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Item 7. Management’s Discussion and Analysis

2024-03-27 compared with 2023-03-16 · 164 added, 126 removed, 153 unchanged (65% of the section changed)

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All dollar amounts expressed in this Management’s Discussion and Analysis of Financial Condition and Results of Operations are in thousands of dollars, except for per share amounts and unless otherwise specified.

Business Combination and Public Company Costs

As a result of the Business Combination, which closed on August 16, 2021, a subsidiary of CF Finance Acquisition Corp III, or CF III, Meliora Merger Sub, Inc., merged with and into AEye, Inc., then known as AEye Technologies, Inc., or AEye Technologies, with AEye Technologies continuing as the surviving entity as a wholly owned subsidiary of CF III, and CF III thereafter operating under the new name AEye, Inc., or AEye, or the combined entity.

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

Under this method of accounting, AEye Technologies was treated as the accounting acquirer, meaning CF III was treated as the acquired company for financial reporting purposes.

This determination is primarily based on AEye Technologies’ stockholders comprising a relative majority of the voting power of the combined entity and having the ability to nominate the majority of the governing body of the combined entity.

Additionally, AEye Technologies’ senior management comprises the senior management of the combined entity and AEye Technologies’ operations comprise the ongoing operations of the combined entity.

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

The most significant change in AEye Technologies’ financial position and results of the business combination was an increase in cash of $256,811 before transaction costs.

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

Upon the closing of the Business Combination, our common stock and warrants began trading under the symbols “LIDR” and “LIDRW,” respectively, on the Nasdaq Stock Market LLC, or Nasdaq.

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

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

Reverse Stock Split

On December 27, 2023, we effected a 1-for-30 reverse stock split of its issued and outstanding shares of common stock (the "Reverse Stock Split").

Pursuant to the Reverse Stock Split, every thirty (30) shares of issued and outstanding shares of common stock were combined into one (1) share of common stock.

We did not issue fractional shares in connection with the Reverse Stock Split.

Stockholders who were otherwise entitled to fractional shares of common stock were instead entitled to receive a proportional cash payment.

The number of outstanding warrants were also proportionately adjusted.

In connection with the Reverse Stock Split, there was no change to the shares authorized or in the par value per share of $0.0001.

Accordingly, unless we indicate otherwise, all historical per share data, number of shares issued and outstanding, stock awards, and other common stock equivalents for the periods presented in this Annual Report on Form 10-K have been adjusted retroactively, where applicable, to reflect the Reverse Stock Split.

Key Factors Affecting AEye’s Operating Results

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

We are subject to those risks common in the technology industry and also those risks common to early stage companies including, but not limited to, the possibility of not being able to successfully develop or commercialize our products;

secure additional capital in a timely manner in order to meet operating cash flow needs;

secure a "design win" with automotive OEMs and their suppliers;

attract new customers and retain our existing customers;

We believe that our future performance and success depends to a substantial extent on our ability to capitalize on the opportunities described herein, which in turn are subject to significant risks and challenges, including those discussed below and the risk factors described in the section of this Annual Report on Form 10-K entitled “Risk Factors.”

We are subject to those risks common in the technology industry and also those risks common to early stage companies including, but not limited to:

• the possibility of not being able to successfully develop or commercialize our products;

• securing additional capital in a timely manner in order to meet operating cash flow needs;

doing so on terms that are favorable to us, or at all, may be challenging given the current capital markets and overall macroeconomic conditions;

• maintain and establish relationships with one or more Tier 1 automotive suppliers to facilitate "design wins" with potential end customers, which in our case are automotive OEMs;

• develop and protect our intellectual property;

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• hire, integrate, and retain talented people at all levels of our organization;

and successfully develop new solutions to enhance the

experience of, and deliver value to, our customers.

• successfully develop new solutions to enhance the experience of, and deliver value to, our customers.

Market Trends and Uncertainties

We anticipate growing demand for our 4Sight TM Intelligent Sensing Platform across two major markets, Automotive and Industrial.

We also anticipate the total addressable market for lidar-based perception technology will grow to $42 billion by 2030.

Within those markets, we are targeting attractive segments including advanced driver-assistance systems, or ADAS, autonomous driving, commercial trucking, robo-taxis, and various Industrial market segments such as mining, aerospace, defense, railway, and intelligent transportation systems, or ITS.

We anticipate future demand for our 4Sight TM Intelligent Sensing Platform will come from two major markets, Automotive and Industrial.

In the near term, we anticipate concentrating on the Automotive market by more effectively leveraging our business model, focusing on advanced driver-assistance systems, or ADAS, autonomous driving, and commercial trucking.

In the longer term, we will look for opportunities in the Industrial

market, such as in the railway and intelligent transportation systems, or ITS segments, when it becomes cost-effective to do so based on higher volume production in the Automotive market.

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

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

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

In the Automotive market for example, which accounted for 70% and 52% of revenue in 2023 and 2022, respectively, our growth and financial performance will be heavily influenced by our ability to successfully integrate into OEM programs that require years of development, testing, and validation.

Because of the size and complexity of these OEM programs, we see our existing Tier 1 partnerships as a substantial competitive advantage given their large scale, mass-production capabilities, and existing OEM customer relationships.

Because of the size and complexity of these OEM programs, having Tier 1 partnerships would provide a substantial competitive advantage over our competitors given their large scale, mass-production capabilities, and existing OEM customer relationships.

The decision by our former Tier 1 partner, Continental, to discontinue our joint lidar development program and if we are unable to find a replacement Tier 1 automotive supplier in a timely manner, it could have a material and adverse effect on our business as our business model is predicated on licensing our lidar designs and other intellectual property to automotive Tier 1 suppliers.

Our primary focus in the Automotive market is on ADAS for passenger and commercial vehicle autonomy, particularly highway autonomy applications.

We believe that growth in that market is driven by both more stringent safety regulations and consumer demand for vehicles offering increased safety.

We believe that growth in that market is driven by both more stringent safety regulations and consumer demand for vehicles offering increased safety, and advanced driver assist features.

We will need to anticipate and adapt to any changes in the regulatory environment, as well as changes in consumer demand in order to take advantage of this opportunity.

Additionally, we are increasing our investments in international operations and partnerships that will position us to expand our business globally and meet growing demand in international markets.

This is an important part of our core strategy and may expose us to additional factors such as foreign currency risk, additional operating costs, and other risks and challenges that may impact our ability to meet projected sales and margin targets.

As is common in early-stage companies with limited operating histories, we are subject to risks and uncertainties such as those described in Part I, Item 1A of this Annual Report on Form 10-K.

Since inception, we have incurred net losses and negative cash flows from operations and expect to continue incurring losses until after we reach commercialization.

We plan to improve our liquidity position through securing additional financing and finding one or more replacement Tier 1 partners.

Should we be unable to do so, we would anticipate further reducing operating expenses and cash outlays.

We believe that these plans can be successfully implemented, which would likely result in adequate cash flows to support our ongoing operations for at least one year from the date of this Annual Report on Form 10-K.

Partnerships and Commercialization

Our technology is designed to be a key enabler of in certain Automotive and Industrial market applications.

Our technology is designed to be a key enabler in certain Automotive and Industrial market applications.

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

The timing of these design wins varies based on the market and application.

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

We consider design wins to be critical to our future success, although the revenue generated by each design win and the time necessary to achieve such a win can vary significantly, making it difficult to predict our financial performance.

We believe our revenue and profitability will also be dependent upon our success in licensing our technology to Tier 1 automotive suppliers, such as Continental, which represented 51% and 55% of 2022 and 2021 revenue, respectively, that intend to use our technology in volume production of lidar sensors for OEMs.

The time to achieve a design wins varies based on the market and application.

We consider design wins to be critical to our future success, although the revenue that may be generated by each design win and the time necessary to achieve such a win can vary significantly, making it difficult to predict our financial performance.

In the Industrial market, our strategy has been to sell our lidar solutions to customers utilizing components that are sourced, in part, from the Tier 2 automotive supply chain and assembled by our contract manufacturing partners.

In the Automotive market, we will utilize a licensing model with Tier 1 suppliers which is intended to generate a royalty for us and, hence, can be more easily replicated with multiple Tier 1 suppliers.

As the Tier 2 automotive supply chain matures, we intend to leverage those suppliers, and the volume created for the Automotive market, to participate in the Industrial market.

With that in mind, in the fourth quarter of 2023, we made the decision to wind down our existing product line for the Industrial market and curtail support until we achieve sufficient scale in our automotive products, which we believe represents our largest market opportunity.

If we fail to achieve sufficient scale in our automotive products, we may not be in a position to reenter the Industrial market in the time frame we expect, or at all.

In addition, as discussed above, the decision by our former Tier 1 partner, Continental, to discontinue our joint lidar development program could have a material and adverse effect on our business.

We believe our revenue and profitability will also be dependent upon our success in licensing our technology to Tier 1 automotive suppliers, such as our previous partner Continental, which represented 70% and 51% of 2023 and 2022 revenue, respectively, that intend to use our technology in volume production of lidar sensors for OEMs.

Delays of autonomy programs by OEMs that we are currently or will be working with through our Tier 1 partners could result in us being unable to achieve our revenue and profitability targets in the timeframe we anticipate.

Our overall revenue and profitability will also be dependent upon both our success in selling our lidar solutions to customers in the Industrial market.

Gross Margin Improvement

Restructuring

In the first quarter of 2023, we began the implementation of a revised strategic plan which outlines the steps we are taking to focus on key products and critical customer engagements that we believe will generate the best long-term results for our Company and our stakeholders.

Our revised strategic plan focuses on realignment of our resources and significant reduction of operating expenses, a part of which included reducing our workforce by

approximately one-third prior to the implementation of the revised strategic plan.

Most of the workforce reduction went into effect in April 2023.

In October 2023, we implemented the second phase of our automotive-first strategic plan initially announced in May 2023.

The second phase of the plan was intended to align our operations with evolving business needs by focusing on our transition from research and development to the commercialization of our automotive products, while winding down our existing industrial product and reducing fixed operating costs.

The winding down of our existing industrial product, combined with an accumulation of other triggering events such as the termination of our partnership with a large Tier 1 automotive supplier, and a current period and history of cash flow losses, indicated that the carrying amount of our long-lived assets may not be recoverable.

We performed an impairment review of our long-lived assets as of December 31, 2023 and wrote down our property and equipment and the ROU asset and leasehold improvements related to our headquarters to fair value.

As a result of the implementation of both phases of our revised strategic plan and the impairment review, we recorded restructuring charges of $19,153 in the twelve months ended December 31, 2023 primarily relating to one-time employee termination benefits, inventory and other current asset write-downs, losses on purchase commitments, and impairment and disposal charges on our long-lived assets.

Our gross margins will depend on numerous factors, including, among others, the selling price of our products, pricing of our development contracts with customers, royalty rates on licenses we grant to our customers, unit volumes, product mix, component costs, personnel costs, contract manufacturing costs, overhead costs, and product features.

Our gross margins have in the past and may continue to be negatively impacted by inventory write-downs, as an example.

During the third and fourth quarters of 2023, we recorded inventory write-downs of $7,005 relating to the transition to certain higher grade components in our automotive products as well as the winding down of our existing product line for the Industrial market.

In the future, we expect to generate attractive gross margins from licensing our lidar technology and software to our Tier 1 partners in the Automotive market.

We also sell our own lidar solutions to customers in the Industrial market utilizing lower-cost components that are sourced, in part, from the Tier 2 automotive supply chain and assembled by our contract manufacturing partners.

If our Tier 1 partners in the Automotive market do not achieve the volumes that we expect, then the cost of the components we use to address the Industrial market may not decrease to the extent we anticipate and may impact our gross margins and our ability to achieve profitability in the future.

We also anticipate being able to leverage on our foundation in the Automotive market to move to other markets.

To date, our revenue has been generated through development contracts with OEMs and Tier 1 suppliers, as well as unit sales of our products to Industrial customers.

These development contracts primarily focus on customization of our proprietary 4Sight capabilities to our customers’ applications, typically involving software implementation to assist with sensor connection and control, customization of scan patterns, and enhancement of

particular perception capabilities to meet specific customer needs.

These development contracts primarily focus on customization of our proprietary 4Sight TM product capabilities to our customers’ applications, typically involving software implementation to assist with sensor connection and control, customization of scan patterns, and enhancement of particular perception capabilities to meet specific customer needs.

In general, development contracts that require more complex configurations have higher prices.

We expect development contracts to remain a significant part of our business in the near-term, but represent a smaller share of our total revenue over time, as we increase our focus on technology licensing and product sales.

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

In September 2021, we commenced our transition process to contract manufacturers, and we completed the first phase of this transition in late 2022.

Investment and Innovation

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We believe our financial performance is significantly dependent on our ability to maintain a technology leadership position.

This is further dependent on the investments we make in R&D.

It is essential that we continually identify and respond to rapidly evolving customer requirements, develop and introduce innovative new products, enhance and service existing products, and generate strong market demand for our products.

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

This is further dependent on the investments we make in research and development and our ability to commercialize our products.

We believe price is becoming a critical differentiator in the marketplace and OEMs are favoring companies that have the infrastructure to build lower cost products at higher volumes.

It is essential that we continually identify and respond to rapidly evolving customer requirements, develop and introduce innovative new products, enhance and service existing products, lower BOM costs, industrialize, and generate strong market demand for our products.

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

Basis of Presentation

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

In 2022 and 2021, our prototype sales revenue primarily related to unit sales of the company’s 4Sight product.

In 2023 and 2022, our prototype sales revenue primarily related to unit sales of our 4Sight product.

Revenue from prototype sales is typically recognized at a point in time when the control of goods is transferred to the customer, generally upon delivery or shipment to the customer.

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This assessment is made at the outset of the arrangement for each performance obligation.

We expect our 2024 revenues related to prototype sales and development contracts to remain flat or marginally higher than in 2023.

Cost of Revenue

Cost of revenue includes the costs directly associated with the production of prototypes and certain costs associated with development contracts.

Such costs for prototypes include direct materials, direct labor, indirect labor, inventory write downs, warranty expense, and allocation of overhead.

Such costs for prototypes include direct materials, direct labor, indirect labor, inventory write downs, losses on purchase commitments, warranty expense, and allocation of overhead.

Costs associated with development contracts include the direct costs and allocation of overhead costs involved in the execution of the contracts.

We expect our 2024 costs of revenue to fluctuate in line with 2024 revenues.

Operating Expenses

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R&D expenses include:

• personnel-related expenses, including salaries, benefits, bonuses, and stock-based compensation expense;

• personnel-related expenses, including salaries, benefits, bonuses, one-time termination benefits, and stock-based compensation expense;

• third-party engineering and contractor costs;

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R&D costs are expensed as they are incurred.

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

We expect our investment in R&D to be reduced as a result of our revised strategic plan, with a reduced workforce and consolidated global footprint.

We also plan to execute more focused spending with vendors in critical areas that support our strategy and product development, in line with our revised strategic plan and manage costs more efficiently.

Sales and Marketing

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S&M expenses include:

• personnel-related expenses, including salaries, benefits, bonuses, and stock-based compensation expense;

• personnel-related expenses, including salaries, benefits, bonuses, one time termination benefits, and stock-based compensation expense;

• demonstration equipment;

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• allocated overhead expenses.

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

We expect our S&M expenses to be significantly reduced as a result of our revised strategic plan to focus on the commercialization of our automotive products.

Through our capital light business, we are able to significantly reduce our workforce and consolidate our global footprint as we expect to leverage our Tier 1 partners to commercialize our products and manage relationships with the OEMs.

General and Administrative

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G&A expenses include:

• personnel-related costs, including salaries, benefits, bonuses, and stock-based compensation expense for executive, finance, legal, human resources, technical support, and other administrative personnel;

• personnel-related costs, including salaries, benefits, bonuses, one-time termination benefits, and stock-based compensation expense for executive, finance, legal, operations, human resources, technical support, and other administrative personnel;

• consulting, accounting, audit, legal, and other professional fees;

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• allocated overhead expenses.

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

Change in Fair Value of Convertible Note, Embedded Derivative Liability, and Warrant Liabilities

Changes in fair value of the convertible note, embedded derivative, and warrant liabilities are the result of the change in fair value at each reporting date.

The convertible note, embedded derivative, and warrant liabilities are recorded at fair value for each reporting period, and the changes in fair value are reported as other income (expense) during the period.

We have also elected to record interest expense on the 2022 convertible note as changes in fair value.

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

We expect our G&A expenses to be reduced as a result of our revised strategic plan with reduced workforce and consolidated global footprint.

We also plan to manage spending with vendors more effectively to support our revised strategic plan to manage costs.

Change in Fair Value of Convertible Note and Warrant Liabilities

Changes in fair value of the 2022 Note and warrant liabilities are the result of the change in fair value at each reporting date.

The 2022 Note and warrant liabilities are recorded at fair value for each reporting period, and the changes in fair value are reported within other income (expense), net during the period.

We also elected to record interest expense on the 2022 Note as changes in fair value.

Interest Income, Interest Expense and Other

Interest income consists primarily of interest earned on our cash, cash equivalents, and marketable securities.

Interest income and other consists primarily of interest earned on our cash, cash equivalents, and marketable securities.

These amounts will vary based on our cash and cash equivalents balances and market rates.

Interest expense consists primarily of convertible note issuance costs and amortization of premiums on marketable securities, net of accretion discounts.

Upon the closing of the Business Combination, our borrowings were repaid with any remaining debt issuance costs and discounts expensed.

The pre-Business Combination convertible notes and accrued interest were settled and converted to Class A common stock.

See additional discussion in Note 2 to our consolidated financial statements.

Interest income and other also includes gains on sale of property and equipment.

Interest expense and other consists primarily of convertible note issuance costs, and amortization of premiums and accretion of discounts on marketable securities, net.

Results of Operations

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Year ended December 31, Change Change

2022 2021 $ %

Prototype sales $ 477 $ 1,743 $ (1,266) (73) %

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General and administrative 25,234 36,762 (11,528) (31) %

Impairment of long-lived assets 9,988 — 9,988 100 %

Total operating expenses 73,921 93,723 (19,802) (21) %

Loss from operations (87,776) (98,808) 11,032 (11) %

Change in fair value of convertible note, embedded derivative liability, and warrant liabilities (14) 223 (237) (106) %

Gain on PPP loan forgiveness — 2,297 (2,297) (100) %

Change in fair value of convertible note and warrant liabilities (858) (14) (844) 6,029 %

Interest income and other 1,317 1,545 (228) (15) %

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Prototype Sales

Prototype sales increased by $739, or 74%, to $1,743 for the year ended December 31, 2022 from $1,004 for the year ended December 31, 2021.

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

Prototype sales decreased by $1,266, or 73%, to $477 for the year ended December 31, 2023 from $1,743 for the year ended December 31, 2022.

This was primarily due to a decrease in units sold of our 4Sight™-based industrial product due to bid delays from various customers and our focus on key automotive milestones.

Development Contracts

Development contracts decreased by $917, or 48%, to $987 for the year ended December 31, 2023, from $1,904 for the year ended December 31, 2022.

The decrease was primarily due to less revenue recognized in the current year from a large Tier 1 Automotive Supplier contract.

The decrease was primarily due to less revenue recognized in the current year from a Tier 1 automotive supplier contract as we fulfilled our obligations in the fourth quarter of 2023.

Cost of Revenue

Cost of revenue increased by $6,587, or 75%, to $15,319 for the year ended December 31, 2023, from $8,732 for the year ended December 31, 2022.

This increase was primarily due to the cost of revenue associated with the Tier 1 Automotive Supplier contract in the current period, increased prototype sales, and increased labor and warranty costs.

This increase was primarily due to non-routine inventory write-downs associated with transitioning to certain higher-grade components in our automotive products in the third quarter of 2023 as well as the implementation of the second phase of our revised strategic plan in the fourth quarter of 2023 which focuses on the commercialization of our automotive product and the winding down of our existing industrial product.

This increase was partially offset by decreased costs recognized in the current year relating to a Tier 1 automotive supplier contract as the we fulfilled our obligations in the fourth quarter of 2023.

Operating Expenses

Research and Development

Research and development expenses increased by $11,101, or 42%, to $37,644 for the year ended

December 31, 2022, from $26,543 for the year ended December 31, 2021.

This increase was primarily driven by increases in stock-based compensation expense of $5,026, personnel costs of $4,804, information technology expense of $780, engineering parts of $757, rent and facilities expense of $953, and travel expense of $377.

These increases were offset by decreases in third party research and development work of $1,530.

Research and development expenses decreased by $11,473, or 30%, to $26,171 for the year ended December 31, 2023, from $37,644 for the year ended December 31, 2022.

This decrease was primarily driven by the implementation of our revised strategic plan, with decreases in third party research and development work of $4,459, personnel costs of $2,974, engineering parts and lab equipment expense of $2,419, information technology and facilities expense of $707, stock-based compensation expense of $379, and travel and entertainment expense of $292.

Sales and Marketing

Total sales and marketing expenses increased by $8,769, or 83%, to $19,317 for the year ended December 31, 2022, from $10,548 for the year ended December 31, 2021.

This increase was primarily due to increases in stock-based compensation of $3,315, personnel costs of $2,813, marketing program spend of $973, travel expense of $809, information technology expense of $428, and rent and facilities expense of $306.

Total sales and marketing expenses decreased by $6,789, or 35%, to $12,528 for the year ended December 31, 2023, from $19,317 for the year ended December 31, 2022.

This decrease was primarily driven by the implementation of our revised strategic plan, with decreases in personnel costs of $2,250, stock-based compensation of $1,703, marketing and consultant spend of $1,507, travel and entertainment expense of $721, and information technology and facilities expense of $550.

General and Administrative

Total general and administrative expenses increased by $11,248, or 44%, to $36,762 for the year ended December 31, 2022, from $25,514 for the year ended December 31, 2021.

This increase was primarily due to an increase in stock-based compensation of $5,471, directors' and officers' insurance premium of $2,467, professional accounting and legal fees of $2,387, investor and stock related expenses of $622, and travel expense of $348.

Change in Fair Value of Convertible Note, Embedded Derivative, and Warrant Liabilities

Change in fair value of convertible note, embedded derivative, and warrant liabilities (see Note 3) decreased by $237, or 106%, to $14 for the year ended December 31, 2022, from $223 for the year ended December 31, 2021.

This decrease was primarily due to a decrease in the fair values of the warrant liabilities compared to prior period, offset by an increase in fair value of the 2022 convertible note.

Gain on PPP Loan Forgiveness

Gain on PPP loan forgiveness decreased by $2,297, or 100%, for the year ended December 31, 2022.

In June 2021 the full principal and interest of the PPP loan was forgiven.

Total general and administrative expenses decreased by $11,528, or 31%, to $25,234 for the year ended December 31, 2023, from $36,762 for the year ended December 31, 2022.

This decrease was primarily driven by the implementation of our revised strategic plan, with decreases in stock-based compensation of $3,811, accounting, legal, and consulting fees of $3,419, personnel costs of $2,114, insurance, tax, and license expense of $1,952, travel and entertainment expense of $571 , and stock-related expenses of $236.

Impairment of Long-Lived Assets

Impairment of long-lived assets increased to $9,988 for the year ended December 31, 2023, from $0 for the year ended December 31, 2022 primarily as a result of the non-cash impairment of property and equipment and right-of-use assets.

In the fourth quarter of 2023 we determined that an accumulation of triggering events, including the winding down of our existing industrial product as a result of the implementation of our automotive-first strategic plan to focus on commercialization of our automotive product, the termination of our partnership with a large Tier 1 automotive supplier, and a current period and history of cash flow losses, required an impairment review of our long-lived assets, resulting in our long-lived assets being written down to their fair values.

Change in Fair Value of Convertible Note and Warrant Liabilities

Change in fair value of convertible note and warrant liabilities decreased by $844, or 6,029%, to a loss of $858 for the year ended December 31, 2023, from a loss of $14 for the year ended December 31, 2022.

This decrease was primarily due to changes in fair value of the 2022 Note between the periods partially offset by a favorable change in fair value on warrant liabilities.

Interest Income and Other

Interest income and other increased by $984, or 175%, to $1,545 for the year ended December 31, 2022, from $561 for the year ended December 31, 2021.

This increase was primarily due to the interest earned on our marketable securities of $1,545.

Interest income and other decreased by $228, or 15%, to $1,317 for the year ended December 31, 2023, from $1,545 for the year ended December 31, 2022.

This decrease was primarily due to less interest earned on our marketable securities in the current period.

Interest Expense and Other

Interest expense and other decreased by $3,478, or 72%, to $1,379 for the year ended December 31, 2022, from $4,857 for the year ended December 31, 2021.

This decrease was primarily due to $2,818 of prior period interest expense not recurring in the current year due to the payoff of the loan balances in the prior year, as well as $1,583 of costs associated with the Tumim Stone Common Stock Purchase Agreement in the prior year which did not recur in the current year.

This is offset by $474 in convertible note issuance costs and an increase of $322 in amortization of premiums on marketable securities, net of accretion of discounts, in the current period.

Interest expense and other decreased by $1,627, or 118%, to a gain of $248 for the year ended December 31, 2023, from a loss of $1,379 for the year ended December 31, 2022.

This decrease was primarily due to a favorable increase in accretion of discounts on marketable securities, resulting in a net decrease within amortization of premiums and accretion of discounts on marketable securities, net, of $1,252, and decreased debt issuance costs of $474.

Provision for Income Tax Expense

Provision for income tax expenses increased to $58 for the year ended December 31, 2022, from $0 for the year ended December 31, 2021.

This increase is due to changes in pretax income (loss) in the U.S.

Provision for income tax expenses decreased to $57 for the year ended December 31, 2023, from $58 for

the year ended December 31, 2022.

This change is due to changes in pretax income (loss) in the U.S.

and certain foreign entities and changes in tax rates.

Net loss increased by $33,703, or 52%, to $98,714 for the year ended December 31, 2022, from $65,011 for the year ended December 31, 2021.

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

Net loss decreased by $11,588, or 12%, to $87,126 for the year ended December 31, 2023, from $98,714 for the year ended December 31, 2022.

This decrease was primarily due to decreases in operating expenses following restructuring and cost reduction efforts as announced during 2023 partially offset by increases in cost of revenues due to write-downs of inventory and losses on purchase commitments as well as impairment of long-lived assets.

Liquidity and Capital Resources

Sources of Liquidity

Our capital requirements will depend on many factors, including sales volume, the timing and extent of spending to support R&D efforts, investments in information technology systems, the expansion of sales and marketing activities, and market adoption of new and enhanced products and features.

As of December 31, 2022, our cash, cash equivalents, and marketable securities totaled $94.2 million.

Our capital requirements will depend on many factors, including, but not exclusively, sales volume and timing of revenue, our efforts to find a replacement Tier 1 automotive supplier and the timing of an OEM design win, our ability to extend our cash runway based on the restructuring initiatives announced this year, the timing and extent of spending to support R&D efforts, how quickly we can commercialize our products , and market adoption of new and enhanced products and features.

As of December 31, 2023, our cash, cash equivalents, and marketable securities totaled $36,523.

For the years ended December 31, 2023 and 2022, we had a net loss of $87,126 and $98,714, respectively.

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

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

In December 2021, we entered into a Common Stock Purchase Agreement, or CSPA, with Tumim Stone Capital LLC, or Tumim Stone, pursuant to which we have the right, but not the obligation, to issue and sell to Tumim Stone over a 36-month period up to $125,000 of the Company’s common stock.

On May 6, 2022, the Company filed a Registration Statement on Form S-1, which related to the offer and resale of up to 30,865,419 shares of our common stock to be purchased by Tumim Stone, pursuant to the CSPA.

As of December 31, 2022, 1,145,000 shares were issued under this CSPA.

On May 6, 2022, we filed a Registration Statement on Form S-1, which related to the offer and resale of up to 1,028,847 shares of our common stock to be purchased by Tumim Stone, pursuant to the CSPA.

As of December 31, 2023, 67,754 shares have been issued under this CSPA.

In September 2022, we entered into a Securities Purchase Agreement, or SPA, with an investor allowing for the sale and issuance of two convertible notes, each with cash proceeds of $10,000, for a total of $20,000 in proceeds between the two issuances (each, a "Note Closing").

On September 15, 2022, we closed the first Note Closing with the investor and received proceeds of $9,850 (net of fees paid to the investor).

The second Note Closing may occur, at our option, after the ninetieth (90 th ) calendar day after the first Note Closing provided that we meet certain equity conditions.

Until we can generate sufficient revenue from the sale of our products to cover operating expenses, working capital, and capital expenditures, we expect the funds raised in the Business Combination and PIPE financing, as well as any future funds from the CSPA and SPA, and other potential sources of capital, to fund our near-term cash needs.

On September 15, 2022, we closed the first Note Closing with the investor and received cash proceeds of $9,850 (net of fees paid to the investor).

On September 26, 2023, the U.S.

Securities and Exchange Commission declared our registration statement on Form S-3 to be effective (the "Shelf Registration").

The Shelf Registration may be used by us to raise up to $200,000 through one or more offerings of our securities over a period of three years.

Although we have not yet utilized the Shelf Registration to offer securities, we intend to do so when market conditions are appropriate and to support continued execution on our key automotive milestones.

Until we can generate sufficient revenue from the sale of our products to cover operating expenses, working capital, and capital expenditures, we expect the funds raised in the business combination with CF Finance Acquisition Corp.

III and PIPE financing, as well as any future funds from the CSPA, SPA, the Shelf Registration, and other potential sources of capital, to fund our near-term cash needs.

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

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The terms of debt securities or borrowings could impose significant restrictions on our operations.

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

For the years ended December 31, 2022 and 2021, we had a net loss of $98,714 and $65,011, respectively.

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

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

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

Our plans for the use of cash in the long-term (beyond twelve months from this Annual Report) are similarly related to funding operating expenses and capital expenditure requirements as we continue to scale the business.

We may also be unable to raise additional capital through the sale of securities and debt financing, or to do so on terms that are favorable to us, particularly given current capital market and overall macroeconomic conditions.

Accounting Standards Codification, or ASC, Subtopic 205-40, Presentation of Financial Statements - Going Concern , requires us to assess our ability to meet our future financial obligations as they become due within one year after the date that the financial statements are issued.

Despite the recent restructuring initiatives, we expect that our expenses will continue to exceed our operating income and, as a result, we may need additional capital resources to fund our operations.

We believe that the net proceeds from the business combination with CF Finance Acquisition Corp.

III and PIPE financing,, CSPA, SPA, and Shelf Registration, together with our existing cash, cash equivalents, and marketable securities and implementation of our plans should we not be able to secure additional financing in 2024 will sufficiently alleviate the risk of substantial doubt about our ability to continue as a going concern and will enable us to fund our operating expenses, working capital, and capital expenditure requirements for a period of at least twelve months from the date of this Annual Report on Form 10-K.

For additional discussion of our plans, see Note 1 in the Notes to the Consolidated Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K.

If our cash needs are greater than we anticipate, we may be required to reduce our operating expenses even further or raise additional capital sooner.

Reducing our operating expenses could be very challenging

for us, since we have already undertaken significant operating expense reductions;

further reductions could adversely impact our business operations.

Given the current macroeconomic environment, OEMs appear to be more cautious about their capital spending and investments into new technologies and as a result we have seen the timelines delayed for certain opportunities which may negatively impact the time for us to reach positive cash flows from operations.

Our plans for the use of cash in the long-term (beyond twelve months from this Annual Report) are primarily related to funding operating expenses to support the commercialization of our products.

For additional information regarding our cash requirements from lease obligations and contractual obligations, see Notes 6 and 20 in the Notes to the Consolidated Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K.

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 thousand per depositor, per insured bank, for each account ownership category.

As of March 10, 2023, we had approximately $9.6 million in deposit accounts at SVB, of which approximately $2.2 million is held as collateral for a letter of credit under our lease agreements.

On March 27, 2023, First Citizens Bank entered into a whole bank purchase of SVB.

We had and continue to have deposit accounts at SVB.

The standard deposit insurance amount is up to $250 per depositor, per insured bank, for each account ownership category.

We do not maintain any other material accounts or lines of credit with SVB.

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.

Although we continue to maintain an operating account at SVB, we subsequently established operating accounts at other financial institutions to mitigate the risks associated with any one financial institution's potential risk of insolvency or receivership.

Cash Flow Summary

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For the year ended December 31, 2023, net cash used in operating activities was $50,725.

Factors affecting our operating cash flows during this period were net loss of $87,126, offset by stock-based compensation of $18,071,impairment of long-lived assets of $9,988, inventory write-downs of $7,712, depreciation and amortization of $1,547, noncash lease expense of $1,406, loss on advances to suppliers of $1,385, and change in fair value of convertible note and warrant liabilities of $858.

Within operating activities, the net changes in operating assets and liabilities were cash used of $4,460, primarily driven by increases in inventories of $2,459, and decreases in accrued expenses and other current liabilities, and operating lease liabilities of $3,135 and $1,528, respectively.

Cash used was offset by cash provided by decreases in prepaid and other current assets, accounts receivable, and other noncurrent assets of $2,279, $451 and $284, respectively, and an increase in accounts payable of $252.

For the year ended December 31, 2022, net cash used in operating activities was $71,649.

Factors affecting our operating cash flows during this period were net loss of $98,714, offset by stock-based compensation of $23,959, depreciation and amortization of $1,422, noncash lease expense of $1,338, amortization of premiums on marketable securities, net of change in accrued interest, of $1,086, inventory write-downs of $675, and issuance costs of $474.

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Cash used was offset by cash provided by decreases in accounts receivable and other noncurrent assets of $3,605 and $527, respectively, and increases in accounts payable of $839.

For the year ended December 31, 2021, net cash used in operating activities was $55,703.

Factors affecting our operating cash flows during this period were net loss of $65,011 and gain on PPP loan forgiveness of $2,297, offset by stock-based compensation of $10,018 and depreciation and amortization of $1,014.

Within operating activities, the net changes in operating assets and liabilities were cash used of $4,064, primarily driven by increases in prepaids and other current assets of $3,655, accounts receivable of $5,496, and accounts payable of $557.

Investing Activities

For the year ended December 31, 2023, net cash provided by investing activities was $55,351.

The primary factors affecting net cash provided by investing activities during this period were proceeds from redemptions and maturities of marketable securities of $76,350, partially offset by the purchases of marketable securities of $19,331 and purchases of property and equipment of $1,951.

For the year ended December 31, 2022, net cash provided by investing activities was $68,463.

The primary factors affecting net cash provided by investing activities during this period were proceeds from redemptions and maturities of marketable securities of $96,592, offset by the purchases of available-for-sale debt securities of $23,929 and property and equipment purchases of $4,200.

For the year ended December 31, 2021, net cash used in investing activities was $151,546.

The primary factor affecting net cash used in investing activities during this period was the purchase of available-for-sale debt securities of $150,525.

Financing Activities

For the year ended December 31, 2022, net cash provided by financing activities was $8,067.

The primary factors affecting our financing cash flows during this period were net proceeds from the issuance of convertible notes of $9,850, proceeds from issuance of common stock under the CSPA of $2,891, and proceeds from the exercise of stock options of $1,174, offset by taxes paid related to the net share settlement of equity awards of $4,621 and payments for convertible note redemptions of $874.

For the year ended December 31, 2023, net cash used in financing activities was $6,758.

The primary factors affecting our financing cash flows during this period were payments for convertible note redemptions of $6,235 and payments for taxes related to net settlement of equity awards of $1,445, partially offset by proceeds from the exercise of stock options and from issuance of common stock through the Employee Stock Purchase Plan of $455 and $334, respectively.

For the year ended December 31, 2022, net cash provided by financing activities was $8,067.

The primary factors affecting our financing cash flows during this period were the proceeds from the Business Combination and PIPE financing of $256,811 and proceeds from a bank loan of $10,000, partially offset by transaction costs related to the Business Combination of $52,372 and principal payments on bank loans of $13,333.

The primary factors affecting our financing cash flows during this period were the net proceeds from the issuance of convertible notes of $9,850, proceeds from issuance of common stock under the CSPA of $2,891, and proceeds from the exercise of stock options of $1,174, offset by taxes paid related to the net share settlement of equity awards of $4,621 and payments for convertible note redemptions of $874.

Critical Accounting Policies and Estimates

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Our actual results may differ significantly from these estimates due to changes in judgments, assumptions and conditions as a result of unforeseen events or otherwise, which could have a material impact on our financial position and results of operations.

We believe our critical

accounting policies involve the greatest degree of judgement and complexity and have the greatest potential impact on our consolidated financial statements.

We believe our critical accounting policies involve the greatest degree of judgement and complexity and have the greatest potential impact on our consolidated financial statements.

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

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Determining whether products or services are considered distinct performance obligations that should be accounted for separately versus together may sometimes require significant judgment.

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.

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

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

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Changes in judgments with respect to these assumptions and estimates could impact the timing or amount of revenue recognition.

Impairment of long-lived assets

We evaluate the recoverability of our long-lived assets with finite useful lives for impairment when events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable.

Such triggering events or changes in circumstances may include:

a significant decrease in the market price of a long-lived asset, a significant adverse change in the extent or manner in which a long-lived asset is being used, a significant

adverse change in legal factors or in the business climate, the impact of competition or other factors that could affect the value of a long-lived asset, a significant adverse deterioration in the amount of revenue or cash flows we expect to generate from an asset group, an accumulation of costs significantly in excess of the amount originally expected for the acquisition or development of a long-lived asset, current or future operating or cash flow losses that demonstrate continuing losses associated with the use of a long-lived asset, or a current expectation that, more likely than not, a long-lived asset will be sold or otherwise disposed of significantly before the end of its previously estimated useful life.

When a triggering event occurs, a test for recoverability is performed, comparing projected undiscounted cash flows to the carrying value of the asset group.

We perform testing at the asset group level that represents the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities.

If the test for recoverability identifies a possible impairment, the asset group's fair value is measured and impairment expense is recognized equal to the excess of the asset group's carrying value over its fair value.

When an impairment loss is recognized for assets to be held and used, the adjusted carrying amounts are depreciated over their remaining useful life.

We determined that an accumulation of triggering events that occurred in the fourth quarter of 2023, including the winding down of our existing industrial product as a result of the implementation of our automotive-first strategic plan to focus on commercialization of our automotive product, the termination of our partnership with a large Tier 1 automotive supplier, and a current period and history of cash flow losses, required an impairment review of our long-lived assets.

A test of recoverability was performed which identified a possible impairment as the asset group's carrying value exceeded projected undiscounted cash flows.

These assets were written down to their fair values based on an independent third-party valuation of these long-lived assets based on each asset's highest and best use.

The fair value of our proprietary property and equipment was based upon estimated salvage value, which was determined to be zero.

The fair value of our non-proprietary property and equipment was based upon estimated orderly liquidation value.

The fair value of our leased headquarters and associated leasehold improvements were based on a value-in-use approach.

Emerging Growth Company Status

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The JOBS Act provides that a company can choose not to take advantage of the extended transition period and comply with the requirements that apply to non-emerging growth companies, and any such election to not take advantage of the extended transition period is irrevocable.

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

Following the closing of the Business Combination, we will remain an emerging growth company until the earliest of (i) the last day of the fiscal year in which the market value of common stock that is held by non-affiliates exceeds $700 million as of the end of that year’s second fiscal quarter, (ii) the last day of the fiscal year in which the Company has total annual gross revenue of $1.07 billion or more during such fiscal year (as indexed for inflation), (iii) the date on which the Company has issued more than $1.0 billion in non-convertible debt in the prior three-year period, or (iv) December 31, 2025.

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

We will remain an emerging growth company until the earliest of (i) the last day of the fiscal year in which the market value of common stock that is held by non-affiliates exceeds $700 million as of the end of that year’s second fiscal quarter, (ii) the last day of the fiscal year in which we have total annual gross revenue of $1.07 billion or more during such fiscal year (as indexed for inflation), (iii) the date on which we have issued more than $1.0 billion in non-convertible debt in the prior three-year period, or (iv) December 31, 2025.

We expect to continue to take advantage of the benefits of the extended transition period, although we may decide to adopt such new or revised accounting standards early to the extent permitted by such standards.

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Recent Accounting Pronouncements

See Note 1 to our consolidated f inancial statements included elsewhere in this Annual Report on Form 10-K for recently adopted accounting pronouncements and recently issued accounting pronouncements not yet adopted

as of the date of this Annual Report on Form 10-K.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis