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Item 2. Management’s Discussion and Analysis

2021-11-15 compared with 2021-08-10 · 320 added, 293 removed, 2 unchanged (100% of the section changed)

Management’s Discussion and Analysis of Financial

Condition and Results of Operations.

References to the “Company,”

“our,” “us” or “we” refer to CF Finance Acquisition Corp.

The following discussion and analysis

of the Company’s financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated

financial statements and the notes thereto contained elsewhere in this report.

Certain information contained in the discussion and analysis

set forth below includes forward-looking statements that involve risks and uncertainties.

Cautionary Note Regarding

Forward-Looking Statements

This Quarterly Report

on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and

Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

We have based these forward-looking

statements on our current expectations and projections about future events.

These forward-looking statements are subject to known and

unknown risks, uncertainties and assumptions about us that may cause our actual results, levels of activity, performance or achievements

to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking

In some cases, you can identify forward-looking statements by terminology such as “may,” “should,”

“could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,”

“continue,” or the negative of such terms or other similar expressions.

Such statements include, but are not limited to, possible

business combinations and the financing thereof, and related matters, as well as all other statements other than statements of historical

fact included in this Form 10-Q.

Factors that might cause or contribute to such a discrepancy include, but are not limited to, those described

in our other Securities and Exchange Commission (“SEC”) filings.

We are a blank check company incorporated in Delaware

on March 15, 2016 for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or

similar business combination with one or more businesses (the “Initial Business Combination”).

Our sponsor is CF Finance Holdings

III, LLC (the “Sponsor”).

Although we are not limited

in our search for target businesses to a particular industry or sector for the purpose of consummating the Initial Business Combination,

we are focusing our search on companies operating in the financial services, healthcare, real estate services, technology and software

We are an early stage and emerging growth company and, as such, we are subject to all of the risks associated with early stage

and emerging growth companies.

Our registration statement

for our initial public offering (the “Initial Public Offering”) was declared effective on November 12, 2020.

On November 17,

2020, we consummated the Initial Public Offering of 23,000,000 units (each, a “Unit” and with respect to the shares of Class

A common stock included in the Units sold, the “Public Shares”), including 3,000,000 Units sold upon the exercise of the underwriters’

overallotment option in full, at a purchase price of $10.00 per Unit, generating gross proceeds of $230,000,000.

Each Unit consists of

one share of Class A common stock and one-third of one redeemable warrant.

Each whole warrant entitles the holder to purchase one share

of Class A common stock at a price of $11.50.

Each warrant will become exercisable on the later of 30 days after the completion of the

Initial Business Combination and 12 months from the closing of the Initial Public Offering (or November 17, 2021) and will expire 5 years

after the completion of the Initial Business Combination, or earlier upon redemption or liquidation.

Simultaneously with the

closing of the Initial Public Offering, we consummated the sale of 500,000 Units (the “Private Placement Units”) at a price

of $10.00 per Private Placement Unit to the Sponsor in a private placement (the “Private Placement”), generating gross proceeds

of $5,000,000.

Following the closing

of the Initial Public Offering and sale of Private Placement Units on November 17, 2020, an amount of $230,000,000 ($10.00 per Unit) from

the net proceeds of the sale of the Units in the Initial Public Offering and the sale of the Private Placement Units was placed in a trust

account (the “Trust Account”) located in the United States at UMB, N.A., with Continental Stock Transfer & Trust

Company (“Continental”) acting as trustee, which may be invested only in U.S.

government securities, within the meaning set

forth in Section 2(a)(16) of the Investment Company Act of 1940, as amended (the “Investment Company Act”), with a maturity

of 185 days or less or in any open-ended investment company that holds itself out as a money market fund selected by us meeting the conditions

of paragraphs (d)(2), (d)(3) and (d)(4) of Rule 2a-7 of the Investment Company Act, as determined by us, until the earlier of:

completion of the Initial Business Combination and (ii) the distribution of the Trust Account, as described below.

We have until September

17, 2021 or prior to the expiration of the applicable four-month extension period, as described below, to consummate the Initial Business

Combination (or a later date approved by the Company’s stockholders in accordance with the Amended and Restated Certificate of Incorporation,

the “Combination Period”).

If we are unable to complete the Initial Business Combination by the end of the Combination Period,

we will (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but not more than ten business

days thereafter, redeem the Public Shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the

Trust Account including interest earned on the funds held in the Trust Account and not previously released to us to pay our taxes (less

up to $100,000 of interest to pay dissolution expenses), divided by the number of then outstanding Public Shares, which redemption will

completely extinguish our public stockholders’ rights as stockholders (including the right to receive further liquidating distributions,

if any), subject to applicable law, and (iii) as promptly as reasonably possible following such redemption, subject to the approval of

our remaining stockholders and our board of directors, dissolve and liquidate, subject in the case of clauses (ii) and (iii) above to

our obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law.

There will be no redemption

rights or liquidating distributions with respect to our warrants, which will expire worthless if we fail to complete the Initial Business

Combination within the Combination Period.

On April 30, 2021, the

Sponsor funded the amount needed to extend the Company’s time to consummate its initial business combination from May 17, 2021 to

September 17, 2021, the proceeds of which were deposited into the Trust Account.

In connection therewith, the Company issued the Sponsor

a promissory note in the amount of $2,300,000.

As a result of the foregoing extension, the balance of the Trust Account increased to $10.10

per Public Share.

The Sponsor agreed to fund the amount needed to further extend the Company’s

time to consummate its initial business combination to January 17, 2022, if necessary .

If we anticipate that we may not be able to consummate

the Initial Business Combination by September 17, 2021, and subject to the Sponsor depositing additional funds into the Trust Account

as set out below, the time to consummate the Initial Business Combination may be extended for an additional four months up to three additional

times, for a total of up to 22 months from the closing of the Initial Public Offering to complete the Initial Business Combination.

stockholders will not be entitled to vote or redeem their shares in connection with any such extension.

