash received and not recognized as revenue and billings in excess of revenue recognized during the period 35 — Ending balance $ 35 $ 18 Remaining Performance Obligations Revenue allocated to remaining performance obligations represents the transaction price allocated to the performance obligations that are unsatisfied, or partially unsatisfied. It includes unearned revenue and amounts that will be invoiced and recognized as revenue in future periods and does not include contracts where the customer is not committed. The customer is not considered committed where they are able to terminate for convenience without payment of a substantive penalty under the contract. Additionally, as a practical expedient, the Company has not disclosed the value of unsatisfied performance obligations for contracts with an original expected length of one year or less. The contract liabilities balance represents the remaining performance obligations for contracts with an original duration of greater than one year. 15. Restructuring In 2023, the Company implemented a revised strategic plan, which focused on key products and critical customer engagements in the Automotive market, and aligned the Company's operations with evolving business needs by focusing on a transition from research and development to the commercialization of the Company's automotive products, while winding down the existing industrial product and reducing fixed operating costs. In August 2024, the Company further reduced fixed operating costs and terminated its headquarters lease. See discussion in Footnote 6, Leases. 18 Table of Contents The Company recorded restructuring benefits, net, of ($ 680 ) and ($ 557 ) in the three and nine months ended September 30, 2024 , respectively, and restructuring charges of $ 172 and $ 1,470 in the three and nine months ended September 30, 2023 , respectively, primarily relating to the net gain on termination of operating lease, one -time employee termination benefits and losses on purchase commitments. Restructuring-related liabilities are included in accrued expenses and other current liabilities in the condensed consolidated balance sheets. Restructuring charges are summarized as follows as of September 30, 2024 (in thousands): One-time employee termination benefits Losses on purchase commitments Lease Termination Liability Other Total Balance as of December 31, 2023 $ 402 $ 233 $ — $ 56 $ 691 Charges 18 105 5,274 — 5,397 Cash payments ( 420 ) ( 36 ) ( 2,150 ) ( 51 ) ( 2,657 ) Balance as of September 30, 2024 $ — $ 302 $ 3,124 $ 5 $ 3,431 Restructuring charges (benefits) are included in the condensed consolidated statements of operations and comprehensive loss during the three and nine months ended September 30, 2024 and 2023 as follows (in thousands): Three months ended September 30, Nine months ended September 30, 2024 2023 2024 2023 Cost of revenue $ — $ — $ 105 $ 50 Research and development — — — 503 Sales and marketing — 100 18 658 General and administrative ( 680 ) 72 ( 680 ) 259 Total restructuring charges (benefits) $ ( 680 ) $ 172 $ ( 557 ) $ 1,470 16. INCOME TAXES For the three and nine months ended September 30, 2024 , the Company recognized $ 0 and $ 2 provision for income taxes, respectively. For the three and nine months ended September 30, 2023 , the Company recognized $ 5 and $ 43 provision for income taxes, respectively. The income tax rates vary from the federal and state statutory rates due to the valuation allowances on the Company’s net operating losses and foreign tax rate differences. The Company computes its quarterly income tax provision by using a forecasted annual effective tax rate and adjusts for any discrete items arising during the quarter. 17. COMMITMENTS AND CONTINGENCIES Legal matters The Company may be subject to legal proceedings and claims that arise in the ordinary course of business. Litigation can be expensive and disruptive to normal business operations. Moreover, the results of complex legal proceedings are difficult to predict and the Company’s view of these matters may change in the future as the litigation and events related thereto unfold. The Company expenses legal fees as incurred. The Company records a provision for contingent losses when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. As previously disclosed, on August 28, 2024 , the Company was served with a complaint that was filed in the Superior Court of California for the County of Alameda on August 26, 2024 that ( 1 ) alleges the Company is in breach of the lease for its former headquarters office in Dublin, California because of the Company’s failure to pay rent as required by the lease and ( 2 ) provides notice that the lease had been terminated by the landlord effective as of August 23, 2024 . The landlord claimed that the amount owed could be up to $ 8,500 . Thereafter, in August 2024, the landlord fully drew down the standby letter of credit of $ 2,150 , which was held as security for the payment of rent, due to the alleged default of the lease. The Company disputes, among other things, that the total damages claimed by the landlord equal the amount claimed. Depending on the outcome of this matter, there could be a material adverse effect on the financial position, results of operations, or cash flows of the Company. 18. RELATED PARTIES From November 2016 to December 2023, the Company employed a sibling of Mr. Dussan, a director and the Company’s former Chief Technology Officer, who held the position of Director, Human Resources. For the nine months ended September 30, 2023 , Mr. Dussan’s sibling received total cash compensation of $ 113 and was granted 2,000 RSUs. In addition, he participated in all other benefits that the Company generally offers to all of its employees. There were no related party transactions for the nine months ended September 30, 2024 . Table of Contents Item 2. Management ’ s Discussion and Analysis of Financial Condition and Results of Operations This Management ’ s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that are based on current expectations, estimates, assumptions, and projections about our industry, business, and future financial results. Our actual results and the timing of events may differ materially from those described in or implied by these forward-looking statements due to a number of factors, including those discussed below and those set forth under “ Risk Factors ” herein and other filings we make with the SEC from time to time. Unless the context otherwise requires, references in this Management ’ s Discussion and Analysis of Financial Condition and Results of Operations to “ we, ” “ our, ” “ us, ” and “ AEye, ” refer to the business