AEye, Inc. 10-K

Item 8. Financial Statements and Supplementary Data AEye, Inc. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm (PCAOB ID 34 ) 54 Consolidated B alance S heets 55 Consolidated S tatements of O perations and C omprehensive L oss 56 Consolidated S tatements of S tockholders’ E quity ( D eficit) 57 Consolidated S tatements of C ash F lows 58 Notes to C onsolidated F inancial S tatements 59 53 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the stockholders and Board of Directors of AEye, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of AEye, Inc. and subsidiaries (the “Company”) as of December 31, 2022 and 2021, the related consolidated statements of operations and comprehensive loss, stockholders’ equity (deficit), and cash flows for each of the two years in the period ended December 31, 2022, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ DELOITTE & TOUCHE LLP San Francisco, California March 15, 2023 We have served as the Company’s auditor since 2018. 54 AEYE, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except share and par value) As of December 31, 2022 2021 ASSETS CURRENT ASSETS: Cash and cash equivalents $ 19,064 $ 14,183 Marketable securities 75,135 149,824 Accounts receivable, net 617 4,222 Inventories, net 4,553 4,085 Prepaid and other current assets 6,181 5,051 Total current assets 105,550 177,365 Right-of-use assets 15,502 — Property and equipment, net 7,665 5,129 Restricted cash 2,150 2,150 Other noncurrent assets 2,473 1,509 Total assets $ 133,340 $ 186,153 LIABILITIES AND STOCKHOLDERS’ EQUITY CURRENT LIABILITIES: Accounts payable 3,218 $ 2,542 Accrued expenses and other current liabilities 9,764 8,739 Contract liabilities 987 2,287 Convertible notes 8,594 — Total current liabilities 22,563 13,568 Operating lease liabilities, noncurrent 16,681 — Deferred rent, noncurrent — 3,032 Other noncurrent liabilities 126 786 Total liabilities 39,370 17,386 COMMITMENTS AND CONTINGENCIES (Note 21) STOCKHOLDERS’ EQUITY: Preferred stock—$ 0.0001 par value: 1,000,000 shares authorized; no shares issued and outstanding — — Common stock—$ 0.0001 par value: 300,000,000 shares authorized; 163,099,124 and 155,137,237 shares issued and outstanding at December 31, 2022 and 2021 16 16 Additional paid-in capital 345,742 320,937 Accumulated other comprehensive loss ( 1,279 ) ( 391 ) Accumulated deficit ( 250,509 ) ( 151,795 ) Total stockholders’ equity 93,970 168,767 Total liabilities and stockholders’ equity $ 133,340 $ 186,153 The accompanying notes are an integral part of these consolidated financial statements. 55 AEYE, INC. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (In thousands, except share and per share data) Twelve Months Ended December 31, 2022 2021 REVENUE: Prototype sales $ 1,743 $ 1,004 Development contracts 1,904 2,003 Total revenue 3,647 3,007 Cost of revenue 8,732 3,637 Gross loss ( 5,085 ) ( 630 ) OPERATING EXPENSES: Research and development 37,644 26,543 Sales and marketing 19,317 10,548 General and administrative 36,762 25,514 Total operating expenses 93,723 62,605 LOSS FROM OPERATIONS ( 98,808 ) ( 63,235 ) OTHER INCOME (EXPENSE): Change in fair value of convertible note, embedded derivative liability, and warrant liabilities ( 14 ) 223 Gain on PPP loan forgiveness — 2,297 Interest income and other 1,545 561 Interest expense and other ( 1,379 ) ( 4,857 ) Total other income (expense), net 152 ( 1,776 ) Provision for income tax expense 58 — Net loss $ ( 98,714 ) $ ( 65,011 ) Change in net unrealized loss on available-for-sale securities, net of tax ( 940 ) ( 391 ) Change in fair value due to instrument-specific credit risk, net of tax ( 25 ) — Net losses reclassified into income during the period, net of tax 77 — Comprehensive loss $ ( 99,602 ) $ ( 65,402 ) PER SHARE DATA Net loss per common share (basic and diluted) $ ( 0.63 ) $ ( 0.60 ) Weighted average common shares outstanding (basic and diluted) 157,368,707 109,055,894 The accompanying notes are an integral part of these consolidated financial statements. 56 AEYE, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT) (In thousands, except share data) Preferred Stock Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Loss Accumulated Deficit Total Stockholders’ Equity Shares Amount Shares Amount BALANCE—December 31, 2021 — $ — 155,137,237 $ 16 $ 320,937 $ ( 391 ) $ ( 151,795 ) $ 168,767 Stock-based compensation — — — — 23,959 — — 23,959 Issuance of common stock upon exercise of stock options — — 3,219,957 — 1,174 — — 1,174 Issuance of common stock upon vesting of restricted stock units — — 3,908,031 — — — — — Taxes related to net share settlement of equity awards — — ( 1,340,810 ) — ( 3,790 ) — — ( 3,790 ) Issuance of common stock under the Common Stock Purchase Agreement — — 1,145,000 — 2,891 — — 2,891 Transaction costs related to the Common Stock Purchase Agreement — — — — ( 29 ) — — ( 29 ) Issuance of common stock upon exercise of public warrants — — 10 — — — — — Conversions of convertible note into common stock — — 1,029,699 — 600 — — 600 Other comprehensive loss, net of tax — — — — — ( 888 ) — ( 888 ) Net loss — — — — — — ( 98,714 ) ( 98,714 ) BALANCE—December 31, 2022 — — 163,099,124 16 $ 345,742 $ ( 1,279 ) $ ( 250,509 ) $ 93,970 Preferred Stock Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Loss Accumulated Deficit Total Stockholders’ Equity (Deficit) Shares Amount Shares Amount BALANCE—December 31, 2020 (as previously reported) 16,383,725 $ 62,639 10,838,010 $ — $ 5,920 $ — $ ( 86,784 ) $ ( 18,225 ) Retroactive application of recapitalization (Note 2) ( 16,383,725 ) ( 62,639 ) 90,448,635 10 62,629 — — — Balance as of December 31, 2020, as adjusted (Note 2) — — 101,286,645 10 68,549 — ( 86,784 ) ( 18,225 ) Stock based compensation — — — — 10,018 — — 10,018 Issuance of common stock upon exercise of stock options — — 312,037 — 150 — — 150 Conversion of convertible notes and accrued interest into Class A common stock — — 20,778,097 2 39,093 — — 39,095 Business combination and PIPE financing — — 31,894,635 3 256,808 — — 256,811 Transaction costs related to Business Combination and PIPE financing — — — — ( 52,661 ) — — ( 52,661 ) Net settlement of common stock and Series A preferred stock warrants — — 240,806 — — — — — Assumption of the private placement warrant liability in connection with Business Combination — — — — ( 268 ) — — ( 268 ) Commitment shares for Common Stock Purchase Agreement — — 302,634 — 1,583 — — 1,583 Repurchase of stock options — — — — ( 1,500 ) — — ( 1,500 ) Issuance of common stock upon vesting of restricted stock units — — 448,604 1 — — — 1 Taxes related to net share settlement of equity awards — — ( 126,221 ) — ( 835 ) — — ( 835 ) Unrealized loss on available-for-sale debt securities — — — — — ( 391 ) — ( 391 ) Net Loss — — — — — — ( 65,011 ) ( 65,011 ) BALANCE—December 31, 2021 — — 155,137,237 16 $ 320,937 $ ( 391 ) $ ( 151,795 ) $ 168,767 The accompanying notes are an integral part of these consolidated financial statements. 57 AEYE, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Twelve months ended December 31, 2022 2021 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ ( 98,714 ) $ ( 65,011 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 1,422 1,014 Noncash lease expense relating to operating lease right-of-use assets 1,338 — Noncash common stock purchase agreement costs — 1,583 Inventory write-downs, net of scrapped inventory 675 1,203 Change in fair value of convertible note, embedded derivative liability, and warrant liabilities 14 ( 223 ) Noncash gain on PPP loan forgiveness — ( 2,297 ) Stock-based compensation 23,959 10,018 Convertible note issuance costs 474 — Amortization of debt issuance costs — 725 Amortization of debt discount — 752 Realized loss on redemption of marketable securities 77 — Amortization of premiums on marketable securities, net of change in accrued interest 1,086 310 Other — 287 Changes in operating assets and liabilities: Accounts receivable, net 3,605 ( 4,066 ) Inventories, current and noncurrent, net ( 2,634 ) ( 2,633 ) Prepaid and other current assets ( 1,130 ) ( 3,655 ) Other noncurrent assets 527 ( 1,483 ) Accounts payable 839 557 Accrued expenses and other current liabilities 85 5,496 Operating lease liabilities ( 1,341 ) — Deferred rent — ( 538 ) Contract liabilities ( 1,931 ) 2,258 Net cash used in operating activities ( 71,649 ) ( 55,703 ) CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment ( 4,200 ) ( 1,021 ) Proceeds from redemptions and maturities of marketable securities 96,592 — Purchase of available-for-sale securities ( 23,929 ) ( 150,525 ) Net cash provided by (used in) investing activities 68,463 ( 151,546 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from exercise of stock options 1,174 150 Proceeds from Business Combination and PIPE financing — 256,811 Transaction costs related to Business Combination and PIPE financing — ( 52,372 ) Proceeds from the issuance of convertible notes 9,850 8,045 Payments for convertible note redemptions ( 874 ) — Payment of 2022 convertible note issuance costs ( 324 ) — Proceeds from bank loan — 10,000 Principal payments on bank loans — ( 13,333 ) Payment of debt issuance costs — ( 717 ) Taxes paid related to the net share settlement of equity awards ( 4,621 ) — Repurchase of stock options — ( 1,500 ) Proceeds from issuance of common stock under the Common Stock Purchase Agreement 2,891 — Payment of transaction costs related to the Common Stock Purchase Agreement ( 29 ) — Net cash provided by financing activities 8,067 207,084 NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH 4,881 ( 165 ) CASH, CASH EQUIVALENTS AND RESTRICTED CASH—Beginning of period 16,333 16,498 CASH, CASH EQUIVALENTS AND RESTRICTED CASH—Ending $ 21,214 $ 16,333 SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid for interest $ 133 $ 358 Cash paid for income taxes 20 — SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES: Purchases of property and equipment included in accounts payable and accrued liabilities 28 270 Operating lease right-of-use assets obtained in exchange for lease obligations upon adoption of ASC 842 16,284 — Conversion of Series A and Series B preferred stock into Class A common stock — 62,639 Conversion of convertible notes and accrued interest into Class A common stock 600 39,095 Operating lease right-of-use assets obtained in exchange for lease obligations 556 — Taxes related to net share settlement of equity awards included in accrued liabilities 4 835 Assumption of the private placement warrant liability in connection with Business Combination — 268 Transaction costs paid in 2020, previously recorded to other non-current assets and reclassified to additional paid-in capital in 2021 — 289 The accompanying notes are an integral part of these consolidated financial statements. 58 AEYE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except share and per share data or otherwise stated) 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AEye, Inc. (the “Company” or “AEye”) is a provider of high-performance, active lidar systems for vehicle autonomy, advanced driver-assistance systems (ADAS), and robotic vision applications. AEye’s software-definable 4Sight TM Intelligent Sensing Platform combines solid-state active lidar, an optionally fused low-light HD camera, and integrated deterministic artificial intelligence to capture more intelligent information with less data, enabling faster, more accurate, and more reliable perception of the surroundings. On February 17, 2021, AEye Technologies, Inc., then known as AEye, Inc. (“AEye Technologies”), entered into the Agreement and Plan of Merger (the “Merger Agreement”) with CF Finance Acquisition Corp. III, a Delaware corporation (“CF III”), now known as AEye, Inc., and Meliora Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of CF III (“Merger Sub”). Based on CF III’s business activities, it was a “shell company” as defined under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). On August 16, 2021 (the “Closing Date”), CF III closed the business combination (the “Business Combination,” and together with the other transactions contemplated by the Merger Agreement, the “Transactions”) pursuant to the Merger Agreement, and Merger Sub was merged with and into AEye Technologies with AEye Technologies surviving the merger as a wholly owned subsidiary of CF III. On the Closing Date, and in connection with the closing of the Transactions (the “Closing”), CF III changed its name to AEye, Inc. The Company’s common stock and public warrants are now listed on the Nasdaq Stock Market LLC (“Nasdaq”) under the symbols “LIDR” and “LIDRW”, respectively. Unless otherwise specified, “we,” “us,” “our,” “AEye,” and the “Company” refers to AEye, Inc., the combined entity following the Business Combination. Refer to Note 2 for further discussion of the Business Combination. Principle of Consolidation and Liquidity The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. The Company has funded its operations primarily through the Business Combination and issuances of stock. As of December 31, 2022, the Company’s existing sources of liquidity included cash, cash equivalents and marketable securities of $ 94.2 million. The Company has incurred losses and negative cash flows from operations. As the Company incurs additional losses in the future, it may need to raise additional capital through issuances of equity and debt. However, management believes that the Company’s existing sources of liquidity are adequate to fund its operations for at least the next 12 months. Reclassification of Prior Year Presentation Certain prior year amounts have been reclassified for consistency with the current year presentation. Advances to suppliers has been broken out from Other within Footnote 6, Prepaid and other current assets. Amortization of premiums on marketable securities, net within Footnote 13, Interest