Pursuant to the terms of the Amended

and Restated Certificate of Incorporation and the Trust Agreement entered into between us and Continental, in order for the time available

for us to consummate the Initial Business Combination to be extended, the Sponsor or its affiliates or permitted designees, upon five

business days advance notice prior to the applicable deadline, must deposit into the Trust Account $2,300,000 ($0.10 per Public Share),

on or prior to the date of the applicable deadline, for each of the available four month extensions providing a total possible business

Combination Period of 22 months at a total payment value of $9,200,000 ($0.10 per Public Share), including the $2,300,000 deposited by

the Sponsor on April 30, 2021.

Any such payments would be made by the Sponsor pursuant to a non-interest bearing loan issued by us which

would be due and payable on the consummation of the Business Combination out of the proceeds of the Trust Account released to us.

do not complete the Initial Business Combination, we may repay such loans solely from assets not held in the Trust Account, if any.

Liquidity and Capital Resources

As of June 30, 2021 and December 31, 2020, we

had $128,719 and $1,250, respectively, of cash in our operating bank account and working capital deficit of approximately $3,156,000 and

$46,000, respectively.

As of June 30, 2021, we did not have any interest income in the Trust Account, as during the six months ended June

30, 2021, $11,487 of the interest income from the Trust Account was used to pay taxes.

Our liquidity needs through June 30, 2021 have

been satisfied through a contribution of $25,000 from the Sponsor in exchange for the issuance of the founder shares, a loan of approximately

$140,000 from the Sponsor pursuant to a promissory note (the “Pre-IPO Note”), the proceeds from the consummation of the Private

Placement with the Sponsor not held in the Trust Account, and the Sponsor Loan (as defined below).

We fully repaid the Pre-IPO Note upon

completion of the Initial Public Offering.

In addition, in order to finance transaction costs in connection with the Initial Business

Combination, our Sponsor has committed up to $1,750,000 to be provided to us to fund our expenses relating to investigating and selecting

a target business and other working capital requirements after the Initial Public Offering and prior to the Initial Business Combination

(the “Sponsor Loan”).

If the Sponsor Loan is insufficient, the Sponsor or an affiliate of the Sponsor, or certain of our officers

and directors may, but are not obligated to, provide us additional loans.

On April 30, 2021, the Sponsor funded the amount

needed to extend the Company’s time to consummate its initial Business Combination from May 17, 2021 to September 17, 2021 and

agreed to fund the amount needed to further extend the Company’s time to consummate its initial Business Combination to January

17, 2022, if necessary .

In connection therewith, the Company issued the Sponsor a promissory note in the amount of $2,300,000 and

an additional amount of $0.10 per Public Share was deposited in the Trust Account.

As of June 30, 2021 and December 31, 2020, there

was approximately $3,461,000 and $428,000, respectively, outstanding under the loans payable by the Company to the Sponsor, including

approximately $1,161,000 and $428,000, respectively, outstanding under the Sponsor Loan and an additional $2,300,000 and $0, respectively,

outstanding under the loan payable to the Sponsor as a result of the extension of the Combination Period from May 17, 2021 to September

Based on the foregoing, management believes that

we will have sufficient working capital and borrowing capacity from the Sponsor to meet our needs through the earlier of the consummation

of the Initial Business Combination or one year from the date of this Report.

Over this time period, we will be using these funds for

paying existing accounts payable, identifying and evaluating prospective target businesses, performing due diligence on prospective target

businesses, paying for travel expenditures, selecting the target business to merge with or acquire, and structuring, negotiating and consummating

the Initial Business Combination.

Management's Discussion and Analysis of Financial Condition and Results of Operations

This discussion 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.

AEye is a provider of high-performance, adaptive lidar systems for vehicle autonomy, ADAS, and robotic vision applications.

With a sophisticated workforce of leaders and researchers, AEye has developed an artificial intelligence technology that enables adaptive “intelligent sensing”, differentiating AEye in the marketplace from competition.

AEye’s software-definable iDAR™ ( “Intelligent Detection and Ranging” ) platform combines adaptive lidar, an optionally fused camera, and integrated deterministic artificial intelligence to capture more intelligent information with less data, enabling faster, more accurate, and more reliable perception.

AEye was founded in 2013 by Luis Dussan, AEye’s Chief Technology Officer.

His goal was to create a deterministic AI-driven sensing system that performs better than the human eye and visual cortex.

From its inception, AEye’s culture drew from esteemed scientists and electro-optics engineers from the National Aeronautics and Space Administration ( “NASA” ), Lockheed Martin Corporation, Northrop Grumman Corporation, the U.S.

Air Force, and the Defense Advanced Research Projects Agency ( “DARPA”) to create the highest performing sensing and perception system for the most challenging situations, ensuring the highest levels of safety for autonomous driving.

Our adaptive iDAR is designed to enable higher levels of autonomy and functionality – SAE Levels 2 through 5 – with the goal of optimizing performance, power and reducing price.

Our iDAR platform is software-definable, network-optimized, and leverages deterministic artificial intelligence at the edge.

We have substantial investments in our R&D processes and deliver value to our customers through a combination of sales and direct channels.

We perform the majority of our R&D activities in our 56,549 square foot corporate headquarters in Dublin, California, along with working with technology developers on a world-wide basis to develop new technology.

We are partnering with leading Tier 1 suppliers to integrate AEye proprietary technology and design, ultimately meeting the specifications of OEMs while building reliable, trusted business relationships.

We expect to enable accelerated adoption of lidar across many markets and have partnered with leading Tier 1 automobile suppliers to achieve this mission.

The main markets for lidar, including Automotive, Industrial, and Mobility, are projected to see significant growth, allowing for greater market share as well as specialization opportunities like highway autonomous driving applications that benefit from our product.

We believe that lidar will be a required sensing solution across many end markets and we intend to be the leading solutions provider in this space.

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.

Business Combination and Public Company Costs

As a result of the Business Combination, which was consummated on August 16, 2021, a subsidiary of CF Finance Acquisition Corp III ("CF III"), Meliora Merger Sub, Inc., merged with and into AEye Technologies, Inc., then known as AEye, Inc.

("AEye Technologies"), with AEye Technologies continuing as the surviving entity as a wholly owned subsidiary of CF III, and CF III thereafter operated under the new name AEye, Inc.