and operations of AEye, Inc. Overview This overview provides a high-level discussion of our operating results and some of the trends that affect our business. We believe that an understanding of these trends is important to understanding our financial results for the three and nine months ended September 30, 2024, as well as our future prospects. This summary is not intended to be exhaustive, nor is it intended to be a substitute for the detailed discussion and analysis provided elsewhere in this Quarterly Report, including our condensed consolidated financial statements and accompanying notes. All dollar amounts expressed in this Management’s Discussion and Analysis of Financial Condition and Results of Operations are in thousands of dollars, except for per share amounts and unless otherwise specified. Reverse Stock Split On December 27, 2023, we effected a 1-for-30 reverse stock split of our issued and outstanding shares of common stock (the “Reverse Stock Split”). Pursuant to the Reverse Stock Split, every thirty (30) shares of issued and outstanding shares of common stock were combined into one (1) share of common stock. We did not issue fractional shares in connection with the Reverse Stock Split. Stockholders who were otherwise entitled to fractional shares of common stock were instead entitled to receive a proportional cash payment. The number of outstanding warrants was also proportionately adjusted. In connection with the Reverse Stock Split, there was no change to the number of shares authorized or in the par value per share $0.0001. Accordingly, unless we indicate otherwise, all historical per share data, number of shares issued and outstanding, stock awards, and other common stock equivalents for the periods presented in this Quarterly Report on Form 10-Q have been adjusted retroactively, where applicable, to reflect the Reverse Stock Split. Dowslake Transaction On May 10, 2024, we entered into a Securities Purchase Agreement with Dowslake Microsystems Corporation, or Dowslake, pursuant to which Dowslake agreed to purchase 330,823 shares of common stock for a purchase price of $854, which represents a per share purchase price of $2.58, and an unsecured promissory note in the principal amount of $146 for an aggregate purchase price of $1,000. Registered Direct Offering On May 29, 2024, we entered into a Securities Purchase Agreement with certain institutional investors pursuant to which we agreed to issue and sell, in a registered direct offering, an aggregate of 727,706 shares of Common Stock at a per share purchase price of $3.448 for gross proceeds of approximately $2,509, before deducting estimated offering expenses payable by us. New Circle Transaction On July 25, 2024, we entered into a Stock Purchase Agreement with New Circle Principal Investments LLC, or New Circle, pursuant to which we have the right, but not the obligation, to sell to New Circle, and New Circle is obligated to purchase, up to $50,000 of our Common Stock. Such sales of common stock by us, if any, and may occur from time to time at our sole discretion, over a 36-month period. A.G.P. Transaction On September 12, 2024, we entered into an At Market Issuance Sales Agreement with Alliance Global Partners, or A.G.P., pursuant to which we may issue and sell through A.G.P., up to $2,600 of our common stock from time to time through an "at-the-market" equity offering program. Such sales of common stock by us, if any, may occur from time to time at our sole discretion, over a 36-month period. Key Factors Affecting Our Operating Results We believe that our future performance and success depends, to a substantial extent, on our ability to capitalize on the opportunities described herein, which in turn are subject to significant risks and challenges, including those discussed below and the risk factors described in the “Risk Factors” section of this Quarterly Report on Form 10-Q. We are 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 commercialize our products; • securing additional capital in a timely manner in order to meet operating cash flow needs; doing so on terms that are favorable to us, or at all, may be challenging given the current capital markets and overall macroeconomic conditions; • maintain and establish relationships with one or more Tier 1 automotive suppliers to facilitate “design wins” with potential end customers, which in our case are automotive OEMs; • develop and protect our intellectual property; • comply with existing and new or modified laws and regulations applicable to our business; • maintain and enhance the value of our reputation and brand; • hire, integrate, and retain talented people at all levels of our organization; and • successfully develop new solutions to enhance the experience of, and deliver value to, our customers. 19 Table of Contents Market Trends and Uncertainties We anticipate future demand for our 4Sight TM Intelligent Sensing Platform will come from two major markets, Automotive and Industrial. In the near term, we anticipate concentrating on the Automotive market by more effectively leveraging our business model, focusing on advanced driver-assistance systems, or ADAS, autonomous driving, and commercial trucking. In the longer term, we will look for opportunities in the Industrial market, such as in the railway and intelligent transportation systems, or ITS segments, when it becomes cost-effective to do so based on higher volume production in the Automotive market. This strategy provides us with multiple opportunities for sustained growth by enabling new applications and product features across these market segments. However, as our customers continue their R&D projects to commercialize solutions that rely on lidar technology, it is difficult to estimate the timing of ultimate end market demand and customer adoption. In the Automotive market for example, which accounted for 0% and 71% of revenue in the nine months ended September 30, 2024 and 2023, respectively, our growth and financial performance will be heavily influenced by our ability to successfully integrate into OEM programs that require years of development, testing, and validation. Because of the size and complexity of these OEM programs, having Tier 1 partnerships should provide a substantial competitive advantage over our competitors given their large scale, mass-production capabilities, and existing OEM relationships. The decision by our former Tier 1 partner, Continental, to discontinue our joint lidar development program was a setback to our business, however, we were able to able engage LITEON as a replacement Tier 1 automotive supplier. If we are unable to establish and maintain our