Expense and Other is now presented as Amortization of premiums on marketable securities, net of accretion and discounts. Emerging Growth Company The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the independent registered public accounting firm attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to 59 comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected to take advantage of the benefits of the extended transition period for new or revised financial accounting standards. This may make it difficult or impossible to compare the Company’s financial results with the financial results of another public company that is either not an emerging growth company or is an emerging growth company that has chosen not to take advantage of the extended transition period exemptions because of the potential differences in accounting standards used. Use of Estimates The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant items subject to such estimates and assumptions include investments, fair value of the 2022 convertible note, embedded derivative and warrant liabilities, and stock-based compensation. Segment Reporting The Company manages its business on the basis of one reportable and operating segment. Operating segments are defined as components of an enterprise with separate financial information, and are evaluated regularly by the chief operating decision maker, which is the Company's Chief Executive Officer (“CEO”). The CEO decides how to allocate resources and assesses the Company’s performance based upon consolidated financial information. All of the Company's sales were made to customers (in USD) located in the U.S., Europe, and Asia through AEye, Inc. Of the $ 7,665 of net property and equipment as of December 31, 2022, $ 7,207 is located in the United States, $ 108 is located in Europe, and $ 350 is located in Asia. Cash, Cash Equivalents, and Marketable Securities The Company considers all highly liquid investments, such as treasury bills, commercial paper, certificates of deposit, and money market instruments with maturities of three months or less at the time of acquisition to be cash equivalents. Cash equivalents primarily consist of amounts held in interest-bearing money market accounts that are readily convertible to cash. Cash equivalents are stated at cost, which approximates fair market value. Marketable securities have been classified as available-for-sale and are carried at estimated fair value as determined based upon quoted market prices or pricing models for similar securities. Unrealized gains and losses in fair value of the available-for-sale (“AFS”) debt securities are reported in other comprehensive income (loss). When the AFS debt securities are sold, cost is based on the specific identification method, and the realized gains and losses are included in other income (expense), net in the consolidated statements of operations and comprehensive loss. The Company determines the appropriate classification of its investments at the time of purchase and reevaluates such designation at each balance sheet date. The Company considers all AFS debt securities as available for use to support current operations, including those with maturity dates beyond one year and are classified as current assets under marketable securities in the accompanying consolidated balance sheets. AFS debt securities included in marketable securities on the consolidated balance sheets consist of securities with original maturities greater than three months at the time of purchase. Interest on marketable securities is included within interest income. Restricted Cash Restricted cash of $ 2,150 and $ 2,150 as of December 31, 2022 and 2021, respectively consists of funds that are contractually restricted as to usage or withdrawal due to a contractual agreement. The Company has a letter of credit to the amount of $ 2,150 with Silicon Valley Bank as security for the payment of rent on its headquarters in Dublin, CA which require lease payments through 2026. The Company determines current or non-current classification of restricted cash based on the expected duration of the restriction. 60 Concentration of Credit Risk Financial instruments which potentially subject the Company to concentration of credit risk consist primarily of cash, cash equivalents, and marketable securities, and accounts receivable. The Company places its cash and cash equivalents with major financial institutions, which management assesses to be of high credit quality, to limit the exposure of each investment. The Company’s marketable securities have investment grade ratings when purchased which mitigates risk. The Company’s accounts receivables are derived from customers located in the U.S., Europe, and Asia. The Company mitigates its credit risks by performing ongoing credit evaluations of its customers’ financial conditions. The Company generally does not require collateral. The Company’s concentration of risk related to accounts receivable and accounts payable was determined by evaluating the number of customers and vendors accounting for 10% or more of accounts receivable (“AR”) and accounts payable (“AP”). As of December 31, 2022, AEye had four customers, each accounting for 10 % or more of AR and two vendors, each accounting for 10 % or more of AP. As of December 31, 2021, AEye had one customer accounting for 10 % or more of AR and two vendors accounting for 10 % or more of AP. During the years ended December 31, 2022 and 2021, the Company did not have any write offs of accounts receivable and at December 31, 2022 and 2021, did not record an allowance for doubtful accounts as all accounts receivable amounts were expected to be collected. For the years ended December 31, 2022 and 2021, revenue from the Company’s major customers representing 10% or more of total revenue was as follows: Twelve months ended December 31, 2022 2021 Customer A 51 % 55 % Customer B 13 % * Customer C 10 % * *Customer accounted for less than 10% of total revenue in the period. Fair Value of Financial Instruments The Company defines fair value as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that is determined based on assumptions that market participants would use in pricing an asset or liability. For additional discussion on fair value of financial instruments, see Note 3. Derivatives The Company accounts for derivative instruments in accordance with Financial Accounting Standards Board's (FASB) Accounting Standards Codification (ASC) Topic 815, Derivatives and Hedging (“ASC 815”). The Company’s objectives and strategies for using derivative instruments, and how the derivative instruments and related hedged items are accounted for affect the financial statements. The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risk. Terms of convertible debt instruments are reviewed to determine whether they contain embedded derivative instruments that are required under ASC 815 to be accounted for separately from the host contract and recorded on the consolidated balance sheets at fair value. An evaluation of specifically identified conditions is made to determine whether the fair value of the derivative issued is required to be classified as equity or as a derivative liability. The fair value of derivative liabilities is required to be revalued at each reporting date, with corresponding changes in fair value recorded in current period operating results. For additional discussion of derivatives, see Note 3. Accounts Receivable, net Accounts receivable are recorded at the invoiced amount and do not bear interest. Amounts collected on accounts receivable are included in net cash provided by operating activities in the consolidated statements of cash 61 flows. If necessary, accounts receivable are reduced by an allowance for doubtful accounts, which is the Company’s best estimate of the amount of credit losses inherent in its existing accounts receivable. The Company reviews the need for an allowance for doubtful accounts quarterly based on historical experience with each customer and the specifics of each arrangement. During the years ended December 31, 2022 and 2021, the Company did not have any write-offs and at December 31, 2022 and 2021 did not record an allowance for doubtful accounts as all accounts receivable amounts are expected to be collected. Inventories, net Inventories consist of raw materials, work in progress, and finished goods. Inventories are stated at the lower of cost and net realizable value and costs are computed under the standard cost method. Inventories that are not expected to be consumed in the next 12 months are classified within Other noncurrent assets. Prototype inventory cost consists of the associated raw material, direct labor, indirect labor and other overhead costs. The Company evaluates the need for inventory write-downs associated with obsolete, slow moving, and non-sellable inventory by reviewing estimated net realizable values on a periodic basis and records a provision for excess and obsolete inventory to adjust the carrying value of inventory as needed. The Company's inventory as of December 31, 2022 and 2021 was written down by $ 833 and $ 1,122 , respectively, in order to record inventory at its estimated net realizable value. Deferred Transaction Costs The Company capitalized qualified legal, accounting, and other direct costs related to the Business Combination which were deferred until completion of the Business Combination. In August 2021, upon the completion of the Business Combination, all deferred costs were offset against proceeds from the Business Combination and the private investment in public equity (“PIPE”) financing. Property and Equipment, net Property and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, which range from 2 to 7 years. Leasehold improvements are amortized over the shorter of the lease term or expected useful life of the improvements. Construction in progress is the construction or development of property and equipment that have not yet been placed in service. Maintenance and repairs are charged to expense as incurred, and improvements are capitalized. When assets are retired or otherwise disposed of, the cost and accumulated depreciation and amortization are removed from the consolidated balance sheet and any resulting gain or loss is reflected in the consolidated statements of operations and comprehensive loss in the period realized. Impairment of Long-Lived Assets The Company evaluates its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. There are no impairment charges recorded in the consolidated statements of operations and comprehensive loss for the years ended December 31, 2022 and 2021. Warrant Liability The company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant's specific terms and applicable authoritative guidance. The warrants assumed in connection with the 2022 convertible note are accounted for in accordance with ASC 815-40, Derivatives and Hedging—Contracts in Entity’s Own Equity, under which the warrants do not meet the criteria for equity treatment and must be recorded as liabilities. The Private Placement Warrants issued in connection with the IPO are classified as liabilities. The Company adjusts the warrants to fair value at each reporting period. The warrant liabilities are subject to remeasurement at each balance sheet date until exercised, and any change in fair value is recognized in the consolidated statements of operations . 62 Leases The Company determines if an arrangement is or contains a lease at inception. The Company evaluates the classification of leases at commencement, and, as necessary, at modification. Operating leases, consisting of office leases, are included in Right-of-use ("ROU") assets, Accrued expenses and other current liabilities , and Operating lease liabilities, noncurrent, on the Company's consolidated balance sheets. The Company did not have any finance leases as of December 31, 2022 and December 31, 2021. ROU assets represent the Company's right to an underlying asset for the lease term, and lease liabilities represent the Company's obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. The operating lease ROU asset also includes any lease payments made prior to lease commencement and initial direct costs and excludes lease incentives. Variable lease payments not dependent on an index or a rate are expensed as incurred and are not included within the ROU asset and lease liability calculation. Variable lease payments primarily include reimbursements of costs incurred by lessors for common area maintenance and utilities. As most of the Company's leases do not include an implicit rate, the Company uses the incremental borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments at commencement date in determining the present value of future payments. The incremental borrowing rate is a hypothetical rate based on the Company's understanding of what its credit rating would be for a secured borrowing when the lease was executed. The Company's lease term includes the noncancelable period, any rent-free periods provided by the lessor, and options to extend or terminate the lease when it is reasonably certain that it will exercise that option. At lease inception, and in subsequent periods as necessary, the Company estimates the lease term based on its assessment of extension and termination options that are reasonably certain to be exercised. Operating lease expense for lease payments is recognized on a straight-line basis over the lease term and is included in operating expenses on the consolidated statements of operations and comprehensive loss. The Company elected to exclude from its balance sheets recognition of leases having a term of 12 months or less (short-term leases) and elected to not separate lease components and non-lease components for its long-term real estate leases. Convertible Notes The Company