The Business Combination was accounted for as a reverse recapitalization, in accordance with U.S.

Under this method of accounting, CF III was treated as the legal acquirer and as the accounting acquiree.

determination is primarily based on AEye stockholders comprising a relative majority of the voting power of the combined entity and having the ability to nominate the majority of the governing body of the combined entity, AEye’s senior management comprising the senior management of the combined entity and AEye’s operations comprising the ongoing operations of the combined entity.

Accordingly, for accounting purposes, the financial statements of the combined entity will represent a continuation of the financial statements of AEye and the Business Combination will be treated as the equivalent of AEye issuing stock for the net assets of CF III, accompanied by a recapitalization.

The most significant change in the Company’s financial position and results of the business combination was an increase in cash of $256,811.

Total non-recurring transaction costs incurred for this transaction were $52,661.

Upon the closing of the Business Combination, the Company began trading under the symbols “LIDR" and "LIDRW" on the Nasdaq Stock Market LLC ("Nasdaq").

We anticipate that we will continue to hire additional personnel and implement procedures and processes to address public company regulatory requirements and customary practices.

We have incurred and expect to incur additional annual expenses as a public company for, among other things, directors’ and officers’ liability insurance, director fees and additional internal and external accounting and legal and administrative resources, including increased audit and legal fees.

COVID-19 Impact

The extensive impact of the pandemic caused by the COVID-19 has resulted and will likely continue to result in significant disruptions to the global economy, as well as businesses and capital markets around the world.

The ongoing COVID-19 pandemic has disrupted and affected AEye’s business operations, which has led to business and supply chain disruptions, as well as broad changes in its supply and demand.

For example, AEye’s offices and R&D and manufacturing have been, and from time-to-time may continue to be, impacted due to national and regional government declarations requiring closures, quarantines and travel restrictions.

To mitigate the impact of the pandemic, AEye took several steps during 2020 to ensure its viability into the future.

We significantly reduced internal discretionary costs, reduced senior leadership salaries, furloughed and laid off a portion of the employees, and obtained a loan and rent deferral for a period of six months in 2020.

We also applied for and were granted a Paycheck Protection Program, or PPP, loan of $2,270 with SVB as part of the U.S.

Small Business Administration program.

This loan enabled us to bring back a portion of the furloughed employees.

The continued impact of the COVID-19 pandemic on AEye’s operational and financial performance will depend on various future developments, including the duration and spread of the outbreak and impact on its customers, suppliers, and employees, all of which is uncertain at this time.

We expect the COVID-19 pandemic may adversely impact our future revenue and results of operations, but are unable to predict at this time the size and duration of this adverse impact.

At the same time, we have seen some signs of positive effects for our long-term business prospects and partnerships as a result of the pandemic.

We believe automakers perceive the incorporation of lidar solutions in new models as a long-term strategic initiative that will be necessary for future growth and which are therefore beyond the direct impact of the COVID-19 pandemic.

For more information on our operations and risks related to epidemics, including COVID-19, please see the section of this Quarterly Report on Form 10-Q entitled “Risk Factors.”

Key Factors Affecting AEye’s Operating Results

AEye believes that its future performance and success depends to a substantial extent on its ability to capitalize on the following opportunities, which in turn is subject to significant risks and challenges, including those discussed below and the risk factors described in the section of this Quarterly Report on Form 10-Q entitled “Risk Factors.”

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 its products, attract new customers and retain existing customers, develop and protect intellectual property, comply with existing and new or modified laws and regulations applicable to its business, maintain and

enhance the value of its reputation and brand, hire, integrate, and retain talented people at all levels of its organization, and successfully develop new solutions to enhance the experience of customers.

Market Trends and Uncertainties

AEye anticipates growing demand for its iDAR perception platform across three major markets, the Automotive, Industrial and Mobility markets.

AEye anticipates the total addressable market for lidar-based perception technology to grow to $42 billion by 2030.

Within those markets, AEye is targeting attractive segments including ADAS, autonomous driving, commercial trucking, robo-taxis, and various Industrial and Mobility market segments such as mining, aviation, shuttles, railway, and intelligent transportation systems, or ITS.

This provides AEye with multiple opportunities for sustained growth by enabling new applications and product features across these market segments.

However, as our customers continue R&D projects to commercialize solutions that rely on lidar technology, it is difficult to estimate the timing of ultimate end market and customer adoption.

In the Automotive market for example, AEye’s growth and financial performance will be heavily influenced by its 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, AEye sees its existing Tier 1 partnerships as a substantial competitive advantage given their large scale, mass-production capabilities, and existing OEM customer relationships.

AEye’s primary focus in Automotive 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.

AEye 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.

Additionally, AEye is increasing its investments in international operations and partnerships that will position the company to expand its business globally and meet growing demand in the international markets.

This is an important part of AEye’s core strategy and may expose AEye to additional factors such as foreign currency risk, additional operating costs, and other risks and challenges that may impact the ability to meet projected sales and margins.

Partnerships and Commercialization

AEye’s technology is designed to be a key enabler of autonomous solutions for Automotive, Industrial and Mobility applications.

Because our technology must be integrated into a broader solution by our customers, it is critical that AEye achieves design wins with these customers.

Achieving these design wins varies based on the market and application.

The design win cycle in the Automotive market tends to be substantially longer and more difficult than in other markets.

Achieving a design win with an OEM within the Automotive market may take considerably longer than a design win with customers in the Industrial or Mobility markets.

AEye considers design wins to be critical to its future success, although the revenue generated by each design win and the time necessary to achieve such a win can vary significantly, making it difficult to predict AEye’s financial performance.

AEye’s revenue and profitability will be dependent upon our success in licensing our technology to Tier 1 automotive suppliers, such as Continental, that intend to use our technology in volume production of lidar sensors for OEMs.

Delays of autonomy programs from OEMs that AEye is currently or will be working with through our Tier 1 partners could result in AEye being unable to achieve its revenue targets and profitability in the time frame we anticipate.

Our revenue and profitability will be further dependent upon both our success in selling our lidar solutions to customers in the Industrial and Mobility markets.