relationship with LITEON or find other Tier 1 automotive suppliers in the future, this could have a material and adverse effect on our business, as our business model is predicated on licensing our lidar designs and other intellectual property to Tier 1 automotive suppliers. Our primary focus in the Automotive market is on ADAS for passenger and commercial vehicle autonomy, particularly highway autonomy applications. We believe that growth in that market is driven by both more stringent safety regulations and consumer demand for vehicles offering increased safety and advanced driver assist features. We will need to anticipate and adapt to any changes in the regulatory environment, as well as changes in consumer demand, in order to take advantage of this opportunity. As is common in early-stage companies with limited operating histories, we are subject to risks and uncertainties such as those described in Part II, Item 1A of this Quarterly Report on Form 10-Q. Since inception, we have incurred net losses and negative cash flows from operations and expect to continue incurring losses until after we reach commercialization. We are dependent upon raising additional capital to provide the cash necessary to continue our ongoing operations. We have been able to do so in the past, for example, through the nine months ended September 30, 2024, we were able to raise approximately $6,000 in gross proceeds from financing activities. Should we not be successful in raising additional capital, we will require alternative sources of liquidity to continue our operations for the next twelve months. In those circumstances, we would also plan to adjust spending in order to preserve and extend liquidity, and we have plans to further reduce operating expenses and cash outlays should we need to. We believe that these plans can be successfully implemented, which would likely result in adequate cash flows to support our ongoing operations for at least one year from the date of this Quarterly Report on Form 10-Q. Partnerships and Commercialization Our technology is designed to be a key enabler in certain Automotive and Industrial market applications. Because our technology must be integrated into a broader solution by our customers, it is critical that we achieve design wins with these customers. The time to achieve a design win varies based on the market and application. We consider design wins to be critical to our future success, although the revenue that may be generated by each design win and the time necessary to achieve such a design win can vary significantly, making it difficult to predict our financial performance. In the Industrial market, our strategy has been to sell our lidar solutions to customers utilizing components that are sourced, in part, from the Tier 2 automotive supply chain and assembled by our contract manufacturing partners. In the Automotive market, we will utilize a licensing model with Tier 1 suppliers that would generate a royalty for us and, hence, can be more easily replicated with multiple Tier 1 suppliers. As the Tier 2 automotive supply chain matures, we intend to leverage those suppliers, and the volume created for the Automotive market, to participate in the Industrial market. With that in mind, in the fourth quarter of 2023, we made the decision to wind down our existing product line for the Industrial market and curtail support until we achieve sufficient scale in our automotive products, which we believe represents our largest market opportunity. If we fail to achieve sufficient scale in our automotive products, we may not be in a position to reenter the Industrial market in the time frame we expect, or at all. We have engaged with LITEON as our Tier 1 automotive supplier and are actively working with LITEON to bring our products to market. We have also recently with partners in an effort to penetrate the lidar market in China. Given both our engagement with LITEON and our partners in the China market are relatively recent, there is no guarantee that either or both endeavors will be successful. We believe our revenue and profitability will also be dependent upon our success in licensing our technology to Tier 1 automotive suppliers, such as our Tier 1 partner, LITEON, or our previous partner, Continental, which represented 0% and 71% of revenue in the nine months ended September 30, 2024 and 2023, respectively, that intend to use our technology in volume production of lidar sensors for OEMs. Delays in autonomy programs by OEMs that we are currently or plan to be working with through our Tier 1 partners could result in us being unable to achieve our revenue and profitability targets in the time frame we anticipate, or at all. 20 Table of Contents Restructuring In 2023, we implemented a revised strategic plan, which focused on key products and critical customer engagements in the Automotive market and aligned our operations with evolving business needs by focusing on our transition from research and development to the commercialization of our automotive products, while winding down our existing industrial product and reducing fixed operating costs. Gross Margin Our gross margins will depend on numerous factors, including, among others, the selling price of our products, pricing of our development contracts with customers, royalty rates on licenses we grant to our customers, unit volumes, product mix, component costs, personnel costs, contract manufacturing costs, overhead costs, and product features. Our gross margins have in the past been, and may continue to be, negatively impacted by inventory write-downs. As an example, in 2023, we recorded inventory write-downs of $7,005 relating to the transition to certain higher grade components in our automotive products as well as the winding down of our existing product line for the Industrial market. In the future, we expect to generate attractive gross margins from licensing our lidar technology and software to our Tier 1 partners in the Automotive market. We also anticipate being able to leverage on our foundation in the Automotive market to move to other markets. To date, our revenue has primarily been generated through development contracts with OEMs and Tier 1 suppliers, as well as unit sales of our products to Industrial customers. These development contracts primarily focus on customization of our proprietary 4Sight TM product capabilities to our customers’ applications, typically involving software implementation to assist with sensor connection and control, customization of scan patterns, and enhancement of particular perception capabilities to meet specific customer needs. In general, development contracts that require