elected to early adopt Accounting Standards Update (“ASU”) 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”). The Company has elected to apply the fair value measurement option to the 2022 convertible note on the date that the Company first recognized the convertible note on September 15, 2022. The Company acknowledges that its election to apply the fair value option is irrevocable. The Company recognized costs incurred upon issuance of the 2022 convertible note as an expense in its consolidated income statement for the twelve months ended December 31, 2022. The 2022 convertible note is classified and presented as a current liability on the Consolidated Balance Sheet as of December 31, 2022. Changes in fair value are recorded in the consolidated statements of operations and changes in fair value related to credit risk are recorded in other comprehensive loss. The Company reports interest expense, including accrued interest, related to this convertible debt under the fair value option, within the change in fair value of convertible notes in the consolidated statement of operations. Revenue Recognition The Company generates revenues from the sale of prototypes and from development arrangements with automakers and suppliers to automakers. Under FASB ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”), the Company accounts for such arrangements as contracts with customers and accordingly recognizes revenue by applying the following steps: • Identification of the contract, or contracts, with a customer • Identification of the performance obligations in the contract • Determination of the transaction price • Allocation of the transaction price to the performance obligations in the contract • Recognition of revenue when, or as, the Company satisfies a performance obligation Revenue from the sale of prototypes is generally recognized at a point in time when control of the goods is transferred. Certain prototype sales contracts include services to install and commission or customize the prototypes for customers. Revenues from these services are categorized as prototype revenue and recognized either over time as the services are being performed, or at a point in time, depending on the nature of the services and whether the criteria for recording revenue over time are met in accordance with ASC 606. 63 Revenue from development arrangements is either recognized at a point in time or over time depending on the performance obligations in the contract. For performance obligations that are satisfied over time, such as services which require engineering and development based on customer requirements, the Company recognizes revenue using an input method based on contract costs incurred to date compared to total estimated contract costs. See Note 18, Revenue, for additional information related to the application of ASC 606 to the Company’s primary revenue streams. Sales taxes collected from customers and remitted to governmental authorities are accounted for on a net basis and therefore are excluded from revenues in the consolidated statements of operations and comprehensive loss. Arrangements with Multiple Performance Obligations When a contract involves multiple performance obligations, the Company accounts for individual products and services separately if the customer can benefit from the product or service on its own or with other resources that are readily available to the customer and the product or service is separately identifiable from other promises in the arrangement. The consideration is allocated between separate performance obligations in proportion to their estimated standalone selling price (SSP). The SSP reflects the price the Company would charge for a specific product or service if it were sold separately in similar circumstances and to similar customers. If the selling price is not directly observable, the Company determines SSP using information that may include other observable inputs, such as the cost plus margin approach, to estimate SSP. In instances where SSP is not directly observable, the Company determines SSP using information that may include other observable inputs such as expected costs plus margin, or uses the residual approach for performance obligations whose SSP is highly variable or uncertain. The Company provides standard product warranties for a term of typically one year to ensure that its products comply with agreed-upon specifications. Standard warranties are considered to be assurance type warranties and are not accounted for as separate performance obligations. Estimated future warranty costs are accrued and charged to cost of sales in the period that the related revenue is recognized. These estimates are based on historical warranty experience and any known or expected changes in warranty exposure, such as trends of product reliability and costs of repairing and replacing defective products. The Company assesses the adequacy of its recorded warranty liabilities on a quarterly basis and adjusts the amounts as necessary. Warranty costs are included within accrued expenses and other liabilities on the consolidated balance sheets. Refer to Note 10 for further information on warranty reserve amounts. Other Policies, Judgments and Practical Expedients Contract assets and liabilities. Contract assets primarily represent revenues recognized for performance obligations that have been satisfied but for which amounts have not been billed. The Company did no t have any contract assets as of December 31, 2022. Contract liabilities relate to deferred revenue. Deferred revenue consists of amounts that have been invoiced and/or cash received but for which revenue has not been earned. This generally includes unrecognized revenue balances for development arrangements. Deferred revenue that will be realized during the succeeding 12-month period is recorded within current liabilities and the remaining deferred revenue is recorded as noncurrent liabilities. Right of return. The Company’s general terms and conditions for its contracts do not contain a right of return that allows the customer to return products and receive a credit. Therefore, the Company does not estimate returns and generally recognizes revenue at contract price upon product shipment or delivery. Significant financing component. In certain arrangements, the Company receives payment from a customer either before or after the performance obligation has been satisfied. The expected timing difference between the payment and satisfaction of performance obligations for all of the Company’s contracts is one year or less; therefore, the Company applies a practical expedient and does not consider the effects of the time value of money on transaction price. The Company’s contracts with customer prepayment terms do not include a significant financing component because the primary purpose is not to receive financing from the customers. Contract modifications. The Company may modify contracts to offer customers additional products or services. Each of the additional products and services are generally considered distinct from those products or services transferred to the customer before the modification. The Company evaluates whether the contract price for the additional products and services reflects the standalone selling price as adjusted for facts and circumstances applicable to that contract. In these cases, the Company accounts for the additional products or services as a separate contract. In other cases where the pricing in the modification does not reflect the standalone selling price as adjusted for facts and circumstances applicable to that contract, the Company accounts for the additional products or services as part of the existing contract primarily on a prospective basis. 64 Judgments and estimates. Accounting for contracts recognized over time under ASC 606 involves the use of various techniques to estimate total contract revenue and costs. Due to uncertainties inherent in the estimation process, it is possible that estimates of costs to complete a contract will be revised in the near-term. The Company reviews and updates its contract-related estimates quarterly, and records adjustments as needed. For those performance obligations for which revenue is recognized using a cost-to-cost input method, changes in total estimated costs, and related progress towards complete satisfaction of the performance obligation, are recognized in the period in which the revisions to the estimates are made. Cost of Revenue Cost of revenue primarily consists of costs directly associated with the production of those prototypes that are held for sale and certain costs associated with development arrangements. Such costs for prototypes are direct materials, direct labor, indirect labor, warranty expense, and allocation of overhead. Direct and indirect labor includes personnel-related costs and packaging and procurement respectively associated with the production of prototypes. Other costs such as indirect manufacturing costs are recognized in research and development and general and administrative expenses on the consolidated statements of operations and comprehensive loss. Costs associated with development arrangements include the direct costs and allocation of overhead costs involved in the execution of the contract. Research and Development Expenses Research and development expenses include personnel costs (including salaries, benefits, bonuses, and stock-based compensation), new hardware and software materials to the extent no future economic benefits are expected, other related expenses such as lab equipment, third party development-related contractors, and allocated overhead expenses. Substantially all the R&D expenses are related to the development of new products and services, including contract development expenses. They are expensed as incurred and included in the consolidated statements of operation and comprehensive loss. Stock-Based Compensation The Company accounts for stock-based compensation by measuring and recognizing compensation expense for all share-based awards based on estimated grant-date fair values. The Company uses the straight-line attribution method to allocate compensation cost to reporting periods over each awardee’s requisite service period, which is generally the vesting period of the award. The Company measures nonemployee awards at the date of grant, which generally is the date at which a grantor and a grantee reach a mutual understanding of the key terms and conditions of a share-based payment award. The Company’s policy is to recognize the effect of forfeitures in the period they occur. The grant-date fair value of the restricted stock units, or “RSUs,” is equal to the fair market value of the Company’s common stock on the grant date. The grant-date fair value for stock options and stock purchase rights under the employee stock purchase plan ("ESPP") is estimated using the Black-Scholes option-pricing model. The Black-Scholes option-pricing model requires the input of subjective assumptions, including the option’s expected term and the price volatility of the underlying stock. Stock options and RSUs for all periods prior to the Business Combination have been retroactively restated to give effect to the recapitalization. Refer to Note 2 for further discussion of the equity recapitalization resulting from the Business Combination. Income Taxes Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases, as well as net operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Company recognizes deferred tax assets to the extent that these assets are more likely than not to be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If the Company determines that it would be able to realize deferred tax 65 assets in the future in excess of their net recorded amount, an adjustment to the deferred tax asset valuation allowance would be made to reduce the provision for income taxes. The Company records uncertain tax positions in accordance with FASB ASC Topic 740, Income Taxes (“ASC 740”) on the basis of a two-step process in which determinations are made (1) whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, the Company recognizes the largest amount of tax benefit that is more than 50% likely to be realized upon ultimate settlement with the related tax authority. The Company recognizes interest and penalties related to unrecognized tax benefits on the income tax expense line in the accompanying consolidated statements of operations and comprehensive loss. Accrued interest and penalties are included on the related tax liability line in the consolidated balance sheets. As of and for the year ended December 31, 2022 and 2021 there were no interest or penalties recorded. Net Loss per Share Basic net loss per share is computed using net loss available to common stockholders divided by the weighted average number of common shares outstanding during the period. Diluted net loss per share reflects the dilutive effects of stock options, restricted stock units, preferred stock, stock to be issued under the ESPP, convertible notes, and warrants outstanding during the period to the extent such securities would not be anti-dilutive and is determined using the if-converted and treasury stock methods. The Company calculates weighted average number of common shares outstanding during the period using the Company’s Class A common stock outstanding. As the merger has been accounted for as a reverse capitalization, the consolidated financial statements of the merged entity reflects the continuation of the pre-merger AEye Technologies financial statements, which has been retroactively adjusted to the earliest period presented to reflect the legal capital of the legal acquirer, CF III. As a result, net loss per share was also restated for periods ended prior to the Business Combination. See Note 2 for details