Gross Margin Improvement

Our gross margins will depend on numerous factors, including among others the average 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.

In the future, we expect to generate attractive gross margins from licensing our lidar technology and software to our Tier 1 partners in Automotive, and we expect those licenses will begin generating revenue for AEye in 2024.

We also sell our own lidar solutions to customers in the Industrial and Mobility markets

utilizing low-cost components that are sourced from the Tier 2 automotive supply chain and assembled by our contract manufacturing partners.

If our Tier 1 partners in Automotive do not achieve the volumes that we expect, then the cost of the components we use to address the Industrial and Mobility markets may be higher than we currently anticipate and may impact our gross margins and our ability to achieve profitability.

To date, our revenue has been generated through development and/or collaboration arrangements with OEMs and Tier 1 suppliers to the OEMs, as well as unit sales of our products.

The development contracts primarily focus on customization of our proprietary iDAR capabilities to the 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 and/or collaboration arrangements that require more complex configurations have higher prices and higher gross margins.

We expect development contracts to represent a smaller share of our total revenue over time, as we increase our focus on technology licensing and product sales.

We expect our gross margins from the sale of products to improve over time as we outsource volume production of our lidar sensors to contract manufacturers, which will both increase unit volumes and reduce the cost per unit.

In September 2021, we commenced our transition process to contract manufacturers.

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, AEye’s active iDAR leverages principles from automated targeting systems and biomimicry to scan its environment, while intelligently focusing on what matters 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 R&D.

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, and generate strong market demand for our products.

If we fail to do this, our leading market position and revenue may be adversely affected, and our investments in that area will not be recovered.

Components of Results of Operations

Total Revenues

We categorize our revenue as (1) prototype sales and (2) development contracts.

In 2020 and during the first three quarters of 2021, our prototype revenue primarily related to unit sales of the company’s 4Sight M 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.

Development contracts represented the majority of our total revenues in 2020 and approximately half of total revenues for the first three quarters of 2021.

Revenue from development contracts are earned from R&D and/or collaboration arrangements with OEMs and Tier 1 suppliers to the OEMs.

These contracts primarily focus on customization of our proprietary iDAR capabilities to the 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 cost of component inventory used in the production of prototypes, direct and indirect labor costs associated with the units, as well as direct labor associated with development contracts.

Operating Expenses

Research and Development

Our 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, and stock-based compensation expense;

• third-party engineering and contractor costs;

• new hardware and software expenses;

• allocated overhead expenses.

R&D costs are expensed as they are incurred.

Our investment in R&D will continue to grow because we believe that investment is essential to maintain our position as a provider of one of the most advanced lidar solutions available.

Sales and Marketing

Our sales and marketing expenses consist primarily of personnel-related costs, including salaries, benefits, bonuses, and stock-based compensation, for all personnel directly involved in business development and customer account management, trade shows expenses, advertising and promotions expenses for press releases, other public relations services, and allocated overhead expenses.

We expect our sales and marketing expense to grow over time as we continue to expand our sales and marketing efforts to support the anticipated growth of our business.

General and Administrative

Our general and administrative expenses consist primarily of personnel-related costs, including salaries, benefits, bonuses, and stock-based compensation, for executive, finance, legal, human resources, technical support, and other administrative personnel.

Other significant expenses include consulting, accounting, legal and professional fees, insurance premiums, software and computer equipment costs, general office expenses, and allocated overhead expenses.

We expect our general and administrative expenses to increase for the foreseeable future as we increase our headcount to support the growth of our business, and as a result of operating as a public company, including additional costs and expenses associated with compliance with the rules and regulations of the SEC, legal, audit, insurance, investor relations, and other administrative and professional services.

Change in Fair Value of Embedded Derivative and Warrant Liabilities

Change in fair value of embedded derivative and warrant liabilities is the result of the change in fair value at each reporting date.

The carrying amounts of the embedded derivative and warrant liabilities are recorded at fair value at issuance, marked-to-market as of each balance sheet date, and changes in fair value are reported as either income or expense during the period.

Upon the closing of the Business Combination, the embedded derivative was settled, the pre-combination common stock warrants and Series A preferred stock warrants were net settled and converted to Class A common stock and private placement warrants were acquired as part of the Business Combination.

Interest Income, Interest Expense and Other

Interest income 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 expense consisted primarily of interest on our borrowings and convertible notes and amortization of debt issuance costs and discount.

Results of Operations

Our entire activity from

inception through June 30, 2021 related to our formation, the preparation for the Initial Public Offering, and since the closing of the

Initial Public Offering, toward locating and completing a suitable Initial Business Combination.

We have neither engaged in any operations

nor generated any revenues to date.

We will not generate any operating revenues until after completion of the Initial Business Combination.

We will generate non-operating income in the form of interest income on investments held in the Trust Account.

We expect to incur increased

expenses as a result of being a public company (for legal, financial reporting, accounting and auditing compliance), as well as for due

diligence expenses.

For the three months ended June 30, 2021, we had

net loss of approximately $1,912,000, which consisted of approximately $1,567,000 of loss from the change in fair value of warrants liability,

approximately $271,000 in general and administrative expenses, approximately $50,000 of franchise tax expense and $30,000 in administrative

expenses to related party, which were partially offset by approximately $6,000 of interest income on investments held in the Trust Account.

For the six months ended June 30, 2021, we had

net loss of approximately $1,574,000, which consisted of approximately $844,000 in general and administrative expenses, approximately

$550,000 of loss from the change in fair value of warrants liability, approximately $131,000 of franchise tax expense and $60,000 in administrative

expenses to related party, which were partially offset by approximately $11,000 of interest income on investments held in the Trust Account.

For the three and six

months ended June 30, 2020, we had no income.

Proposed Business

On February 17, 2021, we entered into an Agreement

and Plan of Merger (the “Original Merger Agreement”) with Meliora Merger Sub, Inc., a Delaware corporation and our wholly-owned

subsidiary (“Merger Sub”), and AEye, Inc., a Delaware corporation (“AEye”).