more complex configurations have higher prices. We expect development contracts to remain a significant part of our business in the near term, but represent a smaller share of our total revenue over time as we increase our focus on technology licensing in the Automotive market and over time leverage the economies of scale we achieve to move into other markets including the Industrial market. Investment and Innovation Our proprietary adaptive intelligent lidar technology delivers industry-leading performance that helps to solve the most difficult challenges in delivering partial or full autonomy. While traditional sensing systems passively collect data, our active 4Sight TM Intelligent Sensing Platform leverages principles from automated targeting systems and biomimicry to scan the environment, while intelligently focusing on what matters most in order to enable safer, smarter, and faster decisions in complex scenarios. We believe our financial performance is significantly dependent on our ability to maintain a technology leadership position. This is further dependent on the investments we make in research and development and our ability to commercialize our products. We believe price is becoming a critical differentiator in the marketplace and OEMs are favoring companies that have the infrastructure to build lower cost products at higher volumes. It is essential that we continually identify and respond to rapidly evolving customer requirements, develop and introduce innovative new products, enhance and service existing products, lower bill of materials, or BOM, costs, industrialize the manufacturing process, and generate strong market demand for our products. If we fail to do this, our market position and revenue may be adversely affected, and our investments in that area will not be recovered. Basis of Presentation We currently conduct our business through one operating segment. Components of Results of Operations Total Revenues We categorize our revenue as (1) prototype sales and (2) development contracts. In 2024 and 2023, our prototype sales revenue primarily related to unit sales of our 4Sight TM product. Revenue from prototype sales is typically recognized at a point in time when the control of goods is transferred to the customer, generally upon delivery or shipment to the customer. 21 Table of Contents Development contracts represented the majority of our total revenues in 2023. Revenue from development and/or collaboration arrangement contracts are earned from R&D activities and collaboration with OEMs and Tier 1 suppliers. These contracts primarily focus on customization of our proprietary 4Sight TM capabilities to our customers’ applications, typically involving software implementation to assist with sensor connection and control, customization of scan patterns, and enhancement of perception capabilities to meet specific customer needs. Revenue from development contracts is recognized when we satisfy performance obligations in the contract, which can result in recognition at either a point in time or over time. This assessment is made at the outset of the arrangement for each performance obligation. Cost of Revenue Cost of revenue includes the costs directly associated with the production of prototypes and certain costs associated with development contracts. Such costs for prototypes include direct materials, direct labor, indirect labor, inventory write downs, losses on purchase commitments, warranty expense, and allocation of overhead. Costs associated with development contracts include the direct costs and allocation of overhead costs involved in the execution of the contracts. Operating Expenses Research and Development Our research and development, or R&D, efforts are focused primarily on hardware, software, and system engineering related to the design and development of our advanced lidar solutions. R&D expenses include: • personnel-related expenses, including salaries, benefits, bonuses, one-time termination benefits, and stock-based compensation expense; • third-party engineering and contractor costs; • lab equipment; • engineering parts and test units; • new hardware and software expenses; and • allocated overhead expenses. R&D costs are expensed as they are incurred. We expect our investment in R&D to be reduced as a result of our revised strategic plan, with a reduced workforce and consolidated global footprint. We also plan to execute more focused spending with vendors in critical areas that support our strategy and product development, in line with our revised strategic plan and manage costs more efficiently. Sales and Marketing Our sales and marketing, or S&M, efforts are focused primarily on sales, business development, and marketing programs in pursuit of revenue contracts from potential and existing customers. S&M expenses include: • personnel-related expenses, including salaries, benefits, bonuses, one-time termination benefits, and stock-based compensation expense; • demonstration equipment; • trade shows expenses, advertising, and promotions expenses for press releases and other public relations services; and • allocated overhead expenses. We expect our S&M expenses to be significantly reduced as a result of our revised strategic plan to focus on the commercialization of our automotive products. Through our capital light business, we are able to significantly reduce our workforce and consolidate our global footprint as we expect to leverage our Tier 1 partners to commercialize our products and manage relationships with the OEMs. 22 Table of Contents General and Administrative Our general and administrative, or G&A, spending supports all business functions. G&A expenses include: • personnel-related costs, including salaries, benefits, bonuses, one-time termination benefits, and stock-based compensation expense for executive, finance, legal, operations, human resources, technical support, and other administrative personnel; • consulting, accounting, audit, legal, and other professional fees; • insurance premiums, software and computer equipment costs, general office expenses; and • allocated overhead expenses. We expect our G&A expenses to be reduced as a result of our revised strategic plan with a reduced workforce and consolidated global footprint. We also plan to manage spending with vendors more effectively to support our revised strategic plan to manage costs. Change in Fair Value of Convertible Note and Warrant Liabilities Changes in fair value of the 2022 Note and warrant liabilities are the result of the change in fair value at each reporting date. The 2022 Note and warrant liabilities are recorded at fair value for each reporting period, and