on this recapitalization and Note 16 for the retroactive restatement of net loss per share. Basic and diluted net loss per share attributable to common stockholders was the same for all periods presented as the inclusion of all potentially dilutive securities outstanding was anti-dilutive, as AEye is currently operating in a net loss position. Comprehensive Loss Comprehensive loss includes all changes in equity (net assets) from non-owner sources during a period, changes in fair value due to instrument-specific credit risk, and net unrealized gains (losses) on available-for-sale debt securities. Recent Accounting Pronouncements In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments , which has subsequently been amended by ASU No. 2018-19, ASU No. 2019-04, ASU No. 2019-05, ASU No. 2019-10, and ASU No. 2019-11. The objective of the guidance in ASU 2016-13 is to allow entities to recognize estimated credit losses in the period that the change in valuation occurs. ASU 2016-13 requires an entity to present financial assets measured on an amortized cost basis on the balance sheet net of an allowance for credit losses. Available-for-sale and held to maturity debt securities are also required to be held net of an allowance for credit losses. For public business entities, this standard is effective for fiscal years beginning after December 15, 2019. For smaller reporting companies, the standard is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact this standard will have on its consolidated financial statements and related disclosures and will adopt the guidance on January 1, 2023 as permitted for smaller reporting companies. Recently Adopted Accounting Guidance In February 2016, the FASB established Topic 842, Leases, by issuing ASU No. 2016-02. FASB ASC Topic 842, Leases (“ASC 842”) supersedes the previous accounting guidance for leases included within ASC 840. The new guidance generally requires an entity to recognize operating and financing lease liabilities and corresponding right-of-use assets on its balance sheet, as well as recognize the associated lease expenses on its statements of operations in a manner similar to that required under current accounting rules. The guidance requires a 66 modified retrospective transition approach with application in all comparative periods presented (the “Comparative Method”), or alternatively, as of the effective date as the date of initial application without restating comparative period financial statements (the “Effective Date Method”). The Company adopted the new standard on January 1, 2022 using the Effective Date Method. Upon adoption, the Company recorded net ROU assets and lease liabilities totaling approximately $ 16,284 and $ 19,921 , respectively, and a reversal of deferred rent of $ 3,032 ; there were no cumulative effect adjustments as of January 1, 2022. The standard did not have a material effect on the Company's consolidated statements of operations and comprehensive loss and the consolidated statement of cash flows. The Company elected the transition practical expedient package which, among other things, allows the carryforward of historical lease classifications. The Company will continue to apply Topic 840 prior to January 1, 2022, including Topic 840 disclosure requirements, in the comparative periods presented. The company did not elect to apply the hindsight practical expedient, which permits entities to use hindsight in determining the lease term and assessing impairment of right-of-use assets. In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes . This standard simplifies the accounting for income taxes by, among other things, eliminating certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. ASU 2019-12 is effective for public business entities for fiscal years beginning after December 15, 2021. The Company adopted ASU 2019-12 as of January 1, 2022, and the Company's adoption did not have a material impact on the consolidated financial statements. In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity's Own Equity, which simplifies the guidance on accounting for convertible debt instruments by removing the separation models for: (1) convertible debt with a cash conversion feature; and (2) convertible instruments with a beneficial conversion feature. Also, ASU 2020-06 requires the application of the if-converted method for calculating diluted earnings per share and the treasury stock method will be no longer available. The provisions of ASU 2020-06 are applicable for fiscal years beginning after December 15, 2023 for smaller reporting companies, with early adoption permitted no earlier than fiscal years beginning after December 15, 2020. The Company adopted this standard using the modified retrospective method, effective January 1, 2022, and the Company's adoption did not have a material impact on the consolidated financial statements. 2. RECAPITALIZATION As discussed in Note 1, on August 16, 2021, AEye Technologies and CF III closed the Business Combination, with AEye Technologies surviving the Business Combination as a wholly owned subsidiary of CF III. As part of the closing of the Business Combination, CF III changed its name to AEye, Inc. (the “Combined Entity”). Immediately prior to the closing of the Business Combination, the Company’s certificate of incorporation was amended and restated to, among other things, increase the total number of authorized shares of capital stock to 301,000,000 shares, of which 300,000,000 shares were designated common stock, $ 0.0001 par value per share, and of which 1,000,000 shares were designated preferred stock, $ 0.0001 par value per share. The Business Combination is accounted for as a reverse recapitalization, with no goodwill or other intangible assets recorded, in accordance with US GAAP. Under this method of accounting, AEye Technologies was treated as the accounting acquirer and CF III was treated as the acquired company for financial reporting purposes under FASB ASC Topic 805, Business Combinations (“ASC 805”). This determination is primarily based on AEye Technologies’ stockholders comprising a majority of the voting power of the Combined Entity, and having the ability to nominate the majority of the governing body of the Combined Entity, AEye Technologies’ senior management comprising the senior management of the Combined Entity and AEye Technologies’ operations comprising the ongoing operations of the Combined Entity. Accordingly, for accounting purposes, the financial statements of the Combined Entity represented a continuation of the financial statements of AEye Technologies and the Business Combination was treated as the equivalent of AEye Technologies issuing stock for the net assets of CF III, accompanied by a recapitalization. The net assets of CF III are stated at historical cost, with no goodwill or other intangible assets recorded. Operations prior to the Business Combination will be those of AEye Technologies in future reports of the Combined Entity. Loss per share and stockholders’ equity (deficit), prior to the Business Combination, have been retroactively converted into 3.7208 shares (the “Exchange Ratio”). 67 Immediately prior to the closing of the Business Combination, all outstanding principal and unpaid accrued interest of the 2020 Notes were ultimately converted into 5,584,308 shares of AEye Technologies’ common stock and subsequently converted to Class A common stock of the Company (see Note 14). Separately, each issued and outstanding share of AEye Technologies’ 16,383,725 redeemable convertible preferred stock was converted into shares of AEye Technologies’ common stock based on a one -to-one ratio. The consolidated financial statements are accounted for with a retrospective application of the Business Combination that results in 16,383,725 shares of redeemable convertible preferred stock converting into common stock of the Company. Upon the closing of the Business Combination, each share of AEye Technologies common stock issued and outstanding was canceled and converted into the right to receive 3.7208 shares of CF III’s common stock (the “Per Share Merger Consideration”). Immediately prior to the closing of the Business Combination, the Board approved the net-exercise of common stock warrants and Series A preferred warrants which provides for the cashless exercise of 61,612 common stock warrants into 57,770 shares of AEye Technologies common stock and 7,353 Series A preferred warrants into 6,949 shares of AEye Technologies common stock at the Transaction Price of 37.21 per share. Upon the Closing, the combined 64,719 shares were cancelled and exchanged for 240,806 shares of the Company’s Class A common stock, after giving effect to the Exchange Ratio. Immediately prior to the closing of the Business Combination, CF III’s amended and restated certificate of incorporation, dated November 12, 2020 (the “Charter”), was further amended and restated to eliminate the Class B common stock (after giving effect to the conversion of each outstanding share of Class B common stock immediately prior to the closing of the Business Combination into one share of Class A common stock). PIPE Subscription Agreement Contemporaneously with the execution of the Merger Agreement, CF III entered into separate PIPE Subscription Agreements in a private placement with a number of PIPE investors, pursuant to which the PIPE Investors agreed to purchase, and CF III agreed to sell to the PIPE Investors, an aggregate of 22,000,000 shares of common stock, for a purchase price of $ 10.00 per share and an aggregate purchase price of $ 220,000 . CF III also entered into a PIPE Subscription Agreement for 500,000 shares of common stock, for a purchase price of $ 10.00 per share and an aggregate purchase price of $ 5,000 with an investor who defaulted on the Closing under the PIPE Subscription Agreement. The Company has initiated litigation to enforce the terms of that investor's PIPE Subscription Agreement. Redemption Certain CF III shareholders exercised their right to redeem certain of their outstanding shares for cash, resulting in the redemption of 19,355,365 shares of CF III Class A common stock for an aggregate payment of $ 195,498 , at a redemption price of $ 10.10 per share based on the Trust Account balance as of August 11, 2021. Public and Private Placement Warrants CF III Warrants issued in connection with the IPO (“Public Warrants”) and in connection with the private placement units held by the Sponsor (“Private Placement Warrants”) to purchase shares of the Company’s common stock, at an exercise price of $ 11.50 per share, remained outstanding after the closing of the Business Combination. The warrants became exercisable 30 days after the completion of the Business Combination, subject to other conditions, including with respect to the effectiveness of a registration statement covering the shares of common stock underlying such warrants, an d will expir e five years af ter the completion of the Business Combination or earlier upon redemption or liquidation. The Public Warrants are classified as equity and valued based on the instrument’s publicly listed trading price. The Private Placement Warrants are classified as liabilities and measured at fair value, with changes in fair value each period reported in the consolidated statements of operations and comprehensive loss. The Company uses the Public Warrants listed trading price to value the Private Placement Warrants each reporting period. Transaction Costs In connection with the Business Combination, the Company incurred direct and incremental costs of approximately $ 52,661 related to the equity issuance, consisting primarily of investment banking, legal, accounting, and other professional fees, which were recorded to additional paid-in capital as a reduction of proceeds upon the closing of the Business Combination. Transaction costs that were not directly related to the Business Combination of approximately $ 2,198 were expensed. 68 Transaction Proceeds Upon closing of the Business Combination, the Company received gross proceeds of $ 256,811 from the Business Combination and PIPE financing, offset by offerings costs of $ 52,661 . The following table reconciles the elements of the Business Combination to the consolidated statements of cash flows and the consolidated statements of changes in stockholders’ deficit for period ended December 31, 2021 (in thousands, except share data): Cash - CF III's trust and cash (net of redemption) $ 36,811 Cash - Private offering 220,000 Less: transaction costs and advisory fees paid ( 52,661 ) Net Business Combination and private offering $ 204,150 The number of shares of common stock issued immediately following the closing of the Business Combination were: CF III Class A common stock, outstanding prior to Business Combination 23,000,000 Less: redemption of CF III Class A common stock 19,355,365 Class A common stock of CF III 3,644,635 CF III founder shares 5,750,000 CF III Private Placement shares 500,000 CF III Shares issued in PIPE 22,000,000 Business Combination and PIPE shares 31,894,635 Legacy AEye shares 122,509,667 August 16, 2021 154,404,302 The number of Legacy AEye shares was determined as follows: AEye shares AEye shares, effected for Exchange Ratio Balance at December 31, 2019 11,283,838 41,984,908 Recapitalization applied to Convertible preferred stock outstanding at December 31, 2019 16,383,725 60,960,574 Exercise of common stock options - 2020 504,524 1,877,233 Repurchase of common stock - 2020 ( 950,352 ) ( 3,536,070 ) Exercise of common stock options - 2021 (pre-Closing) 54,859 204,119 Conversion of Convertible Notes and Accrued Interest – 2021 5,584,308 20,778,097 Exercise of common stock and Series A preferred stock warrants - 2021 64,719 240,806 Total 122,509,667 3. FAIR VALUE MEASUREMENTS The fair value of the Company’s financial assets and liabilities is determined in accordance with the fair value hierarchy established in FASB ASC Topic 820, Fair Value Measurements and Disclosures (“ASC 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. 69 The Company's financial instruments that are not re-measured at fair value include accounts receivable, prepaid and other current assets, accounts payable, accrued expenses and other current liabilities, 2020 convertible notes, and long-term debt. The carrying values of these financial instruments approximate their fair values. 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 December 31, 2022 Using: Adjusted Cost Unrealized losses Fair Value Cash and Cash Equivalent Marketable Securities Assets Level 1 Money market funds $ 14,253 $ — $ 14,253 $ 14,253 $ — Level 2 Asset-backed securities $ 3,507 $ ( 119 ) $ 3,388 $ — $ 3,388 Corporate bonds 22,139 ( 240 ) 21,899 — 21,899 Commercial paper 20,760 — 20,760 — 20,760 U.S. Government securities 29,983 ( 895 ) 29,088 — 29,088 Total financial assets $ 90,642 $ ( 1,254 ) $ 89,388 $ 14,253 $ 75,135 Liabilities Level 2 Private placement warrant liability $ — $ — $ 7 $ — $ — Level 3 Convertible notes — — 8,594 — — Derivative warrant liability — — 119 — — Total financial liabilities $ — $ — $ 9,200 $ — $ — Fair Value Measured as of December 31, 2021 Using: Adjusted Cost Unrealized losses Fair Value Cash and Cash Equivalent Marketable Securities Assets Level 1 Money market funds $ 4,863 $ — $ 4,863 $ 4,863 $ — Level 2 Asset-backed securities $ 26,491 $ ( 68 ) $ 26,423 $ — $ 26,423 Corporate bonds 48,643 ( 150 ) 48,493 — 48,493 Commercial paper 45,145 — 45,145 — 45,145 U.S. Government securities 29,936 ( 173 ) 29,763 — 29,763 Total financial assets $ 155,078 $ ( 391 ) $ 154,687 $ 4,863 $ 149,824 Liabilities Level 2 Private placement warrant liability $ — $ — $ 155 $ — $ — Total financial liabilities $ — $ — $ 155 $ — $ — As of December 31, 2022, 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 70 securities are valued using observable inputs, such as quoted prices in active markets for identical assets or liabilities. Marketable Securities : The Company holds financial assets consisting of fixed-income U.S. government agency securities, corporate bonds, commercial paper and asset-backed securities. The securities are valued using prices from independent pricing services based on quoted prices of identical instruments in less active or inactive 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. 2022 Convertible Note : On September 15, 2022, the Company entered into a convertible note agreement with a face value of $ 10,500,000 (the "2022 Note"). The Company elected the fair value option to account for the 2022 Note. The fair value estimate of the 2022 Note was based on a binomial lattice model, which represents Level 3 measurements. Significant assumptions include the discount rate used in the model, remaining term, stock price, and volatility. The discount rate is derived from the estimated credit spread and the risk-free interest rate, which is based on interpolated U.S. Treasury rates, commensurate with a similar term to the Note. The remaining term is calculated as the remaining contractual term of the Note. The stock price is based on the publicly traded price of our Common Stock as of the measurement date. The Company estimated the volatility for the Note based on the historical and implied volatilities of the Company's publicly traded common stock under the symbol "LIDR." The changes in fair value are recognized in other income (expense) for each reporting period. Refer to Note 12 for details of the terms and conditions of the 2022 Note. Derivative Warrant Liability : 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 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 our 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 under the symbol "LIDR." 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 4 years. Finally, the Company does not 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 consolidated balance sheets. Private Placement Warrant Liability : The Private Placement Warrants are recorded on the consolidated balance sheets at fair value. The fair value is based on observable Level 2 inputs, specifically, the observable input of AEye public warrants traded under the symbol "LIDRW". Any changes in the fair value of the liability are reflected in other income (expense), net, on the consolidated statements of operations and comprehensive loss. Private Placement Warrant liability is included within other noncurrent liabilities on the consolidated balance sheets. For the years ended December 31, 2022 and 2021, there were no 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 71 instruments for the year ended December 31, 2022: 2022 Convertible Note Derivative Warrant Liability Total Balance at December 31, 2021 $ — $ — $ — Additions 9,512 488 10,000 Payments or conversions ( 1,474 ) — ( 1,474 ) Change in fair value included in other income (expense) 531 ( 369 ) 162 Change in fair value due to instrument specific credit risk included in other comprehensive income 25 — 25 Balance at December 31, 2022 $ 8,594 $ 119 $ 8,713 The key inputs into the binomial-lattice model for the convertible note valued at December 31, 2022 are as follows: December 31, 2022 Remaining term (years) 1.2 Expected volatility 90.4 % Risk-free interest rate 4.6 % Dividend yield — % Estimated credit spread 37.7 % The key inputs into the Monte-Carlo simulation model for the derivative warrant liability valued at December 31, 2022 are as follows: December 31, 2022 Expected term (years) 3.7 Expected volatility 90.4 % Risk-free interest rate 4.1 % Dividend yield — % Exercise price $ 3.50 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. The value of the Company's convertible note liability would increase if a lower discount rate was used, and would decrease if a higher discount rate was used. 4. CASH, CASH EQUIVALENTS, AND RESTRICTED CASH Cash, cash equivalents (which consists entirely of money market funds) and restricted cash as of December 31, 2022 and 2021 were as follows (in thousands): As of December 31, 2022 2021 Cash and cash equivalents $ 19,064 $ 14,183 Restricted cash 2,150 2,150 Total cash, cash equivalents, and restricted cash $ 21,214 $ 16,333 72 5. INVENTORIES Inventory, net of write-downs, as of December 31, 2022 and 2021 were as follows (in thousands): As of December 31, 2022 2021 Raw materials $ 2,022 $ 1,544 Work in-process 2,484 2,447 Finished goods 47 94 Total inventory, net $ 4,553 $ 4,085 The Company also had $ 1,491 and $ 0 of non-current inventory (raw materials) classified within Other noncurrent assets on the consolidated balance sheet as of December 31, 2022 and December 31, 2021, respectively. 6. PREPAID AND OTHER CURRENT ASSETS Prepaid and other current assets as of December 31, 2022 and 2021 were as follows (in thousands): As of December 31, 2022 2021 Prepaid expenses $ 4,203 $ 3,980 Demonstration units 281 224 Advances to suppliers 984 745 Other 713 102 Total prepaid and other current assets $ 6,181 $ 5,051 7. LEASES The Company primarily leases office facilities in Northern California under noncancelable operating leases expiring at various dates through November 2026. Some of the Company's leases include options to renew, with renewal terms that, if exercised by the Company, extend the lease term from two to five years . The exercise of these renewal options is at the Company's discretion. The Company's lease agreements do not contain any material terms and conditions of residual value guarantees or material restrictive covenants. The Company's short-term lease expense was determined to not be material. The components of operating lease expenses for the twelve months ended December 31, 2022 were as follows (in thousands): Twelve months ended December 31, 2022 Operating lease cost $ 2,382 Variable lease cost 241 Total operating lease cost $ 2,623 Supplemental cash flow information for the twelve months ended December 31, 2022 were as follows (in thousands): December 31, 2022 Cash paid for operating leases included in operating cash flows $ ( 1,341 ) 73 Supplemental balance sheet information related to operating leases was as follows (in thousands): December 31, 2022 Operating lease right-of-use assets $ 15,502 Operating lease liabilities: Operating lease liabilities, current $ 2,455 Operating lease liabilities, non-current 16,681 Total operating lease liabilities $ 19,136 December 31, 2022 Weighted average remaining lease term (in years) 9.26 Weighted average discount rate 5.35 % Maturities of lease liabilities were as follows (in thousands). Years ended - December 31: 2023 $ 2,516 2024 2,570 2025 2,583 2026 2,660 2027 2,701 Thereafter 11,116 Total lease payments 24,146 Less amount to discount to present value ( 5,010 ) Present value of lease liabilities $ 19,136 Disclosures under ASC 840, Leases The company recognizes rent expense on a straight-line basis over the lease period. Rent expense is principally the leased office space and was $ 1,876 within operating expenses in the consolidated statements of operations and comprehensive loss for the twelve months ended December 31, 2021. Deferred rent liabilities, including unamortized leasehold improvement incentives was $ 3,637 as of December 31, 2021 within the consolidated balance sheet. 74 Future minimum payments as of December 31, 2021 under the noncancellable operating leases are as follows (in thousands): Operating Leases Years ended: 2022 2,393 2023 2,341 2024 2,412 2025 2,484 2026 and after 2,340 Total minimum lease payments 11,970 8. PROPERTY AND EQUIPMENT, NET Property and equipment, net as of December 31, 2022 and 2021 consists of the following (in thousands): As of December 31, 2022 2021 Machinery and equipment $ 2,528 $ 1,444 Computers, software and related equipment 432 268 Office furniture and equipment 651 341 Vehicles 846 342 Leasehold improvements 4,830 4,725 Construction in progress 1,401 213 Total property and equipment 10,688 7,333 Less accumulated depreciation and amortization ( 3,023 ) ( 2,204 ) Property and equipment, net $ 7,665 $ 5,129 Depreciation and amortization expense related to property and equipment amounted to $ 1,422 and $ 1,014 recognized within research and development, sales and marketing, and general and administrative expenses within the consolidated statements of operations and comprehensive loss for the years ended December 31, 2022 and 2021. $ 604 of property and equipment was disposed in the year ended December 31, 2022. Disposals of property and equipment were not material the year ended December 31, 2021. 9. OTHER NONCURRENT ASSETS Other noncurrent assets as of December 31, 2022 and 2021 were as follows (in thousands): As of December 31, 2022 2021 Non-current inventory $ 1,491 $ — Long-term prepaid expenses 901 1,376 Security deposits 81 133 Total other noncurrent assets $ 2,473 $ 1,509 75 10. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES Accrued expenses and other current liabilities as of December 31, 2022 and 2021 were as follows (in thousands): As of December 31, 2022 2021 Accrued purchases and other $ 4,092 $ 1,947 Operating lease liabilities - current 2,455 — Accrued bonuses 1,022 3,408 Accrued payroll 1,148 957 Accrued payroll taxes 526 1,547 Warranty reserve 480 275 Income tax payable 41 — Deferred rent - current — 605 Total accrued expenses and other current liabilities $ 9,764 $ 8,739 11. BORROWINGS Silicon Valley Bank Financing Facility On April 26, 2021, the Company entered into a loan and security agreement (the “Loan Agreement”) with an affiliate of Silicon Valley Bank (“SVB” or the “Lender”) in connection with the non-binding term sheet for a financing facility of up to $ 10,000 entered into on March 18, 2021. Under the Loan Agreement, the Lender was obligated to make a term loan advance to the Company of $ 4,000 . Subject to the terms and conditions of the Loan Agreement and, upon the Company’s request, the Lender was obligated to make one term loan advance to the Company of $ 6,000 . The interest rate on the term loan advance is calculated at 8 % per annum and payable monthly, in arrears. Upon entering the Loan Agreement, $ 4,000 was drawn. On May 13, 2021, the additional $ 6,000 was drawn. The balance of $ 10,540 for the financing facility, including interest, was repaid on August 20, 2021. Silicon Valley Bank Credit Facility On August 16, 2019, the Company entered into a loan and security agreement with SVB. Borrowings under this facility are secured by substantially all the Company’s assets, excluding intellectual property. The term loan’s borrowings are subject to certain financial covenants and restrictions. The Company complied with all financial covenants and restrictions. The balance of $ 2,333 for the term loan was repaid on September 7, 2021. Paycheck Protection Program (PPP) Loan On June 19, 2021, the Company received notice of the Paycheck Protection Program (PPP) forgiveness payment made to SVB by the Small Business Administration in the amount of $ 2,270 in principal and $ 27 in interest. This amount represents the forgiveness of the total PPP loan the Company received in 2020 under the PPP Loan provisions of the Coronavirus Aid, Relief and Economic Security (CARES) Act. As of December 31, 2022 and 2021, there were no borrowings outstanding. 12. CONVERTIBLE NOTES 2020 Convertible Notes During 2020, the Company entered into various convertible note agreements (“2020 Notes”) under which the Company may issue convertible equity instruments having an aggregate principal amount of up to $ 40,000 , a 3 % accruing dividend (“accrued interest”) and a maturity date of October 31, 2021. In connection with the Business Combination on August 16, 2021, all outstanding principal of $ 38,045 and unpaid accrued interest on the 2020 Notes were converted into AEye Technologies’ preferred stock and 76 subsequently were converted into 20,778,097 shares of the Company’s Class A common stock. Accordingly, at December 31, 2022 and December 31, 2021, the convertible notes balance was $ 0 . 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 two convertible notes, each with a principal balance of $ 10,500 and 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 cash proceeds of $ 10,000 . As part of the First Closing, the Company also issued warrants to the investor - see Note 14 for further details. The second Note Closing ("Second Closing") may occur, at the Company's option, no earlier than the ninetieth ( 90 th) calendar day after the First Closing, provided that the Company meets certain equity conditions. Additional warrants would be issued to the investor upon the Second Closing. The 2022 Note bears interest at an annual rate of 5.0 %, in addition to an original issue discount of 4.76 %, and has a maturity date of March 15, 2024 ("Maturity Date"). The interest may be settled in cash or shares at the option of the Company and is payable together with monthly redemptions of the outstanding principal amount of the Note. Beginning December 15, 2022, and the first of each subsequent month (each a "Monthly Redemption Date" or an "Installment Date"), the Company shall redeem the Monthly Redemption Amount until the 2022 Note is fully redeemed, payable in cash or, so long as certain equity conditions are met, shares of Common Stock at the option of the Company. The equity conditions that must be met in order for the Company to settle the Monthly Redemption Amount in shares include requirements for the daily volume weighted average price of the Company's Common Stock to exceed $ 0.33 and the average daily trading volume of the Company's Common Stock to exceed $ 500,000 for the twenty ( 20 ) trading days prior to the applicable Installment Notice Date (which is the sixth ( 6 th ) trading day prior to each Installment Date). The Monthly Redemption Amount, in most instances, will be 1/15 th of the original principal amount, plus any amount accelerated pursuant to the 2022 Note, accrued but unpaid interest, and late fees, if any. If the Company elects to settle such redemptions in shares of Common Stock, the number of shares to be settled shall be 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 ( 5 ) trading days immediately preceding the applicable Monthly Redemption Date. If the Company elects to settle redemptions in cash, the Monthly Redemption Amount shall include a 5 % premium. The investor is permitted to accelerate up to four ( 4 ) 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 shall be the lower of (i) the Installment Conversion Price for such current Installment Date or (ii) the greater of $ 0.30 and 95 % of the lowest daily volume weighted average price of the Common Stock during the five (5) trading days immediately preceding the Acceleration Date. If, at any time while the 2022 Note is outstanding, the Company carries out one or more capital raises in excess of $ 5,000 in gross proceeds each, the investor shall have the right to require the Company to first use up to 30 % of the gross proceeds of each capital raise to redeem all or a portion of the 2022 Note for an amount in cash (such amount, the "Mandatory Redemption Amount") equal to the sum of (a) 1.05 multiplied by the sum of the principal amount subject to the Mandatory Redemption and accrued but unpaid interest and (b) 1.00 multiplied by the sum of the Make-Whole amount, if any, and any other amounts, if any, then owing to the investor in respect of the 2022 Note (a "Mandatory Redemption"). The Make-Whole amount is defined as an amount equal to the additional interest that would accrue under the 2022 Note assuming for calculation purposes that the principal of the 2022 Note remained outstanding through the Maturity Date. The 2022 Note may not be converted into Common Stock to the extent such conversion would result in the investor and its affiliates having beneficial ownership of more than 9.99 % of our then outstanding shares of Common Stock. The Company and investor entered into a registration rights agreement (the “Registration Rights Agreement”) to which the Company is required to file a registration statement registering the resale by the investor of any shares of the Company’s common stock issuable upon conversion, including the resale of shares issuable upon exercise of the associated warrants. The Company is required to meet certain obligations with respect to the timeliness of the filing and effectiveness of the registration statement. The Company filed such registration statement on October 19, 2022, which was declared effective by the U.S. Securities and Exchange Commission on October 27, 2022. 77 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 should be bifurcated from the 2022 Note. The Company classifies the 2022 Note as a liability at fair value and will remeasure the 2022 Note to fair value at each reporting period. The total proceeds received from the investor of $ 10,000 should be allocated between the 2022 Note and the related warrants issued using the relative fair value method at issuance date. This resulted in an initial fair value of $ 9,512 being allocated to the 2022 Note, and $ 488 allocated to the associated warrants (see Note 3 for further details). The Company recorded total issuance costs of $ 474 , representing placement agent and legal fees, within Interest expense and other on the consolidated statement of operations. The fair value measurement includes the assumption of accrued interest and expense and thus a separate amount is not reflected on the consolidated statement of operations. As of December 31, 2022, the 2022 Note has outstanding principal of $ 9,200 and is recorded as a current liability at fair value of $ 8,594 . The Company evaluated the Second Closing and associated warrants to be a contingently issuable financial asset with a fair value of zero at inception in accordance with ASC 815-40 Contracts in an Entity's own Equity. The contingently issuable warrants are considered issued for accounting purposes - see Note 14 for further details. Embedded Derivative Liability As outlined in the indenture governing the 2020 Notes, the 2020 Notes are automatically convertible, contingent upon the occurrence of certain events, most notably a financing (a “Next Financing”), defined as the issuance and sale of additional preferred stock (“Financing Stock”). The redemption price is defined as a price per share equal to 90 % of the price per share paid by the other purchasers of the Financing Stock sold in the Next Financing. The 2020 Notes are redeemable into the number of shares of Financing Stock needed to settle the aggregate amount of principal and unpaid interest owed to the holder of such notes, which is based on the ultimate price per share associated with the Financing Stock. Consequently, the 2020 Notes are considered stock settled debt. This redemption feature embedded in the 2020 Notes is considered to be a derivative that is required to be separately accounted for at fair value and subsequently remeasured to fair value at each reporting date. Accordingly, upon issuance of the 2020 Notes, the Company recognized the fair value associated with the embedded derivative which resulted in an embedded derivative liability of approximately $ 1,520 , with an equal and offsetting debt discount. Upon the closing of the Business Combination on August 16, 2021, the embedded derivative was settled. Accordingly, at December 31, 2022 and December 31, 2021 , the fair value of the embedded derivative liability wa s $ 0 . 13. INTEREST EXPENSE AND OTHER Interest expense and other for the years ended December 31, 2022 and 2021 consisted of the following (in thousands): Twelve months ended December 31, 2022 2021 Interest on term loan debt $ — $ 630 Interest on PPP loan — 11 Interest on 2020 convertible note — 700 Amortization of debt issuance costs — 725 2022 convertible note issuance costs 474 — Amortization of debt discount — 752 Amortization of premiums on marketable securities, net of accretion of discounts 778 456 Realized losses on redemptions of marketable securities 77 — Common stock purchase agreement transaction costs 29 1,583 Other 21 — Interest expense and other $ 1,379 $ 4,857 78 14. STOCKHOLDERS’ EQUITY The Company is authorized to issue 300,000,000 shares of common stock, par value $ 0.0001 per share. As of December 31, 2022, the Company had 163,099,124 shares of common stock issued and outstanding. Class A Common Stock — Class A common stock has the following rights: Voting rights: Each holder of Class A common stock will be entitled to one ( 1 ) vote in person or by proxy for each share of the Class A common stock held of record by such holder. The holders of shares of the Class A common stock will not have cumulative voting rights. Except as otherwise required in the Amended Charter or by applicable law, the holders of the Class A common stock vote together as a single class on all matters on which stockholders are generally entitled to vote. Dividend rights: Subject to any other provisions of the Amended Charter, each holder of Class A common stock will be entitled to receive, in proportion to the number of shares of the Class A common stock held, such dividends and other distributions in cash, stock or property of the Company when, as and if declared thereon by the Board from time to time out of assets or funds of the Company legally available therefor. Rights upon liquidation: In the event of any liquidation, dissolution or winding up (either voluntary or involuntary) of the Company, after payments to creditors of the Company that may at the time be outstanding, and subject to the rights of any holders of the Company preferred stock that may then be outstanding, holders of shares of the Class A common stock will be entitled to receive ratably, in proportion to the number of shares of the Class A common stock held by them, all remaining assets of the Company available for distribution. Preferred Stock — The Company has the authority, without stockholder approval, to issue shares of preferred stock from time to time on terms it may determine, to divide shares of preferred stock into one or more class or series and to fix for each such class or series the designations, preferences, privileges, and restrictions of preferred stock, including dividend rights, conversion rights, voting rights, terms of redemption, liquidation preference, and the number of shares constituting any series or the designation of any series to the fullest extent permitted by the Delaware General Corporation Law. The issuance of the Company’s preferred stock could have the effect of decreasing the trading price of the Class A common stock, restricting dividends on the capital stock of the Company, diluting the voting power of the Class A common stock, impairing the liquidation rights of the capital stock of the Company, or delaying or preventing a change in control of the Company. Although the Company does not currently intend to issue any shares of preferred stock, the Company may choose to do so in the future. As discussed in Note 2, Recapitalization, the Company has retroactively adjusted the preferred shares issued and outstanding prior to August 16, 2021 to give effect to the Exchange Ratio established in the Merger Agreement to determine the number of shares of common stock into which they were converted. Upon the Closing on August 16, 2021, all of the outstanding shares of preferred stock were cancelled and exchanged for shares of the surviving Company’s Class A common stock at the Exchange Ratio of 3.7208 , the exchange rate established in the Merger Agreement. August 16, 2021 (Closing) Preferred stock shares Exchange ratio Common stock shares Series A Convertible preferred stock (pre-combination) 9,226,734 3.7208 34,330,838 Series B Convertible preferred stock (pre-combination) 7,156,991 3.7208 26,629,736 Total 16,383,725 60,960,574 The Company is authorized to issue up to 1,000,000 shares of preferred stock, each with a par value of $ 0.0001 per share. As of December 31, 2022, no shares of preferred stock were issued and outstanding. 79 Warrants — As of December 31, 2022, the Company had 166,666 Private Placement warrants and 7,666,656 Public warrants outstanding. Each warrant entitles the registered holder to purchase one share of the Company's common stock at a price of $ 11.50 per share. On September 15, 2022, in connection with the issuance of the 2022 Note, the Company issued warrants to the investor. The warrants are immediately exercisable and entitle the investor to purchase up to 1,750,000 shares of Common Stock at a price of $ 3.50 per share, subject to a four ( 4 ) year term. As of December 31, 2022, no shares were exercised pursuant to the warrants. Contingent Warrants - As of December 31, 2022, the Company had 1,750,000 contingently issuable warrants outstanding associated with the potential Second Closing under the Securities Purchase Agreement. These warrants will become exercisable by the investor if and when the Second Closing occurs. They will entitle the investor to purchase up to 1,750,000 shares of Common Stock at a price of $ 3.50 per share, subject to a four ( 4 ) year term. Tumim Stone Common Stock Purchase Agreement — On December 8, 2021, the Company entered into a Common Stock Purchase Agreement (the “CSPA”) and a Registration Rights Agreement with Tumim Stone Capital LLC (“Tumim Stone”). Under the terms and subject to the conditions of the CSPA, the Company has the right, but not the obligation, to sell to Tumim Stone, and Tumim Stone is obligated to purchase up to the lesser of (i) $ 125,000 of the Company’s common stock, or (ii) the Exchange Cap equal to 19.99 % of the shares of the Company’s common stock outstanding immediately prior to the execution of the CSPA, 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 Tumim Stone under the CSPA equals or exceeds $ 4.9485 . Upon the satisfaction of various commencement conditions, such as the filing of the registration statement which provides for the resale of such shares pursuant to the Registration Rights Agreement, the Company has sole discretion to initiate such sales of common stock over the period of 36 months commencing December 8, 2021. In all instances, the Company may not sell shares of its common stock to Tumim Stone under the CSPA if doing so would result in Tumim Stone beneficially owning more than 9.99 % of its common stock. The purchase price per share to be purchased by Tumim is equal to the volume-weighted average price for common stock on the applicable purchase date multiplied by 0.9615 (to be adjusted for any reorganization, recapitalization, non-cash dividend, stock split, reverse stock split, or similar transaction). The maximum number of shares the Company may sell to Tumim Stone on any single business day is the lesser of (i) $ 20,000 divided by the closing sale price of the common stock on the trading day immediately preceding the purchase date, and (ii) 0.15 multiplied by the average daily trading volume in common stock for the three trading days preceding the purchase date. In connection with the CSPA, the Company issued to Tumim Stone 302,634 restricted common shares in the Company. At issuance, the 302,634 shares of common stock had a fair value of $ 1,583 and were recorded to Interest expense and other in the Company’s 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 December 8, 2021. On May 6, 2022, the Company filed a Registration Statement on Form S-1, which relates to the offer and resale of up to 30,865,419 shares of AEye's common stock by to Tumim Stone, the selling stockholder. During the twelve months ended December 31, 2022, the company issued 1,145,000 shares of its common stock under the CSPA for proceeds of $ 2,891 . 80 15. ACCUMULATED OTHER COMPREHENSIVE LOSS The changes in accumulated other comprehensive loss by component for the twelve months ended December 31, 2022 and 2021 are as follows (in thousands): Unrealized gains (losses) on available-for-sale securities Change in fair value due to instrument-specific credit risk Total Balance at December 31, 2020 $ — $ — $ — Other comprehensive loss, net of tax ( 391 ) — ( 391 ) Balance at December 31, 2021 ( 391 ) — ( 391 ) Other comprehensive loss before reclassifications, net of tax ( 940 ) ( 25 ) ( 965 ) Amounts reclassified from accumulated other comprehensive loss, net of tax 77 — 77 Net other comprehensive loss ( 863 ) ( 25 ) ( 888 ) Balance at December 31, 2022 $ ( 1,254 ) $ ( 25 ) $ ( 1,279 ) The $ 77 reclassified out of accumulated other comprehensive loss in the twelve months ended December 31, 2022 is included within Interest expense and other on the consolidated statement of operations. 16. 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 per share data): Twelve months ended December 31, 2022 2021 Numerator: Net loss attributable to common stockholders $ ( 98,714 ) $ ( 65,011 ) Denominator: Weighted average common shares outstanding- Basic 157,368,707 109,055,894 Dilutive effect of potential common shares — — Weighted average common shares outstanding- Diluted 157,368,707 109,055,894 Net loss per share attributable to common stockholders - Basic and Diluted $ ( 0.63 ) $ ( 0.60 ) Due to net losses for the years ended December 31, 2022 and 2021, 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: Twelve months ended December 31, 2022 2021 Warrants 9,583,322 7,833,332 Common stock options issued and outstanding 25,393,540 29,238,432 Unvested restricted stock units 12,771,096 7,434,743 Conversion of convertible notes 16,293,602 — ESPP 2,000,000 — Total 66,041,560 44,506,507 81 17. STOCK-BASED COMPENSATION The Company has four equity incentive plans, the 2014 US LADAR Inc. Equity Incentive Plan (the “2014 Plan”), the 2016 Stock Plan (the “2016 Plan”), the 2021 Equity Incentive Plan (the “Incentive Plan”) and the 2022 Employee Stock Purchase Plan (the "ESPP"). On August 16, 2021, the Company’s 2014 Plan and 2016 Plan were terminated in connection with the closing of the Business Combination as defined in Note 1, but continue to govern the terms of outstanding equity awards that were granted prior to the termination of the plans. 2014 Plan and 2016 Plan The 2014 and 2016 Plan provide for the grant of incentive stock options to employees only and non-statutory stock options and RSUs to employees, directors, and consultants of the Company. As of August 16, 2021, the Company no longer grants equity awards pursuant to the 2014 Plan or 2016 Plan, and as of December 31, 2022, 1,741,689 RSUs were granted. Under the 2016 Plan, options to purchase common stock generally vest over four years with 25 % vesting at the end of the first year and the rest vesting ratably over the next three years . RSUs generally vest 25 % at the end of the first year with the remaining RSUs vesting ratably over the next three years or they vest ratably over the four years . Under the 2014 Plan, the vesting period for options to purchase common stock range from immediate to four years . Under each plan, the options expire ten years from the date of grant. In connection with the Closing on August 16, 2021, $ 1,500 was paid to a former executive as consideration for repurchasing 542,615 of his vested options under the Company's 2016 Plan. 2021 Equity Incentive Plan The Incentive Plan became effective immediately upon the Closing on August 16, 2021 and initially reserved 15,440,430 shares of common stock for issuance thereunder. The Incentive Plan includes an evergreen provision that provides for an annual increase in the number of shares of common stock available for issuance thereunder beginning on January 1, 2022 and ending on January 1, 2032, equal to 5 % of the shares of the Company’s common stock outstanding on December 31, 2021 for the first year and by 3 % of the total number of shares of common stock outstanding on December 31 of the preceding calendar year for each year thereafter, or a lesser number of shares as determined by the Board of Directors. After January 1, 2022, the Board of Directors authorized the addition of 7,743,413 shares of common stock to be added to the Incentive Plan for issuance. Under the Incentive plan, RSU’s vest depending on their vesting schedule. For newly hired employees, RSU’s generally vest 25 % during the quarterly release date following the recipient’s one year anniversary of their start date. The remaining amounts generally vest quarterly over the next three years . For existing employees, these RSUs generally vest quarterly over three years. The fair value of the RSU is equal to the fair value of the Company’s common stock on the date of grant. As of December 31, 2022, 17,891,938 RSUs were granted to certain individuals under the Incentive Plan. 2022 Employee Stock Purchase Plan On May 10, 2022, the Company's stockholders approved the 2022 Employee Stock Purchase Plan (the "ESPP"), authorizing 2,000,000 shares of common stock to be reserved for issuance under the ESPP. The number of shares reserved and available for issuance under the ESPP shall be cumulatively increased by the 1 % of the number of shares issued and outstanding on December 31 of the preceding calendar year for each year thereafter, or a lesser number of shares as determined by the Board of Directors. The ESPP provides an offering period of 24 months, with four purchase periods that are generally six months long and end on April 30 and October 31 of each year. The first purchase period to the Company's employees to purchase shares under the ESPP began on November 1, 2022. Each employee who is a participant in the ESPP may purchase shares by authorizing contributions at a minimum of 1 % up to a maximum of 10 % of his or her compensation for each pay period, to a maximum of $ 15 per purchase period and $ 25 per year, which will then be used to purchase shares on the last business day of the purchase period at a price equal to 85 % of the fair market value of common stock on the offering date or the exercise date whichever is less. During the year ended December 31, 2022, no shares were purchased under the ESPP. As of December 31, 2022, the Company has withheld $ 188 of contributions from its employees. 82 A summary of stock option activity related to the Plans as of December 31, 2022 is as follows: Outstanding Stock Options Weighted Average Exercise Price Weighted Average Contractual Life (Years) Aggregate Intrinsic Value Balance at December 31, 2021 29,238,432 $ 0.48 7.35 $ 127,345 Granted — — Exercised ( 3,219,957 ) 0.36 Forfeited ( 569,123 ) 0.60 Expired ( 55,812 ) 0.17 Repurchased — — Balance at December 31, 2022 25,393,540 $ 0.49 6.45 $ 2,277 Vested and expected to vest as of December 31, 2022 25,393,540 $ 0.49 6.45 $ 2,277 Vested and exercisable as of December 31, 2022 20,356,221 $ 0.47 6.14 $ 2,277 The aggregate intrinsic value is the difference between the current fair value of the underlying common stock and the exercise price for in-the-money stock options. The Company did not grant any options during the years ended December 31, 2022 and 2021. The following table summarizes the RSU award activity under the Plans: Shares Weighted Average Grant date Fair Value per Share Unvested at December 31, 2021 7,434,743 $ 5.80 Granted 11,719,867 3.49 Forfeited ( 2,475,483 ) 4.37 Vested ( 3,908,031 ) 4.99 Unvested at December 31, 2022 12,771,096 $ 4.00 The total fair value of RSUs that vested during the year ended December 31, 2022 was $ 10,992 . Stock-Based Compensation Expense — The following table summarizes stock-based compensation expense recorded in each component of operating expenses in the Company’s consolidated statements of operations and comprehensive loss for the year ended December 31, 2022 and 2021 (in thousands): Twelve months ended December 31, 2022 2021 Research and development $ 7,201 $ 2,175 Sales and marketing 4,696 1,381 General and administrative 11,931 6,462 Cost of revenue 131 — Total stock-based compensation $ 23,959 $ 10,018 As of December 31, 2022, the Company had $ 5,418 of unrecognized compensation expense for related stock option grants. This cost is expected to be recognized over an estimated weighted average period of 1.35 years. The total unrecognized compensation expense for RSUs was $ 47,007 as of December 31, 2022 which is expected to be recognized over an estimated weighted average period of 2.44 years. The total unrecognized compensation expense for the ESPP was $ 1,152 as of December 31, 2022 which is expected to be recognized over an estimated 83 weighted average period of 1.83 years. The Company uses the Black-Scholes option-pricing model to estimate the grant-date fair value of ESPP purchase rights, 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. The fair value of each of the four purchase periods is estimated separately. Expected Term —The expected term for ESPP is the length of time from the grant date to the date on which the stock is purchased by the employees. 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. 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. The following table summarizes the range of valuation assumptions used in estimated the fair value of the ESPP during the period: Year Ended December 31, 2022 Expected term (years) 0.5 - 2 Expected volatility 94.8 % - 105.3 % Risk-free interest rate 4.5 % - 4.8 % Dividend yield — % 18. REVENUE Sale of Prototypes The Company recorded revenue for prototype sales of $ 1,743 and $ 1,004 in 2022 and 2021 respectively. The Company does not incur significant contract costs in fulfilling or obtaining their contracts with customers. Development Contracts The Company has entered into research and development contracts 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 $ 1,904 and $ 2,003 in revenue for performance obligations satisfied during years ended 2022 and 2021 respectively, in the consolidated statements of operations and comprehensive loss. 84 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 are as follows (in thousands): Twelve months ended December 31, 2022 2021 Revenue by primary geographical market: United States $ 2,471 $ 2,215 Germany 65 536 Europe 855 111 Asia 256 145 Total $ 3,647 $ 3,007 Revenue by timing of recognition: Recognized at a point in time $ 1,982 $ 2,991 Recognized over time 1,665 16 Total $ 3,647 $ 3,007 Contract Liabilities Contract liabilities consisted of the following as of December 31, 2022 and 2021 (in thousands): As of December 31, 2022 2021 Contract liabilities, current $ 987 $ 2,287 Contract liabilities, noncurrent — 631 Total $ 987 $ 2,918 Contract liabilities, noncurrent are included in other noncurrent liabilities on the consolidated balance sheet. The following table shows the significant changes in contract liabilities balance as of December 31, 2022 and 2021 (in thousands): Twelve months ended December 31, 2022 2021 Beginning balance $ 2,918 $ 660 Revenue recognized that was included in the contract liabilities beginning balance ( 1,931 ) ( 570 ) Increase due to cash received and not recognized as revenue and billings in excess of revenue recognized during the period — 2,828 Ending balance $ 987 $ 2,918 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 85 or less. The contract liabilities balance represents the remaining performance obligations for contracts with an original duration of greater than one year. 19. EMPLOYEE BENEFIT PLAN Employees of the Company may participate in the AEYE, Inc. 401(k) Plan (the "401(k) Plan"), a defined contribution plan, which qualifies under Section 401(k) of the Internal Revenue Code. Participating employees may contribute into a traditional plan with pretax salary or into a Roth plan with after tax salary up to statutory limits. In 2022, the 401(k) Plan provides for Company safe harbor matching contributions of 100 % of the employee contribution, up to 5 % of each employee's earnings, which vest upon the first day of employment. In 2021, the 401(k) Plan provided for Company safe harbor matching contributions of 100 % of the first 3 % of employee earnings, and 50 % of the next 2 % of earnings. The Company made contributions of $ 1,177 and $ 565 for the years ended December 31, 2022 and 2021, respectively. 20. INCOME TAXES For the years ended December 31, 2022 and 2021, the Company recognized $ 58 and $ 0 provision for income taxes, respectively. The provision for the year ended December 31, 2022 was comprised of $ 9 and $ 49 in state and foreign taxes, respectively. Utilization of net operating loss carryforwards, tax credits, and other attributes may be subject to future annual limitations due to the ownership change limitations provided by Section 382 of the Internal Revenue Code and similar state provisions. The following table presents a reconciliation of the federal statutory rate of 21.0 % to our effective tax rate for the periods presented: Twelve months ended December 31, 2022 2021 U.S. federal tax benefit at statutory rate 21.0 % 21.0 % State income taxes, net of federal benefit 0.0 % 11.8 % Non-deductible expenses and other ( 1.0 ) % ( 0.3 ) % Stock-based compensation ( 2.3 ) % ( 1.1 ) % Research and development credits 3.5 % 1.2 % Transaction Cost 0.0 % 3.9 % Foreign rate differential ( 4.1 ) % ( 3.1 ) % Change in valuation allowance, net ( 17.2 ) % ( 33.4 ) % Effective tax rate ( 0.1 ) % 0.0 % For 2022 and 2021, our effective tax rate differs from the amount computed by applying the statutory federal and state income tax rates to net loss before income tax, primarily as the result of state income taxes, R&D credits and changes in our valuation allowance. 86 Significant components of the Company’s deferred tax assets as of December 31, 2022 and December 31, 2021 are presented below: As of December 31, 2022 2021 Deferred tax assets: Net operating loss carryforwards $ 49,669 $ 41,856 Research and development credit carryforward 7,967 4,545 Stock-based compensation 1,048 1,040 Property and equipment 234 178 Operating lease liabilities 4,435 — Section 174 R&D capitalization 9,053 — Other accruals 630 734 Gross deferred tax assets 73,036 48,353 Valuation allowance ( 68,868 ) ( 48,353 ) Deferred tax assets net of valuation allowance 4,168 — Deferred tax liabilities: Right-of-use assets ( 4,168 ) — Gross deferred tax liabilities ( 4,168 ) — Total deferred tax assets (liabilities)—net $ — $ — Realization of deferred tax assets is dependent on future earnings, if any, the timing and amount of which are uncertain. The Company could not conclude that it was more likely than not that tax benefits from operating losses would be realized, and accordingly, has provided a full valuation allowance against its net deferred tax assets. The valuation allowance as of December 31, 2022 was $ 68,868 which increased from $ 48,353 at December 31, 2021. The increase in the valuation allowance is primarily due to additional reserve required against net operating losses and research credits generated during the year ended December 31, 2022. The Company has not provided deferred taxes on unremitted earnings attributable to foreign subsidiaries because these earnings are intended to be reinvested indefinitely. No deferred tax asset was recognized since the Company does not believe the deferred tax asset will be realized in the foreseeable future. The accumulated foreign earnings of the Company's foreign subsidiaries totaled $ 111 as of December 31, 2022. If the Company's foreign earnings were repatriated, additional tax expense might result. The Company determined that the calculation of the amount of unrecognized deferred tax liability related to these cumulative unremitted earnings attributable to foreign subsidiaries is not practicable. As of December 31, 2022, the Company had $ 184,007 and $ 127,624 of federal and state net operating losses available to reduce future taxable income, respectively, of which $ 12,256 will begin to expire in 2033 for federal tax purposes and $ 5,033 will begin to expire in 2029 for state tax purposes. Approximately $ 171,751 of federal net operating loss included above can be carried forward indefinitely. As of December 31, 2021, the Company had $ 156,584 and $ 104,555 of federal and state net operating losses available to reduce future taxable income, which will begin to expire on 2033 for federal and 2035 for state tax purposes. The Company also has federal and state research and development tax credit carryforwards of $ 6,193 and $ 4,597 as of December 31, 2022 and $ 3,373 and $ 2,854 as of December 31, 2021. The federal credits begin to expire in 2034 and the state credits have no expiration date. The Company has completed a Section 382 study through December 31, 2021 to determine whether it had experienced a change in ownership and, if so, whether the tax attributes (NOL and credits) were impaired. As a result of this study, the Company concluded all of its NOLs and credits would be available to use as of December 31, 2021. However future change in ownership may limit the ability to use tax attributes under Section 382. Under Section 382 of the Internal Revenue Code of 1986, as amended, the Company’s ability to utilize NOL or other tax attributes, such as research tax credits, in any taxable year, may be limited if the Company has experienced an “ownership change.” Generally, a Section 382 ownership change occurs if there is a cumulative increase of more 87 than 50 percentage points in the stock ownership of one or more stockholders or groups of stockholders who owns at least 5% of a corporation’s stock within a specific testing period. Similar rules may apply under state tax laws. Unrecognized Tax Benefits — The following is a tabular reconciliation of the total amounts of unrecognized tax benefits: Twelve months ended December 31, 2022 2021 Unrecognized tax benefits as of the beginning of the year $ 1,681 $ 1,210 Increases related to prior year tax provisions 182 40 Increase related to current year tax provisions 959 431 Unrecognized tax benefits as of the end of the year $ 2,822 $ 1,681 The Company recognizes interest and penalties related to income tax matters as a component of income tax expense. As of December 31, 2022 and December 31, 2021 there was no accrued interest nor penalties related to uncertain tax positions. The Company reports income taxes in accordance with ASC 740, which requires an asset and liability approach in accounting for income taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, as well as net operating loss and tax credit carryforwards. Deferred tax amounts are determined by using the enacted tax rates expected to be in effect when the temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance reduces the deferred tax assets to the amount that is more likely than not to be realized. The Company has a history of operating losses and has incurred cumulative book losses since its formation. Based upon the history of losses, the Company has determined that it is more likely than not that the net deferred tax assets will not be realized, and accordingly, a full valuation allowance has been recorded. The Company files income tax returns in the U.S., various state jurisdictions, and foreign jurisdictions. The U.S., state and foreign jurisdictions have statutes of limitations that generally range from three to five years. Due to the Company’s net losses, substantially all of its federal, state and local income tax returns are subject to examination for federal and state purposes since inception. The Company is not currently under examination for federal or state income tax purposes. Effective for tax years beginning on or after January 1, 2022, pursuant to the Tax Cuts and Jobs Act of 2017, companies are required to capitalize Internal Revenue Code ("IRC") Section 174 research and experimental expenses paid or incurred during the year. These expenses are amortized over 5 years for research and development performed in the United States and over 15 years for expenses related to research and development performed outside of the United States. As a result of the IRC Section 174 research and development capitalization, the Company recognized a deferred tax asset for the future tax benefit of the amortization deductions. 21. COMMITMENTS AND CONTINGENCIES Legal Matters —The Company may be subject to legal proceedings and claims that arise in the ordinary course of business. Management is not currently aware of any matters that will have a material effect on the financial position, results of operations, or cash flows of the Company. 22. RELATED PARTIES Since November 2016, the Company has employed a sibling of Mr. Dussan, the Company’s Chief Technology Officer, who held the position of Director, Human Resources and Sr. Manager of Human Resources at December 31, 2022 and 2021, respectively. For the years ended December 31, 2022 and 2021, Mr. Dussan’s sibling received total cash compensation of $ 162 and $ 136 , respectively. For the years ended December 31, 2022 and 2021, Mr. Dussan’s sibling was granted 22,500 and 1,860 RSUs, respectively. In addition, he participates in all other benefits that the Company generally offers to all of its employees. 88 23. SUBSEQUENT EVENTS Management has evaluated subsequent events through March 15, 2023 and determined that there were no such events requiring recognition or disclosure in the financial statements other than the below. DGCL 205 Petition On August 12, 2021, CF Finance Acquisition Corp. III, or the Pre-Merger Company, our predecessor, held a special meeting of stockholders to approve certain matters related to the business combination between the Pre-Merger Company and AEye Technologies, Inc. Among the proposals presented to the Pre-Merger Company stockholders were proposals to (i) adopt a certificate of amendment to the Pre-Merger Company’s amended and restated certificate of incorporation to increase the number of authorized shares of its Class A Common Stock from 200,000,000 to 300,000,000 , or the Authorized Share Amendment, and (ii) amend and restate the charter in connection with the business combination, which included eliminating its Class B Common Stock immediately prior to the closing of the business combination after giving effect to the conversion of each outstanding share of Class B Common Stock into one share of its Class A Common Stock, or the Class B Elimination Amendment. The proposals each received approval from the holders of a majority of the Pre-Merger Company’s outstanding shares of Class A Common Stock and Class B Common Stock, voting together as a single class, that were outstanding as of the record date for such special meeting. Following the special meeting, the business combination was closed and the Pre-Merger Company changed its name to "AEye, Inc." A recent ruling by the Court of Chancery of the State of Delaware, or Chancery Court, introduced uncertainty as to whether Section 242(b)(2) of the General Corporation Law of the State of Delaware, or DGCL, would have required the Authorized Share Amendment to be approved by a separate vote of the majority of the Pre-Merger Company’s then-outstanding shares of Class A Common Stock and the Class B Elimination Amendment to be approved by a separate vote of the majority of the Pre-Merger Company’s then-outstanding shares of Class B Common Stock. Although we received no demands or inquiries from our stockholders regarding the potential uncertainty surrounding our Second Amended and Restated Certificate of Incorporation, or our Charter, which was adopted at the special meeting, and our own analysis determined that a separate class vote to adopt the Charter was not necessary, in light of the recent Chancery Court decision, and to resolve any potential uncertainty with respect to our Charter, or our capital structure, on February 23, 2023, we filed a petition in the Chancery Court under Section 205 of the DGCL, our Section 205 Petition, to seek validation of the Authorized Share Amendment, our Charter, and the shares we issued in reliance thereon. Section 205 permits the Chancery Court, in its discretion, to validate potentially defective corporate acts after considering a variety of factors. Concurrently with the filing of our Section 205 Petition, we filed a motion to expedite the hearing, which was granted. The hearing was set for March 14, 2023. At the March 14, 2023 hearing on our Section 205 Petition, no objections were filed and the court granted our petition. The court order declared our Charter to be valid and effective as of the date and time it was originally filed and that all shares of our capital stock that we have issued in reliance on our Charter were valid as of the date such shares were issued, thereby eliminating any uncertainty with respect to our Charter or any shares we have issued or may issue in the future in reliance thereon. Silicon Valley Bank Closure 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. We have deposit accounts at SVB. The standard deposit insurance amount is up to $250 per depositor, per insured bank, for each account ownership category. As of March 10, 2023, we had approximately $ 9,600 in deposit accounts at SVB, of which $ 2,150 was held as collateral for letters of credit under our lease agreement. We do not maintain any other material accounts or lines of credit with SVB. On March 12, 2023, the U.S. Treasury, Federal Reserve, and FDIC announced that SVB depositors will have access to all of their money starting March 13, 2023. We began the process of withdrawing our deposits from SVB on March 13, 2023. 89 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure None.