Pursuant to the Merger Agreement,

subject to the terms and conditions set forth therein, upon the closing of the transactions contemplated thereby (the “Closing”),

Merger Sub will merge with and into AEye (the “Merger” and together with the other transactions contemplated by the Merger

Agreement, the “Transactions”), whereby the separate corporate existence of Merger Sub will cease and AEye will be the surviving

corporation of the Merger and become our wholly owned subsidiary.

At the Closing, we will amend our charter to, among other matters, change

our name to “AEye, Inc.” On April 30, 2021, the Company entered into Amendment No.

1 to the Merger Agreement with Merger Sub

and AEye (the “Merger Agreement Amendment” and, together with the Original Merger Agreement, the “Merger Agreement”).

For more information about the business combination with AEye, see the Company’s Registration Statement on Form S-4 initially filed

with the SEC on May 13, 2021 and as amended on June 28, 2021 and July 8, 2021 (the “Form S-4”), the definitive proxy statement

filed with the SEC on July 21, 2021 (the “Proxy Statement”) and the Current Reports on Form 8-K filed with the SEC on February

17, 2021 and May 3, 2021.

Contemporaneously with

the execution of the Original Merger Agreement, we entered into separate Subscription Agreements (the “Subscription Agreements”)

with a number of subscribers (each a “Subscriber”), including the Sponsor, pursuant to which the Subscribers agreed to purchase,

and we agreed to sell to the Subscribers, at the Closing, an aggregate of 22.5 million shares of Class A common stock, for a purchase

price of $10.00 per share and an aggregate purchase price of $225.0 million (the “PIPE Investments”), with the Sponsor’s

Subscription Agreement accounting for $9.5 million of such aggregate PIPE Investments (of which the Sponsor has assigned $4.5 million

of its subscription to an unrelated third-party).

Contractual Obligations

Business Combination Marketing Agreement

We engaged Cantor Fitzgerald & Co.

an affiliate of the Sponsor, as an advisor in connection with the Initial Business Combination to assist us in holding meetings with our

stockholders to discuss the Initial Business Combination and the target business’ attributes, introduce us to potential investors

that are interested in purchasing the Company’s securities, assist us in obtaining stockholder approval for the Initial Business

Combination and assist us with our press releases and public filings in connection with the Initial Business Combination.

a cash fee for such services upon the consummation of the Initial Business Combination in an amount of $8,650,000, which is

equal to 3.5% of the gross proceeds of the base offering in the Initial Public Offering, and 5.5% of the gross proceeds from the full

exercise of the underwriters’ over-allotment option.

Related Party Loans

In order to finance transaction costs in connection

with an intended Initial Business Combination, the Sponsor has committed up to $1,750,000 in the Sponsor Loan to be provided to us to

fund expenses relating to investigating and selecting a target business and other working capital requirements, including $10,000 per

month for office space, administrative and shared personnel support services that will be paid to the Sponsor, after the Initial Public

Offering and prior to the Initial Business Combination.

On April 30, 2021, the Sponsor funded the amount

needed to extend the Company’s time to consummate its initial Business Combination from May 17, 2021 to September 17, 2021 and

agreed to fund the amount needed to further extend the Company’s time to consummate its initial Business Combination to January

17, 2022, if necessary .

In connection therewith, the Company issued the Sponsor a promissory note in the amount of $2,300,000 and

an additional amount of $0.10 per Public Share was deposited in the Trust Account.

As of June 30, 2021 and December 31, 2020, there was

approximately $3,461,000 and $428,000, respectively, outstanding under the loans payable by the Company to the Sponsor, including approximately

$1,161,000 and $428,000, respectively, outstanding under the Sponsor Loan and an additional $2,300,000 and $0, respectively, outstanding

under the loan payable to the Sponsor as a result of the extension of the Combination Period from May 17, 2021 to September 17, 2021.

The Sponsor pays expenses on our behalf.

the Sponsor for such expenses paid on our behalf.

As of June 30, 2021 and December 31, 2020, we had accounts payable outstanding to the

Sponsor for such expenses paid on our behalf of approximately $109,000 and $4,300, respectively.

Comparison of the Three Months Ended September 30, 2021 and 2020

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 condensed consolidated results of operations data for the three months ended September 30, 2021 and 2020 (in thousands, except for percentages):

Three months ended September 30, Change Change

2021 2020 $ %

Prototype sales $ 127 $ 87 $ 40 46.0 %

Development contracts — 1,050 (1,050) (100.0) %

Total revenues 127 1,137 (1,010) (88.8) %

Cost of revenue 466 317 149 47.0 %

Gross (loss) profit (339) 820 (1,159) (141.3) %

Research and development 7,468 3,247 4,221 130.0 %

Sales and marketing 2,991 672 2,319 345.1 %

General and administrative 6,086 1,650 4,436 268.8 %

Total operating expenses 16,545 5,569 10,976 197.1 %

Loss from operations (16,884) (4,749) (12,135) 255.5 %

Change in fair value of embedded derivative and warrants liabilities 341 1,366 (1,025) (75.0) %

Gain on PPP loan forgiveness — — — 0.0 %

Interest income and other 69 6 63 1,050.0 %

Interest expense and other (919) (401) (518) 129.2 %

Total other income (expense), net (509) 971 (1,480) (152.4) %

Net loss $ (17,393) $ (3,778) $ (13,615) 360.4 %

Prototype Sales

Prototype sales increased by $40, or 46.0%, for the three months ended September 30, 2021.

This increase was primarily due to an increase in 4Sight M unit sales.

Development Contracts

Developm en t contracts decreased by $1,050 or 100.0%, for the three months ended September 30, 2021.

The decrease was primarily due to revenue recognized in the prior year from a large Tier 1 contract.

Cost of Revenue

Cost of revenue increased by $149, or 47.0%, for the three months ended September 30, 2021.

This increase was primarily due to inventory adjustments, offset by less units shipped in the current quarter.

Operating Expenses

Research and Development

Research and development expenses increased by $4,221, or 130.0%, for the three months ended September 30, 2021.

This increase was primarily driven by an increase in nonrecurring engineering research and development fees of $2,547, stock-based compensation expense of $571, personnel costs of $861, and administrative expenses of $312, including IT charges of $272.