the changes in fair value are reported within other income (expense), net during the period. We also elected to record interest expense on the 2022 Note as changes in fair value. Interest Income, Interest Expense and Other Interest income and other consists primarily of interest earned on our cash, cash equivalents, and marketable securities. These amounts will vary based on our cash and cash equivalents balances and market rates. Interest income and other also includes gains on sale of property and equipment. Interest expense and other consists primarily of financing costs and amortization of premiums and accretion of discounts on marketable securities, net. 23 Table of Contents Results of Operations Comparison of the three months ended September 30, 2024 and 2023 The results of operations presented below should be reviewed in conjunction with the condensed consolidated financial statements and notes included elsewhere in this report. The following table sets forth our consolidated results of operations data for the three months ended September 30, 2024 and 2023 (in thousands, except for percentages): Three months ended September 30, Change Change 2024 2023 $ % Prototype sales $ 65 $ 56 $ 9 16 % Development contracts 39 132 (93 ) (70 )% Total revenue 104 188 (84 ) (45 )% Cost of revenue 306 4,479 (4,173 ) (93 )% Gross loss (202 ) (4,291 ) 4,089 (95 )% Research and development 3,767 5,654 (1,887 ) (33 )% Sales and marketing 74 1,910 (1,836 ) (96 )% General and administrative 3,803 5,380 (1,577 ) (29 )% Total operating expenses 7,644 12,944 (5,300 ) (41 )% Loss from operations (7,846 ) (17,235 ) 9,389 (54 )% Change in fair value of convertible note and warrant liabilities 9 12 (3 ) (25 )% Interest income and other 233 354 (121 ) (34 )% Interest expense and other (1,102 ) (174 ) (928 ) 533 % Total other income (expense), net (860 ) 192 (1,052 ) (548 )% Loss before income tax expense (8,706 ) (17,043 ) 8,337 (49 )% Provision for income tax expense — 5 (5 ) (100 )% Net loss $ (8,706 ) $ (17,048 ) $ 8,342 (49 )% Revenue Prototype Sales Prototype sales increased by $9, or 16%, to $65 for the three months ended September 30, 2024, from $56 for the three months ended September 30, 2023. This was primarily due to an increase in units sold of our 4Sight™-based industrial product, partially offset by lower average sales prices. Development Contracts Development contracts decreased by $93, or 70%, to $39 for the three months ended September 30, 2024, from $132 for the three months ended September 30, 2023. The decrease was primarily due to lower revenues as we fulfilled our obligations on a Tier 1 automotive supplier contract in the fourth quarter of 2023. Cost of Revenue Cost of revenue decreased by $4,173, or 93%, to $306 for the three months ended September 30, 2024, from $4,479 for the three months ended September 30, 2023. This decrease was primarily due to non-routine inventory write-downs in the third quarter of 2023 that were associated with the transition to certain higher-grade components in our automotive products, and lower development contract costs in the current quarter as we had fulfilled our obligations on a Tier 1 automotive supplier contract in the fourth quarter of 2023. 24 Table of Contents Operating Expenses Research and Development Research and development expenses decreased by $1,887, or 33%, to $3,767 for the three months ended September 30, 2024, from $5,654 for the three months ended September 30, 2023. This decrease was primarily driven by the implementation of our revised strategic plan, with decreases in personnel costs of $844, stock-based compensation expense of $794, and information technology and facilities expense of $222. Sales and Marketing Sales and marketing expenses decreased by $1,836, or 96%, to $74 for the three months ended September 30, 2024, from $1,910 for the three months ended September 30, 2023. This decrease was primarily driven by the implementation of our revised strategic plan, with decreases in personnel costs of $863, stock-based compensation of $615, trade show, marketing, and consultant spend of $138, and information technology and facilities expense of $121. General and Administrative General and administrative expenses decreased by $1,577, or 29%, to $3,803 for the three months ended September 30, 2024, from $5,380 for the three months ended September 30, 2023. This decrease was primarily driven by the implementation of our revised strategic plan, with decreases in stock-based compensation of $394, accounting, legal, and consulting fees of $203, operating lease costs of $(321), and insurance of $127. The decrease was also due to a net gain on termination of an operating lease of $680 in the current period. Change in Fair Value of Convertible Note and Warrant Liabilities Change in fair value of convertible note and warrant liabilities decreased by $3, or 25%, to a loss of $9 for the three months ended September 30, 2024, from a loss of $12 for the three months ended September 30, 2023. This decrease was primarily due to settlement of the 2022 Note in the third quarter of 2023. Interest Income and Other Interest income and other decreased by $121, or 34%, to $233 for the three months ended September 30, 2024, from $354 for the three months ended September 30, 2023. This decrease was primarily due to less interest earned on our marketable securities in the current period. Interest Expense and Other Interest expense and other increased by $928, or 533%, to $1,102 for the three months ended September 30, 2024, from $174 for the three months ended September 30, 2023. This increase was primarily due to costs of $1,136 related to financing arrangements executed in the quarter and an increase in foreign exchange loss of $88, partially offset with a favorable increase in accretion of discounts on marketable securities, net, of $148 Provision for Income Tax Expense Provision for income tax expenses decreased to $0 for the three months ended September 30, 2024, from $5 for the three months ended September 30, 2023. This change is due to changes in pretax income (loss) in the U.S. and certain foreign entities and changes in tax rates. Net Loss Net loss decreased by $8,342, or 49%, to $8,706 for the three months ended September 30, 2024, from $17,048 for the three months ended September 30, 2023. This decrease was primarily due to decreases in operating expenses following restructuring and cost reduction efforts in connection with our revised strategic plan as announced during 2023 and decreases in cost of revenues as we had fulfilled our obligations on a Tier 1 automotive supplier contract in the fourth quarter of 2023. 25 Table of Contents Results of Operations Comparison of the nine months ended September 30, 2024 and 2023 The results of operations presented below should be reviewed in conjunction with the condensed consolidated financial statements and notes included elsewhere in this report. The following table sets forth our consolidated results of operations data for the nine months ended September 30, 2024 and 2023 (in thousands, except for percentages): Nine months ended September 30, Change Change 2024 2023 $ % Prototype sales $ 91 $ 426 $ (335 ) (79 )% Development contracts 65 969 (904 ) (93 )% Total revenue 156 1,395 (1,239 ) (89 )% Cost of revenue 729 8,651 (7,922 ) (92 )% Gross loss (573 ) (7,256 ) 6,683 (92 )% Research and development 12,137 20,993 (8,856 ) (42 )% Sales and marketing 482 10,782 (10,300 ) (96 )% General and administrative 13,641 20,279 (6,638 ) (33 )% Total operating expenses 26,260 52,054 (25,794 ) (50 )% Loss from operations (26,833 ) (59,310 ) 32,477 (55 )% Change in fair value of convertible note and warrant liabilities (4 ) (914 ) 910 (100 )% Interest income and other 656 932 (276 ) (30 )% Interest expense and other (729 ) (9 ) (720 ) 8000 % Total other income (expense), net (77 ) 9 (86 ) (956 )% Loss before income tax expense (26,910 ) (59,301 ) 32,391 (55 )% Provision for income tax expense 2 43 (41 ) (95 )% Net loss $ (26,912 ) $ (59,344 ) $ 32,432 (55 )% Revenue Prototype Sales Prototype sales decreased by $335, or 79%, to $91 for the nine months ended September 30, 2024, from $426 for the nine months ended September 30, 2023. This was primarily due to a decrease in units sold of our 4Sight™-based industrial product due to our focus on executing key milestones in the Automotive market. Development Contracts Development contracts decreased by $904, or 93%, to $65 for the nine months ended September 30, 2024, from $969 for the nine months ended September 30, 2023. The decrease was primarily due to lower development contract revenues as we fulfilled our obligations on a Tier 1 automotive supplier contract in the fourth quarter of 2023. Cost of Revenue Cost of revenue decreased by $7,922, or 92%, to $729 for the nine months ended September 30, 2024, from $8,651 for the nine months ended September 30, 2023. This decrease was primarily due to fewer units sold in the current year to date due to the wind-down of our existing industrial product and also lower development contract costs as we had fulfilled our obligations on a Tier 1 automotive supplier contract in the fourth quarter of 2023. 26 Table of Contents Operating Expenses Research and Development Research and development expenses decreased by $8,856, or 42%, to $12,137 for the nine months ended September 30, 2024, from $20,993 for the nine months ended September 30, 2023. This decrease was primarily driven by the implementation of our revised strategic plan, with decreases in personnel costs of $4,030, stock-based compensation expense of $2,894, engineering parts and lab equipment expense of $685, third party research and development work of $627, and information technology and facilities expense of $397. Sales and Marketing Sales and marketing expenses decreased by $10,300, or 96%, to $482 for the nine months ended September 30, 2024, from $10,782 for the nine months ended September 30, 2023. This decrease was primarily driven by the implementation of our revised strategic plan, with decreases in personnel costs of $4,700, trade show, marketing, and consultant spend of $2,002, stock-based compensation of $2,472, information technology and facilities expense of $555, and travel and entertainment expense of $426. General and Administrative General and administrative expenses decreased by $6,638, or 33%, to $13,641 for the nine months ended September 30, 2024, from $20,279 for the nine months ended September 30, 2023. This decrease was primarily driven by the implementation of our revised strategic plan, with decreases in personnel costs of $968, stock-based compensation of $2,211, accounting, legal, and consulting fees of $1,304, insurance of $876, operating lease costs of $318, and travel and entertainment expense of $121. The decrease was also due to a net gain on termination of an operating lease of $680 in the current period. Change in Fair Value of Convertible Note and Warrant Liabilities Change in fair value of convertible note and warrant liabilities decreased by $910, or 100%, to $4 for the nine months ended September 30, 2024, from $914 for the nine months ended September 30, 2023. This decrease was primarily due to settlement of the 2022 Note in the third quarter of 2023. Interest Income and Other Interest income and other decreased by $276, or 30%, to $656 for the nine months ended September 30, 2024, from $932 for the nine months ended September 30, 2023. This decrease was primarily due to less interest earned on our marketable securities in the current period. Interest Expense and Other Interest expense and other increased by $720, or 8000%, to $729 for the nine months ended September 30, 2024, from $9 for the nine months ended September 30, 2023. This increase was primarily due to costs of $1,136 related to financing arrangements executed in the period, partially offset with a favorable increase in accretion of discounts on marketable securities, net of $360. Provision for Income Tax Expense Provision for income tax expenses decreased to $2 for the nine months ended September 30, 2024, from $43 for the nine months ended September 30, 2023. This change is due to changes in pretax income (loss) in the U.S. and certain foreign entities and changes in tax rates. Net Loss Net loss decreased by $32,432, or 55%, to $26,912 for the nine months ended September 30, 2024, from $59,344 for the nine months ended September 30, 2023. This decrease was primarily due to decreases in operating expenses following restructuring and cost reduction efforts in connection with our revised strategic plan as announced during 2023 and decreases in cost of revenues as we had fulfilled our obligations on a Tier 1 automotive supplier contract in the fourth quarter of 2023. 27 Table of Contents Liquidity and Capital Resources Sources of Liquidity Our capital requirements will depend on many factors, including, but not exclusively, sales volume and timing of revenue, our efforts to establish and maintain relationships with one or more Tier 1 automotive suppliers and the timing of an OEM design win, our ability to extend our cash runway based on the restructuring initiatives announced in the previous year, the timing and extent of spending to support R&D efforts, how quickly we can commercialize our products, and market adoption of new and enhanced products and features. As of September 30, 2024, our cash, cash equivalents, and marketable securities totaled $22,435. For the nine months ended September 30, 2024 and 2023, we had a net loss of $26,912 and $59,344, respectively. We anticipate that we will continue to incur losses for at least the next several years. To date, our principal sources of liquidity have been proceeds received from the issuance of equity. In December 2021, we entered into a Common Stock Purchase Agreement with Tumim Stone Capital LLC, or Tumim Stone, pursuant to which we had the right, but not the obligation, to issue and sell to Tumim Stone over a 36-month period, up to $125,000 of our common stock. On May 6, 2022, we filed a Registration Statement on Form S-1, which related to the offer and resale of up to 1,028,847 shares of our common stock to be purchased by Tumim Stone, pursuant to the Common Stock Purchase Agreement. On July 24, 2024, this Common Stock Purchase Agreement was terminated in conjunction with us entering into the CSPA with New Circle. In total, 996,866 shares were issued under this Common Stock Purchase Agreement. In September 2022, we entered into a Securities Purchase Agreement, with an investor allowing for the sale and issuance of up to two convertible notes, each with cash proceeds of $10,000, for a total of $20,000 in proceeds between the two issuances (each, a "Note Closing"). On September 15, 2022, we closed the first Note Closing with the investor and received cash proceeds of $9,850 (net of fees paid to the investor). On March 15, 2024, our right to effect a Second Closing under the Securities Purchase Agreement terminated. On September 26, 2023, the U.S. Securities and Exchange Commission declared our registration statement on Form S-3 to be effective. On May 10, 2024, we entered into a Securities Purchase Agreement with Dowslake, pursuant to which Dowslake agreed to purchase 330,823 shares of common stock for a purchase price of approximately $854, which represents a per share purchase price of $2.58, and an unsecured convertible promissory note with a principal amount of $146 for an aggregate purchase price of $1,000. On May 29, 2024, we entered into a Securities Purchase Agreement with certain institutional investors pursuant to which we agreed to issue and sell, in a registered direct offering using our shelf registration statement on Form S-3, an aggregate of 727,706 shares of common stock at a per share purchase price of $3.448 for gross proceeds of approximately $2,509, before deducting estimated offering expenses payable by us. On July 25, 2024, we entered into the CSPA with New Circle, pursuant to which we agreed to issue and sell up to $50,000 of common stock, at our discretion from time to time, subject to the satisfaction of the conditions in the Purchase Agreement. On September 12, 2024, we entered into the ATM Agreement with A.G.P., pursuant to which we agreed to issue and sell up to $2,600 of common stock, at our discretion from time to time through an "at-the-market" equity offering, subject to the satisfaction of the conditions in the ATM Agreement. Until we can generate sufficient revenue from the sale of our products to cover operating expenses, working capital, and capital expenditures, we expect the funds raised in the transactions described above, and other potential sources of capital, to fund our near-term cash needs . If we are required to raise additional funds by issuing equity securities, dilution of stockholders will result. Any debt securities issued may also have rights, preferences, and privileges senior to those of holders of our common stock. The terms of debt securities or borrowings could impose significant restrictions on our operations. We may also be unable to raise additional capital through the sale of securities and debt financing, or to do so on terms that are favorable to us, particularly given current capital market and overall macroeconomic conditions. Accounting Standards Codification, or ASC, Subtopic 205-40, Presentation of Financial Statements - Going Concern , requires us to assess our ability to meet our future financial obligations as they become due within one year after the date that the financial statements are issued. Despite the recent restructuring initiatives, we expect that our expenses will continue to exceed our operating income and, as a result, we may need additional capital resources to fund our operations. We believe that our potential liquidity and the implementation of our plans should we be unable to secure additional financing will sufficiently alleviate the risk of substantial doubt about our ability to continue as a going concern and will enable us to fund our operating expenses, working capital, and capital expenditure requirements for a period of at least twelve months from the date of this Quarterly Report on Form 10-Q. For additional discussion of our plans, see Note 1 in the Notes to the Condensed Consolidated Financial Statements in Item 1 of Part I of this Quarterly Report on Form 10-Q. If our cash needs are greater than we anticipate, we may be required to reduce our operating expenses further or raise additional capital sooner. Given the current macroeconomic environment, OEMs appear to be more cautious about their capital spending and investments into new technologies and as a result we have seen the timelines for certain opportunities delayed, which may negatively impact the time for us to reach positive cash flows from operations. Our plans for the use of cash in the long term (beyond twelve months from this Quarterly Report on Form 10-Q) are primarily related to funding operating expenses to support the commercialization of our products. For additional information regarding our cash requirements from lease obligations, lease termination liability and contractual obligations, see Notes 6 and 17 to the Condensed Consolidated Financial Statements in Item 1 of Part I of this Quarterly Report on Form 10-Q. 28 Table of Contents On March 10, 2023, Silicon Valley Bank, or SVB, was closed by the California Department of Financial Protection and Innovation, and the Federal Deposit Insurance Corporation, or FDIC, was appointed as receiver. On March 27, 2023, First Citizens Bank entered into a whole bank purchase of SVB. We had and continue to have deposit accounts at SVB. The standard deposit insurance amount is up to $250 per depositor, per insured bank, for each account ownership category. We do not maintain any other material accounts or lines of credit with SVB. Although we continue to maintain an operating account at SVB, we subsequently established operating accounts at other financial institutions to mitigate the risks associated with any one financial institution's potential risk of insolvency or receivership. Cash Flow Summary Nine months ended September 30, 2024 2023 (in thousands) Net cash provided by (used in): Operating activities $ (21,814 ) $ (41,508 ) Investing activities $ 3,140 $ 66,436 Financing activities $ 5,443 $ (6,843 ) Operating Activities For the nine months ended September 30, 2024, net cash used in operating activities was $21,814. Factors affecting our operating cash flows during this period were net loss of $26,912, gain on termination of operating lease, net, of $680, amortization of premiums and accretion of discounts on marketable securities, net of $491, offset by stock-based compensation of $7,002, common stock purchase agreement costs of $1,136, and noncash lease expense of $905. Within operating activities, the net changes in operating assets and liabilities were cash used of $3,048, primarily driven by decreases in accrued expenses and other liabilities, operating lease liabilities and other noncurrent liabilities of $3,411, $936 and $346, respectively. Cash used was offset by cash provided by decreases in prepaid and other current assets, inventories, and other noncurrent assets of $1,035, $157 and $123, respectively, and an increase in accounts payable of $275. For the nine months ended September 30, 2023, net cash used in operating activities was $41,508. Factors affecting our operating cash flows during this period were a net loss of $59,344, offset by stock-based compensation of $14,707, inventory write-downs of $3,666, noncash lease expense of $1,058, depreciation and amortization of $998, and change in fair value of convertible note and warrant liabilities of $914. Within operating activities, the net change in operating assets and liabilities was cash used of $3,686, primarily driven by decreases in accrued expenses and other liabilities, operating lease liabilities, and contract liabilities of $2,571, $1,143, and $969, respectively, and increases in inventories of $2,681. Cash used was partially offset by cash provided by decreases in prepaid and other current assets, accounts receivable, and other noncurrent assets of $1,672, $379, and $133, respectively, and an increase in accounts payable of $1,494. Investing Activities For the nine months ended September 30, 2024, net cash provided by investing activities was $3,140. The primary factors affecting net cash provided by investing activities during this period were proceeds from redemptions and maturities of marketable securities of $27,756, partially offset by the purchases of marketable securities of $24,241 and purchases of property and equipment of $420. For the nine months ended September 30, 2023, net cash provided by investing activities was $66,436. The primary factors affecting net cash provided by investing activities during this period were the proceeds from redemptions and maturities of marketable securities of $76,350, partially offset by purchases of marketable securities of $8,736 and purchases of property and equipment of $1,421. Financing Activities For the nine months ended September 30, 2024, net cash provided by financing activities was $5,443. The primary factors affecting our financing cash flows during this period were proceeds from common stock purchase agreements of $5,863, partially offset by stock issuance costs related to common stock purchase agreements of $613. For the nine months ended September 30, 2023, net cash used in financing activities was $6,843. The primary factors affecting our financing cash flows during this period were payments for convertible note redemptions of $6,235 and payments for taxes related to net settlement of equity awards of $1,312, partially offset by proceeds from the exercise of stock options of $450. 29 Table of Contents Critical Accounting Policies and Estimates Our condensed consolidated financial statements are in accordance with GAAP. We are required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the condensed consolidated financial statements, the reported amounts of revenues and expenses during the reporting periods, fair value measures, and the related disclosures in the condensed consolidated financial statements. Our actual results may differ significantly from these estimates due to changes in judgments, assumptions and conditions as a result of unforeseen events or otherwise, which could have a material impact on our financial position and results of operations. We believe our critical accounting policies involve the greatest degree of judgment and complexity and have the greatest potential impact on our condensed consolidated financial statements. During the nine months ended September 30, 2024, there were no significant changes in our critical accounting policies and estimates as compared to those previously disclosed in “Critical Accounting Policies and Estimates” in “Management's Discussion and Analysis of Financial Condition and Results of Operations” included in our 2023 Annual Report on Form 10-K. Emerging Growth Company Status Section 102(b)(1) of the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can choose not to take advantage of the extended transition period and comply with the requirements that apply to non-emerging growth companies, and any such election to not take advantage of the extended transition period is irrevocable. We are an “emerging growth company” as defined in Section 2(a) of the Securities Act, and we have elected to take advantage of the benefits of the extended transition period for new or revised financial accounting standards. We will remain an emerging growth company until the earliest of (i) the last day of the fiscal year in which the market value of common stock that is held by non-affiliates exceeds $700 million as of the end of that year’s second fiscal quarter, (ii) the last day of the fiscal year in which we have total annual gross revenue of $1.07 billion or more during such fiscal year (as indexed for inflation), (iii) the date on which we have issued more than $1 billion in non-convertible debt in the prior three-year period, or (iv) December 31, 2025. We expect to continue to take advantage of the benefits of the extended transition period, although we may decide to early adopt such new or revised accounting standards to the extent permitted by such standards. This may make it difficult or impossible to compare our 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. Recent Accounting Pronouncements See Note 1 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for recently adopted accounting pronouncements as of the date of this Quarterly Report on Form 10-Q.