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 ) 58 Consolidated Balance Sheets 59 Consolidated Statements of Operations and Comprehensive Loss 60 Consolidated Statements of Stockholders’ Equity (Deficit) 61 Consolidated Statements of Cash Flows 62 Notes to Consolidated Financial Statements 63 57 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, 2023, and 2022, 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, 2023, 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, 2023, and 2022, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2023, 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 26, 2024 We have served as the Company’s auditor since 2018. 58 AEYE, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except share and par value) As of December 31, 2023 2022 ASSETS CURRENT ASSETS: Cash and cash equivalents $ 16,932 $ 19,064 Marketable securities 19,591 75,135 Accounts receivable, net 131 617 Inventories, net 583 4,553 Prepaid and other current assets 2,517 6,181 Total current assets 39,754 105,550 Right-of-use assets 11,226 15,502 Property and equipment, net 281 7,665 Restricted cash 2,150 2,150 Other noncurrent assets 906 2,473 Total assets $ 54,317 $ 133,340 LIABILITIES AND STOCKHOLDERS’ EQUITY CURRENT LIABILITIES: Accounts payable $ 3,442 $ 3,218 Accrued expenses and other current liabilities 6,585 9,764 Contract liabilities — 987 Convertible notes — 8,594 Total current liabilities 10,027 22,563 Operating lease liabilities, noncurrent 14,858 16,681 Other noncurrent liabilities 409 126 Total liabilities 25,294 39,370 COMMITMENTS AND CONTINGENCIES (Note 20) STOCKHOLDERS’ EQUITY: Preferred stock—$ 0.0001 par value: 1,000,000 shares authorized; no shares issued and outstanding — — Common stock—$ 0.0001 par value: 600,000,000 shares authorized; 6,310,090 and 5,436,637 shares issued and outstanding at December 31, 2023 and 2022 1 1 Additional paid-in capital 366,647 345,757 Accumulated other comprehensive income (loss) 10 ( 1,279 ) Accumulated deficit ( 337,635 ) ( 250,509 ) Total stockholders’ equity 29,023 93,970 Total liabilities and stockholders’ equity $ 54,317 $ 133,340 The accompanying notes are an integral part of these consolidated financial statements. 59 AEYE, INC. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (In thousands, except share and per share data) Twelve Months Ended December 31, 2023 2022 REVENUE: Prototype sales $ 477 $ 1,743 Development contracts 987 1,904 Total revenue 1,464 3,647 Cost of revenue 15,319 8,732 Gross loss ( 13,855 ) ( 5,085 ) OPERATING EXPENSES: Research and development 26,171 37,644 Sales and marketing 12,528 19,317 General and administrative 25,234 36,762 Impairment of long-lived assets 9,988 — Total operating expenses 73,921 93,723 LOSS FROM OPERATIONS ( 87,776 ) ( 98,808 ) OTHER INCOME (EXPENSE): Change in fair value of convertible note and warrant liabilities ( 858 ) ( 14 ) Interest income and other 1,317 1,545 Interest expense and other 248 ( 1,379 ) Total other income (expense), net 707 152 Provision for income tax expense 57 58 Net loss $ ( 87,126 ) $ ( 98,714 ) Change in net unrealized gain (loss) on available-for-sale securities, net of tax 1,264 ( 940 ) Change in fair value due to instrument-specific credit risk, net of tax ( 21 ) ( 25 ) Net losses reclassified into income during the period, net of tax 46 77 Comprehensive loss $ ( 85,837 ) $ ( 99,602 ) PER SHARE DATA Net loss per common share (basic and diluted) $ ( 14.95 ) $ ( 18.82 ) Weighted average common shares outstanding (basic and diluted) 5,827,721 5,245,624 The accompanying notes are an integral part of these consolidated financial statements. 60 AEYE, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT) (In thousands, except share data) Preferred Stock Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Income (Loss) Accumulated Deficit Total Stockholders’ Equity Shares Amount Shares Amount BALANCE—December 31, 2022 — $ — 5,436,637 $ 1 $ 345,757 $ ( 1,279 ) $ ( 250,509 ) $ 93,970 Stock-based compensation — — — — 18,071 — — 18,071 Issuance of common stock upon exercise of stock options — — 81,814 — 455 — — 455 Issuance of common stock upon vesting of restricted stock units — — 330,661 — — — — — Taxes related to net share settlement of equity awards — — ( 125,825 ) — ( 1,441 ) — — ( 1,441 ) Issuance of common stock under the Common Stock Purchase Agreement — — 19,500 — 136 — — 136 Stock issuance costs related to the Common Stock Purchase Agreement — — — — ( 3 ) — — ( 3 ) Issuance of common stock through the Employee Stock Purchase Plan — — 64,773 — 334 — — 334 Conversions of convertible note into common stock — — 502,530 — 3,338 — — 3,338 Other comprehensive income, net of tax — — — — — 1,289 — 1,289 Net loss — — — — — — ( 87,126 ) ( 87,126 ) BALANCE—December 31, 2023 — $ — 6,310,090 $ 1 $ 366,647 $ 10 $ ( 337,635 ) $ 29,023 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 — $ — 5,171,241 $ 1 $ 320,952 $ ( 391 ) $ ( 151,795 ) $ 168,767 Stock based compensation — — — — 23,959 — — 23,959 Issuance of common stock upon exercise of stock options — — 107,332 — 1,174 — — 1,174 Issuance of common stock upon vesting of restricted stock units — — 130,268 — — — — — Taxes related to net share settlement of equity awards — — ( 44,694 ) — ( 3,790 ) — — ( 3,790 ) Issuance of common stock under the Common Stock Purchase Agreement — — 38,167 — 2,891 — — 2,891 Transaction costs related to the Common Stock Purchase Agreement — — — — ( 29 ) — — ( 29 ) Issuance of common stock upon exercise of public warrants — — — — — — — — Conversions of convertible note into common stock — — 34,323 — 600 — — 600 Other comprehensive loss, net of tax — — — — — ( 888 ) — ( 888 ) Net loss — — — — — — ( 98,714 ) ( 98,714 ) BALANCE—December 31, 2022 — $ — 5,436,637 $ 1 $ 345,757 $ ( 1,279 ) $ ( 250,509 ) $ 93,970 The accompanying notes are an integral part of these consolidated financial statements. 61 AEYE, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Twelve months ended December 31, 2023 2022 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ ( 87,126 ) $ ( 98,714 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 1,547 1,422 Loss on sale of property and equipment, net 59 — Noncash lease expense relating to operating lease right-of-use assets 1,406 1,338 Impairment of long-lived assets 9,988 — Gain from early termination of right-of-use assets ( 35 ) — Inventory write-downs, net of scrapped inventory 7,712 675 Loss on advances to suppliers 1,385 — Change in fair value of convertible note and warrant liabilities 858 14 Realized loss on instrument-specific credit risk 46 — Stock-based compensation 18,071 23,959 Convertible note issuance costs — 474 Realized loss on redemption of marketable securities — 77 Amortization of premiums and accretion of discounts on marketable securities, net of change in accrued interest ( 211 ) 1,086 Expected credit losses 35 — Changes in operating assets and liabilities: Accounts receivable, net 451 3,605 Inventories, current and noncurrent, net ( 2,459 ) ( 2,634 ) Prepaid and other current assets 2,279 ( 1,130 ) Other noncurrent assets 284 527 Accounts payable 252 839 Accrued expenses and other current liabilities ( 3,135 ) 85 Operating lease liabilities ( 1,528 ) ( 1,341 ) Contract liabilities ( 987 ) ( 1,931 ) Other noncurrent liabilities 383 — Net cash used in operating activities ( 50,725 ) ( 71,649 ) CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment ( 1,951 ) ( 4,200 ) Proceeds from sale of property and equipment 283 — Proceeds from redemptions and maturities of marketable securities 76,350 96,592 Purchases of marketable securities ( 19,331 ) ( 23,929 ) Net cash provided by investing activities 55,351 68,463 CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from exercise of stock options 455 1,174 Proceeds from the issuance of convertible notes — 9,850 Payments for convertible note redemptions ( 6,235 ) ( 874 ) Payment of 2022 convertible note issuance costs — ( 324 ) Taxes paid related to the net share settlement of equity awards ( 1,445 ) ( 4,621 ) Proceeds from issuance of common stock under the Common Stock Purchase Agreement 136 2,891 Stock issuance costs related to the Common Stock Purchase Agreement ( 3 ) ( 29 ) Proceeds from issuance of common stock through the Employee Stock Purchase Plan 334 — Net cash (used in) provided by financing activities ( 6,758 ) 8,067 NET (DECREASE) INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH ( 2,132 ) 4,881 CASH, CASH EQUIVALENTS AND RESTRICTED CASH—Beginning of period 21,214 16,333 CASH, CASH EQUIVALENTS AND RESTRICTED CASH—End of period $ 19,082 $ 21,214 SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid for interest $ 115 $ 133 Cash paid for income taxes 16 20 SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES: Purchases of property and equipment included in accounts payable and accrued liabilities — 28 Operating lease right-of-use assets obtained in exchange for lease obligations upon adoption of ASC 842 — 16,284 Operating lease liabilities extinguished upon early lease termination 335 — Operating lease right-of-use assets obtained in exchange for lease obligation — 556 Conversion of convertible notes and accrued interest into Class A common stock 3,338 600 Taxes related to net share settlement of equity awards included in accrued liabilities — 4 The accompanying notes are an integral part of these consolidated financial statements. 62 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 smart industrial applications. AEye’s software-definable 4Sight TM Intelligent Sensing Platform combines solid-state active lidar and integrated deterministic artificial intelligence to capture more intelligent information with less data, enabling faster, more accurate, and more reliable perception of the surroundings. AEye, Inc., formerly known as CF Finance Acquisition Corp. III, (“CF III”) was originally incorporated in Delaware on March 15, 2016 under the name CF SPAC Re Inc. On February 17, 2021, AEye Technologies, Inc., then known as AEye, Inc., entered into an Agreement and Plan of Merger with CF III. Based on CF III’s business activities, it was a “shell company” as defined under the Securities Exchange Act of 1934, as amended. On August 16, 2021, the business combination contemplated by the Agreement and Plan of Merger was closed and CF III changed its name to AEye, Inc. The Company’s common stock and public warrants are listed on the Nasdaq Stock Market LLC (“Nasdaq”) under the symbols “LIDR” and “LIDRW”, respectively. Unless otherwise specified, “we,” “us,” “our,” “AEye,” and the “Company” refers to AEye, Inc. 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, 2023, the Company’s existing sources of liquidity included cash, cash equivalents and marketable securities of $ 36,523 . ASC 205-40, Presentation of Financial Statements - Going Concern , requires management to assess an entity’s ability to continue as a going concern within one year of the date the financial statements are issued. In each reporting period, including interim periods, an entity is required to assess conditions known and reasonably knowable as of the financial statement issuance date to determine whether it is probable an entity will not meet its financial obligations within one year from the financial statement issuance date. As is common in early-stage companies with limited operating histories, the Company is subject to risks and uncertainties such as its ability to develop and commercialize its products; produce and deliver lidar and software products meeting acceptable performance metrics; attract new and retain existing customers; develop, obtain, or progress strategic partnerships; secure an automotive OEM design win; secure additional capital to support the business plan; and other risks and uncertainties such as those described in Part I, Item 1A of this Annual Report on Form 10-K. Since its inception, the Company has incurred net losses and negative cash flows from operations. As of December 31, 2023, the Company had an accumulated deficit of $ 337,635 . For the twelve months ended December 31, 2023 and 2022, the Company incurred a net loss of $ 87,126 and $ 98,714 , respectively, and the Company had net cash outflows from operating activities of $ 50,725 and $ 71,649 , respectively. As of December 31, 2023, the Company had $ 36,523 of cash and marketable securities. As the Company is still in its early stages, it is expected to incur additional operating losses and negative cash flows as it continues to focus on achieving commercialization of its lidar solutions. When conditions and events, in the aggregate, impact an entity’s ability to continue as a going concern, management evaluates the mitigating effect of its plans to determine if it is probable that the plans will be effectively implemented, and, when implemented, the plans will mitigate the relevant conditions or events. The decision by the Company's Tier 1 partner, Continental, to discontinue its joint lidar development program, may have a material and adverse effect on the Company's business, which is predicated on licensing its lidar designs and other intellectual property to Tier 1 partners. The Company has a plan to improve its results and 63 liquidity through securing additional financing and finding a replacement Tier 1 partner. Should the Company not be able to do so, the Company has plans which would further reduce operating expenses and cash outlays. The Company believes that these plans alleviate substantial doubt about the Company's ability to continue as a going concern, which will result in adequate cash flows to support its ongoing operations for at least one year following the date these financial statements are issued. Based upon the results of Management’s assessment, which has been performed as of March 26, 2024, these consolidated financial statements have been prepared on a going concern basis. Reverse Stock Split On December 27, 2023, the Company effected a 1-for-30 reverse stock split of its issued and outstanding shares of common stock (the "Reverse Stock Split"). Pursuant to the Reverse Stock Split, every thirty (30) shares of issued and outstanding shares of common stock were combined into one (1) share of common stock. The Company did not issue fractional shares in connection with the Reverse Stock Split. Stockholders who were otherwise entitled to fractional shares of common stock were instead entitled to receive a proportional cash payment. The number of shares of common stock issuable under our equity incentive plans and exercisable under the outstanding warrants were also proportionately adjusted. In connection with the Reverse Stock Split, there was no change to the shares authorized or in the par value per share of common stock of $ 0.0001 . Accordingly, all historical per share data, number of shares issued and outstanding, stock awards, and other common stock equivalents for the periods presented in the accompanying consolidated financial statements and notes thereto have been adjusted retroactively, where applicable, to reflect the Reverse Stock Split. Reclassification of Prior Year Presentation Certain prior year amounts have been reclassified for consistency with the current year presentation. Accrued severance has been broken out from Accrued payroll within Footnote 9, Accrued expenses and other current liabilities. Emerging Growth Company The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the independent registered public accounting firm attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected to take advantage of the benefits of the extended transition period for new or revised financial accounting standards. This may make it difficult or impossible to compare the Company’s financial results with the financial results of another public company that is either not an emerging growth company or is an emerging growth company that has chosen not to take advantage of the extended transition period exemptions because of the potential differences in accounting standards used. Use of Estimates The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant 64 items subject to such estimates and assumptions include impairment of long-lived assets, write-downs of inventory to the lower of cost or net realizable value, 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-Pacific through AEye, Inc. All of the Company's $ 281 of net property and equipment as of December 31, 2023 is located in the United States. 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 and other on the consolidated statements of operations. Amortization of premiums and accretion of discounts are included within interest expense and other on the consolidated statements of operations. Restricted Cash Restricted cash of $ 2,150 as of December 31, 2023 and 2022, 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 Citibank N.A. as of December 31, 2023 as security for the payment of rent on its headquarters in Dublin, CA which require lease payments through 2026. At December 31, 2022, the letter of credit was held with Silicon Valley Bank. The Company determines current or non-current classification of restricted cash based on the expected duration of the restriction. 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-Pacific. 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 65 accounts payable (“AP”). As of December 31, 2023, AEye had four customers, each accounting for 10 % or more of AR and one vendor accounting for 10 % or more of 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. For the years ended December 31, 2023 and 2022, revenue from the Company’s major customers representing 10% or more of total revenue was as follows: Twelve months ended December 31, 2023 2022 Customer A 70 % 51 % 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 2. 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 2. 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 flows. If necessary, accounts receivable are reduced by a provision for expected credit losses, which is the Company’s best estimate of the amount of credit losses inherent in its existing accounts receivable. The Company reviews the provision quarterly based on historical experience with each customer and the specifics of each arrangement. During the years ended December 31, 2023 and 2022, the Company did not have any write-offs, and at December 31, 2023 and 2022, recorded a $ 35 and $ 0 provision for expected credit losses, respectively. 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 current and non-current 66 inventory as of December 31, 2023 and 2022 was written down by $ 5,062 and $ 833 , respectively, in order to record inventory at its estimated net realizable value. 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 the test for recoverability identifies a possible impairment, 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. The fair value is calculated based on estimated salvage value, estimated orderly liquidation value, or a value-in-use approach depending on the asset's highest and best use. When an impairment loss is recognized for assets to be held and used, the adjusted carrying amount of the long-lived asset becomes its new cost basis which is depreciated over the asset's remaining useful life. There were $ 9,988 of non-cash impairment charges recorded in the consolidated statements of operations and comprehensive loss for the year ended December 31, 2023. No impairment charges were recorded for the year ended December 31, 2022. 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 business combination 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. 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, 2023 and December 31, 2022. 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 67 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 adopted 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 statement of operations for the twelve months ended December 31, 2022. The 2022 convertible note was classified and presented as a current liability on the consolidated balance sheet as of December 31, 2022. As of December 31, 2023, the 2022 convertible note has no outstanding principal balance as all outstanding principal and accrued interest has been fully settled. Changes in fair value were recorded in the consolidated statements of operations and changes in fair value related to credit risk are recorded in other comprehensive loss. The Company reported 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. 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 16, 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 68 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 9 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, 2023. 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. 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, inventory write-downs, losses on purchase commitments, 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 69 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, one-time termination benefits, 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 grant-date fair value for RSUs with an associated market condition is estimated using the Monte-Carlo simulation model. Both the Black-Scholes option-pricing model and the Monte-Carlo simulation model require the input of subjective assumptions, including the award’s expected term and the price volatility of the underlying stock. 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 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 in the provision for income tax expense in the accompanying consolidated statements of operations and comprehensive loss. Accrued interest and penalties are included in accrued expenses and other current liabilities in the consolidated balance sheets. As of and for the year ended December 31, 2023 and 2022 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 70 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 common stock outstanding. 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 Income (Loss) Comprehensive income (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 December 2023, the Financial Accounting Standards Board, ("FASB"), issued Accounting Standards Update ("ASU") 2023-09, Income Taxes (Topic 740) - Improvements to Income Tax Disclosures to increase the transparency and usefulness of income tax information through improvements to the income tax disclosures primarily related to the rate reconciliation and income taxes paid information. The guidance is effective for fiscal years beginning after December 15, 2024. The Company is currently in the process of evaluating the effects of the new guidance. Recently Adopted Accounting Guidance In June 2016, the Financial Accounting Standards Board, ("FASB"), issued Accounting Standards Update ("ASU") 2016-13, Measurement of Credit Losses on Financial Instruments , which has subsequently been amended by ASU No. 2018-19, ASU No. 2019-04, ASU No. 2019-05, ASU No. 2019-10, and ASU No. 2019-11. The objective of the guidance in ASU 2016-13 is to allow entities to recognize estimated credit losses in the period that the change in valuation occurs. ASU 2016-13 requires an entity to present financial assets measured on an amortized cost basis on the balance sheet net of an allowance for credit losses. Available-for-sale and held to maturity debt securities are also required to be held net of an allowance for credit losses. For public business entities, this standard is effective for fiscal years beginning after December 15, 2019. For smaller reporting companies, the standard is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted. The Company adopted ASU 2016-13 on January 1, 2023 which resulted in an immaterial impact to the consolidated financial statements. 2. FAIR VALUE MEASUREMENTS The fair value of the Company’s financial assets and liabilities is determined in accordance with the fair value hierarchy established in FASB ASC Topic 820, Fair Value Measurements and Disclosures (“ASC 820”). ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The fair value hierarchy of ASC 820 requires an entity to maximize the use of observable inputs when measuring fair value and classifies those inputs into three levels: Level 1 —Observable inputs, such as quoted prices in active markets for identical assets or liabilities. Level 2 —Observable inputs, other than Level 1 inputs, which are observable either directly or indirectly or can be corroborated by observable market data using quoted prices for similar assets or liabilities. Level 3 —Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions. The Company's financial instruments that are not remeasured at fair value include accounts receivable, prepaid and other current assets, accounts payable, accrued expenses, and other current liabilities. The carrying values of these financial instruments approximate their fair values. 71 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, 2023 Using: Adjusted Cost Unrealized gains Fair Value Cash and Cash Equivalent Marketable Securities Assets Level 1 Money market funds $ 16,377 $ — $ 16,377 $ 16,377 $ — Level 2 Corporate bonds 2,880 1 2,881 — 2,881 Commercial paper 8,809 5 8,814 — 8,814 U.S. Government securities 7,892 4 7,896 — 7,896 Total financial assets $ 35,958 $ 10 $ 35,968 $ 16,377 $ 19,591 Liabilities Level 2 Private placement warrant liability $ — $ — $ — $ — $ — Level 3 Convertible notes — — — — — Derivative warrant liability — — 26 — — Total financial liabilities $ — $ — $ 26 $ — $ — 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 $ — $ — $ 8,720 $ — $ — The Company’s financial assets and liabilities subject to fair value procedures were comprised of the following: Money Market Funds: The Company holds financial assets consisting of money market funds. These securities are valued using observable inputs, such as quoted prices in active markets for identical assets or liabilities. 72 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 (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 2022 Note. The remaining term is calculated based on the estimated maturity date of the 2022 Note. The stock price is based on the publicly traded price of the Company's common stock as of the measurement date. The Company estimated the volatility for the Note based on the historical and implied volatilities of the Company's publicly traded common stock. The changes in fair value are recognized in other income (expense), net for each reporting period. Refer to Note 10 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 the Company's common stock as of the measurement date. The Company estimated the volatility for the warrants based on the historical and implied volatilities of the Company's publicly traded common stock. The risk-free interest rate is based on interpolated U.S. Treasury rates, commensurate with a similar term to the warrants. The term to expiration was calculated as the contractual term of the warrants of 4 years. Finally, the Company does not currently anticipate paying a dividend. Any changes in these assumptions can change the valuation significantly. Changes in fair value are recognized in other income (expense) for each reporting period. Derivative Warrant Liability is included within other noncurrent liabilities on the 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 the Company's public warrants. 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. The Company measures certain nonfinancial assets at fair value on a nonrecurring basis, primarily property and equipment and ROU assets, whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. The fair value of the Company's property and equipment was based upon estimated salvage value or estimated orderly liquidation value, depending on the asset's highest and best use. As the fair value of property and equipment was estimated using primarily unobservable inputs, these are considered Level 3 fair value measurements. The fair value of the Company's headquarter ROU asset and associated leasehold improvements were based on a value-in-use approach utilizing market rent comparable information, and is considered a Level 2 fair value measurement. For more information regarding impairment charges, see Notes 1, 6, 7, and 17. For the years ended December 31, 2023 and 2022, there were no transfers between Level 1 and Level 2 inputs. 73 The following table presents a summary of the changes in fair value of the Company’s Level 3 financial instruments for the year ended December 31, 2023 (in thousands): 2022 Convertible Note Derivative Warrant Liability Total Balance at December 31, 2022 $ 8,594 $ 119 $ 8,713 Additions — — — Payments or conversions ( 9,573 ) — ( 9,573 ) Change in fair value included in other income (expense), net 958 ( 93 ) 865 Change in fair value due to instrument specific credit risk included in other comprehensive income 21 — 21 Balance at December 31, 2023 $ — $ 26 $ 26 The key inputs into the Monte-Carlo simulation model for the derivative warrant liability valued at December 31, 2023 are as follows: December 31, 2023 Expected term (years) 2.7 Expected volatility 155.7 % Risk-free interest rate 4.1 % Dividend yield — % Exercise price $ 105.00 If factors or assumptions change, the estimated fair values could be materially different. The value of the Company’s derivative warrant liability would increase if a higher risk-free interest rate was used, and would decrease if a lower risk-free interest rate was used. Similarly, a higher volatility assumption would increase the value of the liability, and a lower volatility assumption would decrease the value of the liability. 3. CASH, CASH EQUIVALENTS, AND RESTRICTED CASH Cash, cash equivalents, and restricted cash as of December 31, 2023 and 2022 were as follows (in thousands): As of December 31, 2023 2022 Cash and cash equivalents $ 16,932 $ 19,064 Restricted cash 2,150 2,150 Total cash, cash equivalents, and restricted cash $ 19,082 $ 21,214 4. INVENTORIES Inventory, net of write-downs, as of December 31, 2023 and 2022 were as follows (in thousands): As of December 31, 2023 2022 Raw materials $ 405 $ 2,022 Work in-process 159 2,484 Finished goods 19 47 Total inventory, net $ 583 $ 4,553 74 The Company also had $ 208 and $ 1,491 of non-current inventory (raw materials), net of write-downs, classified within Other noncurrent assets on the consolidated balance sheet as of December 31, 2023 and December 31, 2022, respectively. 5. PREPAID AND OTHER CURRENT ASSETS Prepaid and other current assets as of December 31, 2023 and 2022 were as follows (in thousands): As of December 31, 2023 2022 Prepaid expenses $ 2,386 $ 4,203 Demonstration units — 281 Advances to suppliers 79 984 Other 52 713 Total prepaid and other current assets $ 2,517 $ 6,181 During the twelve months ended December 31, 2023, the Company recorded a loss on advances to suppliers of $ 1,385 associated with the winding down of its existing industrial product as part of its revised strategic plan. See Note 17, Restructuring, for further details. 6. LEASES The Company primarily leases office facilities in Northern California under non-cancelable 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 Company recorded a gain of $ 35 on early lease termination within Interest income and other on the consolidated statements of operations for the twelve months ended December 31, 2023. During the twelve months ended December 31, 2023, the Company recorded an impairment charge on right-of-use assets of $ 2,570 , included within impairment of long-lived assets within the Company's consolidated statements of operations. No impairment charges were recorded for the twelve months ended December 31, 2022. On November 14, 2023, the Company assigned an operating lease resulting in the Company being relieved of its primary obligation under this lease. As a result of the lease assignment, a new tenant assumed the primary obligation under the lease, with the Company becoming secondarily liable. If the new tenant should fail to perform under the lease, the Company could be liable to fulfill any remaining lease obligations. The lease had a remaining term of 3.7 years as of December 31, 2023 with the Company serving as guarantor for the remaining term. The resulting maximum exposure includes $ 360 of undiscounted future minimum lease payments plus potential additional payments to satisfy maintenance, taxes, and insurance requirements for the remainder of the lease term. The components of operating lease expenses for the twelve months ended December 31, 2023 and 2022 were as follows (in thousands): Twelve months ended December 31, 2023 2022 Operating lease cost $ 2,379 $ 2,382 Variable lease cost 340 241 Total operating lease cost $ 2,719 $ 2,623 75 Supplemental cash flow information for the twelve months ended December 31, 2023 and 2022 were as follows (in thousands): Twelve months ended December 31, 2023 2022 Cash paid for operating leases included in operating cash flows $ ( 2,500 ) $ ( 1,341 ) Supplemental balance sheet information related to operating leases as of December 31, 2023 and 2022 was as follows (in thousands): As of December 31, 2023 2022 Operating lease right-of-use assets $ 11,226 $ 15,502 Operating lease liabilities: Operating lease liabilities, current $ 2,415 $ 2,455 Operating lease liabilities, non-current 14,858 16,681 Total operating lease liabilities $ 17,273 $ 19,136 As of December 31, 2023 2022 Weighted average remaining lease term (in years) 7.89 9.26 Weighted average discount rate 5.32 % 5.35 % Maturities of lease liabilities were as follows (in thousands). Years ending - December 31: 2024 $ 2,474 2025 2,484 2026 2,559 2027 2,636 2028 2,716 Thereafter 8,400 Total lease payments 21,269 Less amount to discount to present value ( 3,996 ) Present value of lease liabilities $ 17,273 76 7. PROPERTY AND EQUIPMENT, NET Property and equipment, net as of December 31, 2023 and 2022 consists of the following (in thousands): As of December 31, 2023 2022 Machinery and equipment $ 171 $ 2,528 Computers, software and related equipment 26 432 Office furniture and equipment 24 651 Vehicles 60 846 Leasehold improvements — 4,830 Construction in progress — 1,401 Total property and equipment 281 10,688 Less accumulated depreciation and amortization — ( 3,023 ) Property and equipment, net $ 281 $ 7,665 For the year ended December 31, 2023, the Company recorded impairment charges on assets classified as property and equipment of $ 7,418 , included within impairment of long-lived assets within the Company's consolidated statements of operations. No impairment charges were recorded for the year ended December 31, 2022. Depreciation and amortization expense related to property and equipment amounted to $ 1,547 and $ 1,422 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, 2023 and 2022, respectively. The Company recorded disposals of gross property and equipment of $ 1,041 and $ 604 in the years ended December 31, 2023 and 2022, respectively. The carrying amounts of the property and equipment disposed in the years ended December 31, 2023 and 2022 were $ 342 and $ 0 , respectively. 8. OTHER NONCURRENT ASSETS Other noncurrent assets as of December 31, 2023 and 2022 were as follows (in thousands): As of December 31, 2023 2022 Non-current inventory $ 208 $ 1,491 Long-term prepaid expenses 626 901 Security deposits 72 81 Total other noncurrent assets $ 906 $ 2,473 77 9. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES Accrued expenses and other current liabilities as of December 31, 2023 and 2022 were as follows (in thousands): As of December 31, 2023 2022 Accrued purchases and other $ 681 $ 4,092 Operating lease liabilities - current 2,415 2,455 Accrued bonuses 2,053 1,022 Accrued payroll 540 1,122 Accrued severance 402 26 Accrued payroll taxes 317 526 Warranty reserve 102 480 Income tax payable 75 41 Total accrued expenses and other current liabilities $ 6,585 $ 9,764 10. CONVERTIBLE NOTES 2022 Convertible Note On September 14, 2022, the Company entered into a Securities Purchase Agreement, or SPA, with an investor allowing for the sale and issue of two convertible notes, each with a principal balance of $ 10,500 and gross cash proceeds of $ 10,000 , for a total of $ 20,000 in proceeds between the two issuances (each, a "Note Closing"). The first Note Closing ("First Closing") occurred on September 15, 2022, and the Company entered into a Senior Unsecured Convertible Note with the investor pursuant to which the Company issued to the investor one convertible note ("2022 Note") with a principal balance of $ 10,500 for net cash proceeds of $ 9,850 . As part of the First Closing, the Company also issued warrants to the investor - see Note 12 for further details. The second Note Closing ("Second Closing") may occur, at the Company's option, until March 15, 2024, upon which the Company's right to effect a Second Closing shall automatically terminate. As of March 15, 2024, the Company did not effect a Second Closing. The 2022 Note bore interest at an annual rate of 5.0 %, in addition to an original issue discount of 4.76 %, and had an initial a maturity date of March 15, 2024 ("Maturity Date"). Beginning December 15, 2022, and the first of each subsequent month (each a "Monthly Redemption Date" or an "Installment Date"), the Company was required to redeem the Monthly Redemption Amount until the 2022 Note was fully redeemed. The Monthly Redemption Amount, in most instances, was 1/15 th of the original principal amount, plus any amount accelerated pursuant to the 2022 Note, accrued but unpaid interest, and late fees, if any. The principal and interest could be settled in cash or, so long as certain equity conditions were met, shares of common stock at the option of the Company and was payable together with the monthly redemptions of the outstanding principal amount of the Note. If the Company elected to settle such redemptions in shares of Common Stock, the number of shares to be settled was based on an Installment Conversion Price equal to the lower of (i) $ 75.00 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 elected to settle redemptions in cash, the Monthly Redemption Amount included a 5 % premium. The investor was 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 was the lower of (i) the Installment Conversion Price for such current Installment Date or (ii) the greater of $ 9.00 and 95 % of the lowest daily volume weighted average price of the Common Stock during the five ( 5 ) trading days immediately preceding the Acceleration Date. As these terms are defined in the 2022 Note, if either the relevant Installment Conversion Price or Acceleration Conversion Price, as applicable, is less than $ 9.00 per share, then a Conversion Floor Price Condition exists and the Company must deliver to the lender the Conversion Installment Floor Amount in cash, in addition to the required number of shares, which are valued at $ 9.00 regardless of the actual trading price of the Company's shares. The Conversion Installment Floor Amount is an amount in cash equal to the product obtained by multiplying 78 (A) the higher of (i) the highest price that the Common Stock trades at on the Trading Day immediately preceding the relevant Share Delivery Date and (ii) the applicable Installment or Acceleration Conversion Price and (B) the difference obtained by subtracting (i) the number of shares of Common Stock delivered to the investor on the applicable Share Delivery Date with respect to such Conversion from (ii) the quotient obtained by dividing (x) the applicable Installment or Acceleration amount subject to such Conversion, by (y) the applicable Installment Conversion Price. Interest payments are also trued-up in cash when the value of the Company's shares is below $ 9.00 per share. The Company elected to apply the fair value option to the measurement of the 2022 Note. As a result of adopting the fair value option, no embedded derivatives are bifurcated from the 2022 Note. The Company classifies the 2022 Note as a liability at fair value and remeasures the 2022 Note to fair value at each reporting period. 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, 2023, the 2022 Note has no outstanding principal balance as all outstanding principal and accrued interest has been fully settled through Monthly Redemptions and Accelerations. As part of the debt extinguishment, the Company reclassified the accumulated change in fair value due to instrument-specific credit risk out of accumulated other comprehensive loss on the consolidated balance sheet and into interest expense and other on the consolidated statement of operations. 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 12 for further details. 11. INTEREST EXPENSE AND OTHER Interest expense and other for the years ended December 31, 2023 and 2022 consisted of the following (in thousands): Twelve months ended December 31, 2023 2022 Amortization of premiums (accretion of discounts) on marketable securities, net $ ( 474 ) $ 778 Convertible note issuance costs — 474 Loss on disposal of assets 111 — Realized loss on instrument-specific credit risk 46 — Expected credit losses 35 — Realized losses on redemptions of marketable securities — 77 Common Stock Purchase Agreement costs — 29 Other 34 21 Interest expense and other $ ( 248 ) $ 1,379 12. STOCKHOLDERS’ EQUITY The Company is authorized to issue 600,000,000 shares of common stock, par value $ 0.0001 per share. As of December 31, 2023, the Company had 6,310,090 shares of common stock issued and outstanding, post the reverse stock split. 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 79 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. 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, 2023, no shares of preferred stock were issued and outstanding. Warrants — As of December 31, 2023, the Company had 5,555 Private Placement warrants and 255,555 Public warrants outstanding. Each warrant entitles the registered holder to purchase one share of the Company's common stock at a price of $ 345.00 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 58,333 shares of Common Stock at a price of $ 105.00 per share, subject to a four ( 4 ) year term. As of December 31, 2023, no shares were exercised pursuant to the warrants. Contingent Warrants - As of December 31, 2023, the Company had 58,333 contingently issuable warrants outstanding associated with the potential Second Closing under the Securities Purchase Agreement. As the Company did not effect a Second Closing by March 15, 2024, these warrants are no longer outstanding and will not be issued to the investor. 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 1,028,847 shares of the Company's common stock, unless the Company’s stockholders approve the issuance of shares in excess of the Exchange Cap, or the average price of all applicable sales of common stock to Tumim Stone under the CSPA equals or exceeds $ 148.46 per share. 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 10,087 restricted common shares in the Company. 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. 80 During the twelve months ended December 31, 2023, the Company issued 19,500 shares of its common stock under the CSPA for gross proceeds of $ 136 . During the twelve months ended December 31, 2022, the Company issued 38,167 shares of its common stock under the CSPA for gross proceeds of $ 2,891 . As of December 31, 2023, 961,093 shares remain available for issuance under the CSPA. 13. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) The changes in accumulated other comprehensive income (loss) by component for the twelve months ended December 31, 2023 and 2022 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, 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 ) Other comprehensive income (loss) before reclassifications, net of tax 1,264 ( 21 ) 1,243 Amounts reclassified from accumulated other comprehensive loss, net of tax — 46 46 Net other comprehensive income 1,264 25 1,289 Balance at December 31, 2023 $ 10 $ — $ 10 The amounts reclassified out of accumulated other comprehensive income (loss) in the twelve months ended December 31, 2023 and 2022 are included within Interest expense and other on the consolidated statement of operations. 14. 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, 2023 2022 Numerator: Net loss attributable to common stockholders $ ( 87,126 ) $ ( 98,714 ) Denominator: Weighted average common shares outstanding- Basic 5,827,721 5,245,624 Dilutive effect of potential common shares — — Weighted average common shares outstanding- Diluted 5,827,721 5,245,624 Net loss per share attributable to common stockholders - Basic and Diluted $ ( 14.95 ) $ ( 18.82 ) 81 Due to net losses for the years ended December 31, 2023 and 2022, 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, 2023 2022 Warrants 319,443 319,443 Common stock options issued and outstanding 289,015 846,451 Unvested restricted stock units 652,453 425,703 Conversion of convertible notes — 543,120 ESPP 23,816 66,666 Total 1,284,727 2,201,383 15. STOCK-BASED COMPENSATION The Company has five 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”), the 2022 Employee Stock Purchase Plan (the "ESPP"), and the 2023 CEO Inducement Grant Plan (the "CEO Plan"). 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, 2023, 58,056 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. 2021 Equity Incentive Plan The Incentive Plan became effective immediately upon the closing of the business combination on August 16, 2021 and initially reserved 514,681 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. Since January 1, 2022, the Board of Directors have authorized the addition of 954,545 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, 2023, 1,264,338 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 66,666 shares of common stock to be reserved for issuance under the ESPP. The number of 82 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. During 2023, the Board of Directors have authorized the addition of 54,366 shares of common stock to be added to the ESPP for issuance. 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, 2023, 64,773 shares were purchased under the ESPP. During the year ended December 31, 2022, no shares were purchased under the ESPP. As of December 31, 2023, the Company has withheld $ 58 of contributions from its employees within accrued expenses and other current liabilities on the consolidated balance sheets. 2023 CEO Inducement Grant Plan The CEO Plan became effective on February 13, 2023 with 233,332 shares of common stock initially reserved for issuance. In connection with the appointment of the Company's CEO on February 13, 2023, the Company granted 166,666 service-based RSUs and 66,666 market-based RSUs to the CEO. The service-based RSUs will vest over three years . The market-based RSUs would have vested quarterly over six ( 6 ) calendar quarters following the satisfaction of the market condition. The market condition would have been satisfied if the closing price of the Company's common stock, as reported by NASDAQ, met or exceeded $ 36.00 per share for any ten ( 10 ) consecutive trading days prior to March 1, 2024. As the market condition was not satisfied by March 1, 2024, the market-based RSUs were forfeited. As of December 31, 2023, 233,332 RSUs were granted under the CEO Plan. A summary of stock option activity related to the Plans as of December 31, 2023 is as follows: Outstanding Stock Options Weighted Average Exercise Price Weighted Average Contractual Life (Years) Aggregate Intrinsic Value Balance at December 31, 2022 846,451 $ 14.94 6.45 $ 2,277 Granted — — Exercised ( 81,814 ) 5.57 Forfeited ( 111,937 ) 18.78 Expired ( 363,685 ) 18.77 Repurchased — — Balance at December 31, 2023 289,015 $ 11.29 3.07 $ — Vested and expected to vest as of December 31, 2023 289,015 $ 11.29 3.07 $ — Vested and exercisable as of December 31, 2023 281,380 $ 11.09 2.97 $ — 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, 2023 and 2022. 83 The following table summarizes the RSU award activity under the Plans: Shares Weighted Average Grant date Fair Value per Share Unvested at December 31, 2022 425,703 $ 119.85 Granted 901,472 10.66 Forfeited ( 344,061 ) 67.82 Vested ( 330,661 ) 53.07 Unvested at December 31, 2023 652,453 $ 30.29 The total fair value of RSUs that vested during the year ended December 31, 2023 was $ 3,596 . Stock-Based Compensation Expense — The following table summarizes stock-based compensation expense recorded in each financial statement line item in the Company’s consolidated statements of operations and comprehensive loss for the year ended December 31, 2023 and 2022 (in thousands): Twelve months ended December 31, 2023 2022 Research and development $ 6,821 $ 7,201 Sales and marketing 2,993 4,696 General and administrative 8,121 11,931 Cost of revenue 136 131 Total stock-based compensation $ 18,071 $ 23,959 As of December 31, 2023, the Company had $ 362 of unrecognized compensation expense for related stock option grants. This cost is expected to be recognized over an estimated weighted average period of 0.79 years. The total unrecognized compensation expense for RSUs was $ 16,669 as of December 31, 2023 which is expected to be recognized over an estimated weighted average period of 1.93 years. The total unrecognized compensation expense for the ESPP was $ 458 as of December 31, 2023 which is expected to be recognized over an estimated weighted average period of 1.33 years. The Company uses the Black-Scholes option-pricing model to estimate the grant-date fair value of ESPP purchase rights. The fair value of each of the four purchase periods is estimated separately. The Company uses the Monte-Carlo simulation model to estimate the grant date fair value of awards with a market condition. Both models require the input of subjective assumptions such as expected term, expected stock price volatility, risk-free interest rate and dividend yield as discussed below. Expected Term —The expected term for ESPP is the length of time from the grant date to the date on which the stock is purchased by the employees. The expected term for awards with a market condition is the length of time from the grant date to the date the market condition expires. Expected Volatility —Expected volatility is estimated using a combination of the average historical volatility of the Company's own stock and those of comparable companies’ stock at the time of the grant. Risk-Free Interest Rate —The risk-free interest rates are based on US Treasury yields in effect at the grant date for notes with comparable terms as the awards. Dividend Yield —The expected dividend-yield assumption is based on the Company’s current expectations about its anticipated dividend policy. 84 The following table summarizes the range of valuation assumptions used in estimating the fair value of the ESPP during the period: Twelve months ended December 31, 2023 Expected term (years) 0.50 - 2.00 Expected volatility 107.3 % - 136.0 % Risk-free interest rate 4.1 % - 5.1 % Dividend yield — % The following table summarizes the valuation assumptions used in estimating the fair value of awards granted during the period with a market condition: Twelve months ended December 31, 2023 Expected term (years) 1.05 Expected volatility 104.5 % Risk-free interest rate 4.8 % Dividend yield — % 16. REVENUE Sale of Prototypes The Company recorded revenue for prototype sales of $ 477 and $ 1,743 in 2023 and 2022 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 $ 987 and $ 1,904 in revenue for performance obligations satisfied during years ended 2023 and 2022 respectively, in the consolidated statements of operations and comprehensive loss. 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, 2023 2022 Revenue by primary geographical market: United States $ 1,223 $ 2,471 Europe 184 920 Asia-Pacific 57 256 Total $ 1,464 $ 3,647 Revenue by timing of recognition: Recognized at a point in time $ 477 $ 1,982 Recognized over time 987 1,665 Total $ 1,464 $ 3,647 85 Contract Liabilities Contract liabilities consisted of the following as of December 31, 2023 and 2022 (in thousands): As of December 31, 2023 2022 Contract liabilities, current $ — $ 987 Total $ — $ 987 The following table shows the significant changes in contract liabilities balance as of December 31, 2023 and 2022 (in thousands): Twelve months ended December 31, 2023 2022 Beginning balance $ 987 $ 2,918 Revenue recognized that was included in the contract liabilities beginning balance ( 987 ) ( 1,931 ) Ending balance $ — $ 987 Remaining Performance Obligations Revenue allocated to remaining performance obligations represents the transaction price allocated to the performance obligations that are unsatisfied, or partially unsatisfied. It includes unearned revenue and amounts that will be invoiced and recognized as revenue in future periods and does not include contracts where the customer is not committed. The customer is not considered committed where they are able to terminate for convenience without payment of a substantive penalty under the contract. Additionally, as a practical expedient, the Company has not disclosed the value of unsatisfied performance obligations for contracts with an original expected length of one year or less. The contract liabilities balance represents the remaining performance obligations for contracts with an original duration of greater than one year. 17. RESTRUCTURING In the first quarter of 2023, the Company began the implementation of a revised strategic plan to focus on key products and critical customer engagements it believes will generate the best long-term results for all stakeholders. In the fourth quarter of 2023, the Company implemented the second phase of its revised strategic plan to align the Company's operations with evolving business needs by focusing on the transition from research and development to the commercialization of its automotive products and winding down its existing industrial product, while reducing fixed operating costs. The winding down of the Company's existing industrial product, in combination with an accumulation of other triggering events, indicated that the carrying amount of the Company's long-lived assets may not be recoverable. An impairment review was performed on the Company's long-lived assets as of December 31, 2023, resulting in a write-down of its property and equipment and ROU asset to fair value. As a result of the implementation of both phases of the revised strategic plan and the impairment review of long-lived assets, the Company 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 its long-lived assets. The Company did not have any restructuring charges during fiscal year 2022. Restructuring-related liabilities are included in accrued expenses and other current liabilities in the consolidated balance sheets. 86 Restructuring charges were included in the consolidated statements of operations and comprehensive loss during the twelve months ended December 31, 2023 as follows (in thousands): Twelve months ended December 31, 2023 One-time employee termination benefits Inventory and other current asset write-downs Losses on purchase commitments Long-lived asset disposals and impairment charges Other Total Cost of revenue $ 130 $ 5,231 $ 360 $ — $ — $ 5,721 Research and development 789 — — 152 — 941 Sales and marketing 2,011 30 — 38 — 2,079 General and administrative 294 — — 55 123 472 Impairment of long-lived assets — — — 9,940 — 9,940 Total restructuring charges $ 3,224 $ 5,261 $ 360 $ 10,185 $ 123 $ 19,153 A reconciliation of the beginning and ending balance of cash restructuring charges, including one-time employee termination benefits, losses on purchase commitments, and other restructuring charges, which are included in accrued expenses and other current liabilities in the consolidated balance sheets, is as follows (in thousands): One-time employee termination benefits Losses on purchase commitments Other Total Balance as of December 31, 2022 $ — $ — $ — $ — Charges 3,224 360 123 3,707 Cash payments ( 2,822 ) ( 127 ) ( 67 ) ( 3,016 ) Balance as of December 31, 2023 $ 402 $ 233 $ 56 $ 691 18. 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 2023 and 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. The Company made contributions of $ 899 and $ 1,177 for the years ended December 31, 2023 and 2022, respectively. 19. INCOME TAXES For the years ended December 31, 2023 and 2022, the Company recognized $ 57 and $ 58 provision for income taxes, respectively. The provision for the year ended December 31, 2023 was comprised of $ 3 and $ 54 in state and foreign taxes, respectively. The provision for the year ended December 31, 2022 was comprised of $ 9 and $ 49 in state and foreign taxes, respectively. 87 The following table presents a reconciliation of the federal statutory rate of 21.0 % to the Company's effective tax rate for the periods presented: Twelve months ended December 31, 2023 2022 U.S. federal tax benefit at statutory rate 21.0 % 21.0 % State income taxes, net of federal benefit — % — % Non-deductible expenses and other ( 0.4 ) % ( 1.0 ) % Stock-based compensation ( 4.6 ) % ( 2.3 ) % Research and development credits 2.3 % 3.5 % Foreign rate differential — % ( 4.1 ) % Change in valuation allowance, net ( 18.4 ) % ( 17.2 ) % Effective tax rate ( 0.1 ) % ( 0.1 ) % For 2023 and 2022, the Company's 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 the Company's valuation allowance. Significant components of the Company’s deferred tax assets as of December 31, 2023 and 2022 are presented below (in thousands): As of December 31, 2023 2022 Deferred tax assets: Net operating loss carryforwards $ 69,612 $ 49,669 Research and development credit carryforward 9,941 7,967 Stock-based compensation 301 1,048 Property and equipment 2,364 234 Operating lease liabilities 4,967 4,435 Section 174 R&D capitalization 14,194 9,053 Other accruals 689 630 Gross deferred tax assets 102,068 73,036 Valuation allowance ( 98,840 ) ( 68,868 ) Deferred tax assets net of valuation allowance 3,228 4,168 Deferred tax liabilities: Right-of-use assets ( 3,228 ) ( 4,168 ) Gross deferred tax liabilities ( 3,228 ) ( 4,168 ) Total deferred tax assets (liabilities)—net $ — $ — 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. Realization of deferred tax assets is dependent on future earnings, if any, the timing and amount of which are uncertain. 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 valuation allowance as of December 31, 2023 was $ 98,840 which increased from $ 68,868 at December 31, 2022. The increase in the valuation allowance is primarily due to additional reserve required against net operating losses and research 88 credits generated during the year ended December 31, 2023. As of December 31, 2023, the Company had $ 247,802 and $ 202,887 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 $ 202,887 will begin to expire in 2029 for state tax purposes. Approximately $ 235,546 of federal net operating loss included above can be carried forward indefinitely. 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, which will begin to expire on 2033 for federal and 2029 for state tax purposes. The Company also has federal and state research and development tax credit carryforwards of $ 7,591 and $ 5,829 as of December 31, 2023 and $ 6,193 and $ 4,597 as of December 31, 2022. The federal credits begin to expire in 2034 and the state credits have no expiration date. 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 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. Based on the Section 382 analysis performed through December 31, 2021, the Company concluded all of its NOLs and credits would be available to use as of December 31, 2021, however, future changes in ownership may limit the ability to use tax attributes under Section 382. The following is a tabular reconciliation of the total amounts of unrecognized tax benefits (in thousands): Twelve months ended December 31, 2023 2022 Unrecognized tax benefits as of the beginning of the year $ 2,822 $ 1,681 Increases related to prior year tax provisions 161 182 Increase related to current year tax provisions 497 959 Unrecognized tax benefits as of the end of the year $ 3,480 $ 2,822 The Company recognizes interest and penalties related to income tax matters as a component of income tax expense. As of December 31, 2023 and December 31, 2022 there was no accrued interest nor penalties related to uncertain tax positions. 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. 20. 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. 89 21. RELATED PARTIES From November 2016 to December 2023, the Company had employed a sibling of Mr. Dussan, a director and the Company’s former Chief Technology Officer, who held the position of Director, Human Resources and Sr. Manager of Human Resources during 2023 and 2022, respectively. For the years ended December 31, 2023 and 2022, Mr. Dussan’s sibling received total cash compensation of $ 149 and $ 162 , respectively. For the years ended December 31, 2023 and 2022, Mr. Dussan’s sibling was granted 2,000 and 750 RSUs, respectively. In addition, he participated in all other benefits that the Company generally offers to all of its employees. 22. SUBSEQUENT EVENTS Management has evaluated subsequent events through March 26, 2024 and determined that there were no such events requiring recognition or disclosure in the financial statements. 90 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure None.