Sales and Marketing

Total sales and marketing expenses increased by $2,319, or 345.1%, for the three months ended September 30, 2021.

This increase was primarily due to an increase in marketing program spend of $664, stock-based compensation expense of $362, and personnel costs of $1,080.

General and Administrative

Total general and administrative expenses increased by $4,436, or 268.8%, for the three months ended September 30, 2021.

This increase was primarily due to an increase in administrative fees of $2,194, including insurance fees of $636, professional fees of $1,177, and personnel costs of $1,400.

Change in Fair Value of Embedded Derivative and Warrant Liabilities

Change in fair value of embedded derivative and warrant liabilities decreased $1,025, or 75.0% for the three months ended September 30, 2021.

This decrease was primarily due to a significant decrease in the fair value of the embedded derivative resulting in a gain during Q3 2020.

Gain on PPP Loan Forgiveness

Gain on PPP loan forgiveness had a $0 balance for the three months ended September 30, 2021 and 2020.

Interest Income and Other

Interest income and other increased by $63, or 1,050.0%, for the three months ended September 30, 2021.

This increase was primarily due to the interest earned on our marketable securities of $65 in September 2021.

Interest Expense and Other

Interest expense and other increased by $518, or 129.2%, for the three months ended September 30, 2021.

This increase was primarily due to the expense increase related to the SVB financing facility loan of $111, an increase in interest on convertible notes of $49, and an increase in the amortization of debt discount and issuance costs of $257.

Net loss increased by $13,615, or 360.4%, for the three months ended September 30, 2021.

This increase was primarily due an increase in the operating expenses.

Comparison of the Nine Months Ended September 30, 2021 and 2020

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

condensed consolidated results of operations data for the nine months ended September 30, 2021 and 2020 (in thousands, except for percentages):

Nine months ended September 30, Change Change

2021 2020 $ %

Prototype sales $ 588 $ 150 $ 438 292.0 %

Development contracts 615 1,150 (535) (46.5) %

Total revenues 1,203 1,300 (97) (7.5) %

Cost of revenue 1,537 464 1,073 231.3 %

Gross (loss) profit (334) 836 (1,170) (140.0) %

Research and development 19,030 11,207 7,823 69.8 %

Sales and marketing 6,489 2,610 3,879 148.6 %

General and administrative 13,846 4,862 8,984 184.8 %

Total operating expenses 39,365 18,679 20,686 110.7 %

Loss from operations (39,699) (17,843) (21,856) 122.5 %

Change in fair value of embedded derivative and warrant liabilities 222 1,284 (1,062) (82.7) %

Gain on PPP loan forgiveness 2,297 — 2,297 100.0 %

Interest income and other 74 19 55 289.5 %

Interest expense and other (2,871) (955) (1,916) 200.6 %

Total other income (expense), net (278) 348 (626) (179.9) %

Net loss $ (39,977) $ (17,495) $ (22,482) 128.5 %

Prototype Sales

Prototype sales increased by $438, or 292.0%, for the nine months ended September 30, 2021.

This increase was primarily due to an increase in 4Sight M unit sales.

Development Contracts

Development contracts decreased by $535, or 46.5%, for the nine months ended September 30, 2021.

The decrease was primarily due to revenue recognized in the prior year from a large Tier 1 contract.

Cost of Revenue

Cost of revenue increased by $1,073, or 231.3%, for the nine months ended September 30, 2021.

This increase was primarily due to increased sales as well as price variances and inventory adjustments.

Operating Expenses

Research and Development

Research and development expenses increased by $7,823, or 69.8%, for the nine months ended September 30, 2021.

This increase was primarily driven by an increase in nonrecurring engineering research and development fees of $4,910, stock-based compensation expense of $1,721, personnel costs of $901, and administrative expenses of $481, including IT charges of $460.

Sales and Marketing

Total sales and marketing expenses increased by $3,879, or 148.6%, for the nine months ended September 30, 2021.

This increase was primarily due to an increase in marketing program spend of $924, stock-based compensation expense of $1,055, and personnel costs of $1,702.

General and Administrative

Total general and administrative expenses increased by $8,984, or 184.8%, for the nine months ended September 30, 2021.

This increase was primarily due to an increase in administrative expense, including professional accounting and legal fees of $2,371, stock-based compensation expense of $2,930, and personnel costs of $2,634.

Change in Fair Value of Embedded Derivative and Warrant Liabilities

Change in fair value of embedded derivative and warrant liabilities decreased by $1,062 or 82.7% for the nine months ended September 30, 2021.

This decrease was due to a significant decrease in the fair value of the embedded derivative resulting in a gain during Q3 2020.

Gain on PPP Loan Forgiveness

Gain on PPP loan forgiveness increased by $2,297, or 100.0% for the nine months ended September 30, 2021.

This increase was due to the gain from the forgiveness of the PPP loan.

Interest Income and Other

Interest income and other increased by $55, or 289.5%, for the nine months ended September 30, 2021.

This increase was primarily due to the interest earned on our marketable securities of $65 in September 2021.

Interest Expense and Other

Interest expense and other increased by $1,916, or 200.6%, for the nine months ended September 30, 2021.

This increase was primarily due to the expense increase related to the SVB financing facility loan of $235, interest on convertible notes of $510 and an increase in the amortization of debt discount and issuance costs of $923.

Net loss increased by $22,482, or 128.5%, for the nine months ended September 30, 2021.

This increase was primarily due to an increase in operating expenses.

Liquidity and Capital Resources

Sources of Liquidity

AEye’s capital requirements will depend on many factors, including sales volume, the timing and extent of spending to support R&D efforts, investments in information technology systems, the expansion of sales and marketing activities, increased costs as we continue to hire additional personnel, and market adoption of new and enhanced products and features.

As of September 30, 2021, our cash, cash equivalents, and marketable securities totaled $182,378.

To date, AEye’s principal sources of liquidity have been proceeds received from the issuance of equity.

Until AEye can generate sufficient revenue from the sale of its products to cover operating expenses, working capital, and capital expenditures, AEye expects the funds raised in the Business Combination, including the funds

from PIPE financing, to fund its cash needs.

If we are required to raise additional funds by issuing equity securities, dilution of stockholders may result.

Any debt securities issued may also have rights, preferences, and privileges senior to those of holders of AEye common stock.

The terms of debt securities or borrowings could impose significant restrictions on AEye’s operations.

The credit market and financial services industry have in the past, and may in the future, experience periods of uncertainty that could impact the availability and cost of equity and debt financing.

During the nine months ended September 30, 2021 and 2020, we had a net loss of $39,977 and $17,495, respectively.

We anticipate that we will continue to incur losses for at least the next several years.

We expect that our research and development expenses and selling, general and administrative expenses will continue to be significant and, as a result, we may need additional capital resources to fund our operations.

We believe that the net proceeds from the Business Combination, together with our existing cash, cash equivalents and marketable securities will enable us to fund our operating expenses and capital expenditure requirements for a period of at least twelve months from the date of this Quarterly Report on Form 10-Q.

Cash Flow Summary

Nine months ended September 30,

(in thousands)

Net cash provided by (used in):

Operating activities $ (39,588) $ (13,958)

Investing activities $ (130,712) $ (4,017)

Financing activities $ 208,421 $ 14,428

Operating Activities

For the nine months ended September 30, 2021, net cash used in operating activities was $39,588.

Factors affecting our operating cash flows during this period were net loss of $39,977 and gain on PPP loan forgiveness of $2,297, offset by stock-based compensation of $6,522, amortization of issuance costs of $725, and amortization of debt issuance costs of $752.

Within operating activities, the net changes in operating assets and liabilities was cash used of $6,193, primarily driven by increases in prepaids and other current assets of $5,305 and inventory of $2,197, partially offset by increases in accrued expenses and other current liabilities of $1,417, and accounts payable of $840.

For the nine months ended September 30, 2020, net cash used in operating activities was $13,958.

Factors affecting our operating cash flows during this period were net loss of $17,495 and change in fair value of embedded derivative and liability of $1,284, offset by stock-based compensation of $815 and depreciation and amortization of $679.

Within operating activities net changes in operating assets and liabilities was cash provided of $2,657, primarily driven by decreases in prepaids and other current assets of $3,832, partially offset by increases in inventory of $414.

Investing Activities

For nine months ended September 30, 2021, net cash used in investing activities was $130,712.

The primary factor affecting net cash used in investing activities during this period was the purchase of available-for-sale securities of $129,999.

For nine months ended September 30, 2020, net cash used in investing activities was $4,017, due to the purchase of property and equipment of $4,017 associated with the construction allowance for the new headquarters.

Financing Activities

For the nine months ended September 30, 2021, net cash provided by financing activities was $208,421.

The primary factors affecting our financing cash flows during this period were the proceeds from the Business Combination and private offering of $256,811, partially offset by transaction costs related to the Business Combination of $47,775, proceeds from a bank loan of $10,000, offset by principal payments on the credit facility of $13,333.

For the nine months ended September 30, 2020, net cash provided by financing activities was $14,428.

The primary factors affecting our financing cash flows during this period were the proceeds from the issuance of AEye Convertible Equity Instruments of $12,596, proceeds from PPP loan of $2,270, offset by principal payments on a credit facility of $444.

Contractual Obligations and Commitments

In the normal course of business, we enter into obligations and commitments that require future contractual payments.

The commitments result primarily from lease for office space.

The following table summarizes our contractual obligations and commercial commitments (in thousands) as of September 30, 2021:

Rental Payments $ 2,333 $ 4,719 $ 5,006 $ 425

Total $ 2,333 $ 4,719 $ 5,006 $ 425

Off-Balance Sheet Arrangements

As of the balance sheet date of September 30, 2021 we have not engaged in any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.

Critical Accounting Policies and Estimates

The Company has identified the following as its

critical accounting polices:

Use of Estimates

The preparation of our unaudited condensed consolidated

financial statements and related disclosures in conformity with U.S.

GAAP requires management to make estimates and assumptions that affect

the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the unaudited condensed

consolidated financial statements, and income and expenses during the periods reported.

Actual results could materially differ from those

These accounting estimates require the use of assumptions about matters, some of which are highly uncertain at the time of

To the extent actual experience differs from the assumptions used, our unaudited condensed consolidated balance sheets, unaudited

condensed consolidated statements of operations and unaudited condensed consolidated statements of cash flows could be materially affected.

We believe that the following accounting policies involve a higher degree of judgment and complexity.

Emerging Growth Company

Section 102(b)(1) of the Jumpstart Our Business

Startups Act of 2012 (the “JOBS Act”) exempts emerging growth companies from being required to comply with new or revised

financial accounting standards until private companies (that is, those that have not had a registration statement under the Securities

Act of 1933, as amended (the “Securities Act”) declared effective or do not have a class of securities registered under the

Exchange Act) are required to comply with the new or revised financial accounting standards.

The JOBS Act provides that a company can

elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any

such election to opt out is irrevocable.

We have elected not to opt out of such extended transition period which means that when a standard

is issued or revised and it has different application dates for public or private companies, we, as an emerging growth company, can adopt

the new or revised standard at the time private companies adopt the new or revised standard.

Warrant Liability

We account for our outstanding public warrants

and private placement warrants in accordance with guidance in Financial Accounting Standards Board Accounting Standards Codification (“ASC”)

Topic 815-40, Derivatives and Hedging - Contracts in Entity’s Own Equity , under which the warrants do not meet the criteria

for equity classification and must be recorded as liabilities.

As both the public and private placement warrants meet the definition of

a derivative under ASC 815, Derivatives and Hedging , they are measured at fair value at inception and at each reporting date in

accordance with the guidance in ASC 820, Fair Value Measurement , with any subsequent changes in fair value recognized in the statement

of operations in the period of change.

Class A Common Stock Subject to Possible

We account for our Class A common stock subject

to possible redemption in accordance with the guidance in ASC 480, Distinguishing Liabilities from Equity .

Shares of Class A

common stock subject to mandatory redemption (if any) are classified as liability instruments and are measured at fair value.

conditionally redeemable Class A common stock (including Class A common stock that feature redemption rights that are either

within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within our control) are classified

as temporary equity.

At all other times, shares of Class A common stock are classified as stockholders’ equity.

common stock features certain redemption rights that are considered to be outside of our control and subject to the occurrence of uncertain

future events.

Accordingly, as of June 30, 2021, and December 31, 2020, 20,958,853 and 21,325,774 shares of Class A common stock

subject to possible redemption, respectively, are presented as temporary equity outside of the stockholders’ equity section of our

balance sheets.

Net Income (Loss) Per Common Share

We comply with accounting

and disclosure requirements of ASC Topic 260, Earnings Per Share .

Net income per common share is computed by dividing net income

(loss) applicable to common stockholders by the weighted average number of shares of common stock outstanding for the period.

have not considered the effect of the warrants sold in the Initial Public Offering and the concurrent Private Placement to purchase an

aggregate of 7,833,332 shares of Class A common stock in the calculation of diluted

earnings per share, since their inclusion would be anti-dilutive under the treasury stock method.

As a result, diluted earnings

per common share is the same as basic earnings per common share for the period.

Our statement of operations includes a presentation

of income per share for common stock subject to redemption in a manner similar to the two-class method of income per

Net income per share, basic and diluted for shares of Class A common stock are calculated by dividing the interest income (loss)

earned on cash equivalents and investments and held in the Trust Account, net of applicable taxes available to be withdrawn from the Trust

Account, by the weighted average number of shares of Class A common stock outstanding for the applicable period, excluding 500,000 shares

of Class A common stock held by the Sponsor, which is not subject to redemption.

Net loss per share, basic and diluted for shares of Class

B common stock is calculated by dividing the net income, less income attributable to the shares of redeemable Class A common stock by

the weighted average number of shares of Class B common stock and 500,000 shares of Class A common stock held by the Sponsor outstanding

for the applicable period.

Off-Balance Sheet Arrangements and Contractual Obligations

As of June 30, 2021, we did not have any off-balance

sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K and did not have any commitments or contractual obligations.

Recent Accounting

Pronouncements

See Note 2—“Summary

of Significant Accounting Policies” to our unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly

Report on Form 10-Q for information regarding recent accounting pronouncements.

Quantitative and Qualitative Disclosures

about Market Risk.

We are a smaller reporting company as defined

by Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required under this item.

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.

We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances.

The results of our analysis form the basis for making assumptions about the carrying values of assets and liabilities and fair value measures that are not readily apparent from other sources.

As a result, these accounting policies could materially affect our financial statements.

We recognize revenues from the sale of prototype systems and from R&D and collaboration and development arrangements with OEMs and suppliers to the OEMs.

Revenue represents the amount of expected consideration we are entitled to receive upon the transfer of promised goods or services in the ordinary course of our activities and is recorded net of sales taxes.

We recognize revenue when performance obligations are satisfied by transferring control of a promised good or service to a customer.

For performance obligations that are satisfied at a point in time, we also consider the following indicators to assess whether control of a promised good or service is transferred to the customer:

(i) right to payment;

(ii) legal title;

(iii) physical possession;

(iv) significant risks and rewards of ownership;

and (v) acceptance of the good or service.

For performance obligations satisfied over time, we recognize revenue over time by measuring the progress toward complete satisfaction of a performance obligation.

The application of various accounting principles related to the measurement and recognition of revenue requires us to make judgments and estimates.

Specifically, complex arrangements with nonstandard terms and

conditions may require relevant contract interpretation to determine the appropriate accounting treatment, including whether the promised goods and services specified in a multiple element arrangement should be treated as separate performance obligations.

When a contract involves multiple performance obligations, the Company accounts for individual products and services separately if the customer can benefit from the product or service on its own or with other resources that are readily available to the customer and the product or service is separately identifiable from other promises in the arrangement.

For multiple element obligations, the transaction price is allocated to each performance obligation using the relative stand-alone selling price.

Stock-Based Compensation

We recognize stock-based awards granted to our employees and directors based on the estimated grant-date fair value of the awards.

Compensation expense is recognized on a straight-line basis over the requisite service period, which is generally the vesting period of the respective award.

We estimate the fair value of options using the Black-Scholes option-pricing model, which requires objective and subjective assumptions such as the option’s expected term, fair value of our ordinary shares, risk-free interest rate, expected dividend yield, expected term, and expected volatility of our ordinary shares.

Our assumptions may differ from those used in prior periods.

Changes to the estimates we make from time to time may have a significant impact on our stock-based compensation expense and could materially impact our results of operations.

The grant date fair value of our common stock, prior to the closing of the Business Combination was determined using valuation methodologies that utilize certain assumptions, including probability weighting of events, volatility, time to liquidation, a risk-free interest rate, and an assumption for a discount for lack of marketability.

Subsequent to the closing of the Business Combination the valuation of our common stock was determined using the publicly traded closing price as reported on Nasdaq.

Emerging Growth Company Status

Section 102(b)(1) of the Jumpstart Our Business Startups Act of 2012 ( “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.

AEye is an “emerging growth company” as defined in Section 2(a) of the Securities Act, and has elected to take advantage of the benefits of the extended transition period for new or revised financial accounting standards.

Following the consummation of the Business Combination, our Post-Combination Company 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 the Company has total annual gross revenue of $1.07 billion or more during such fiscal year (as indexed for inflation), (iii) the date on which the Company has issued more than $1.0 billion in non-convertible debt in the prior three-year period, or (iv) December 31, 2024.

AEye expects to continue to take advantage of the benefits of the extended transition period, although it 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 the Company’s financial results with the financial results of another public company that is either not an emerging growth company or is an emerging growth company that has chosen not to take advantage of the extended transition period exemptions because of the potential differences in accounting standards used.

Recent Accounting Pronouncements

See Note 1 to AEye's financial statements included elsewhere in this Quarterly Report on Form 10-Q for recently adopted accounting pronouncements and recently issued accounting pronouncements not yet adopted as of the date of this Quarterly Report on Form 10-Q.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis