UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For
the quarterly period ended
OR
For the transition period from to
(Exact name of registrant as specified in its charter)
(State
or other jurisdiction of | (Commission File Number) | (I.R.S.
Employer |
| ||
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: 408-459-7579
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| The | ||||
| Redeemable warrants, exercisable for common stock at an exercise price of $11.50 per share, subject to adjustment | CPTNW | The Nasdaq Capital Market |
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company |
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
As
of November 1, 2022,
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q (the “Report”) includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical or current fact included in this Report are forward-looking statements. Forward-looking statements may be identified by the use of words such as “estimate,” “plan,” “project,” “forecast,” “intend,” “will,” “expect,” “anticipate,” “believe,” “seek,” “target,” “designed to” or other similar expressions that predict or imply future events or trends or that are not statements of historical matters. In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. The Company cautions readers of this Report that these forward-looking statements are subject to risks and uncertainties, most of which are difficult to predict and many of which are beyond the Company’s control, that could cause the actual results to differ materially from the expected results. These factors include the information set forth in Part II, Item 1A, of this Report under the heading “Risk Factors”, which we encourage you to carefully read. Forward-looking statements include, but are not limited to, statements regarding estimates and forecasts of financial and performance metrics, projections of market opportunity and market share, potential benefits and the commercial attractiveness to its customers of the Company’s products and services, the potential success of the Company’s marketing and expansion strategies, the potential for the Company to achieve design awards and statements regarding the pending transaction with Koito Manufacturing Co., Ltd. These statements are based on various assumptions, whether or not identified in this Report, and on the current expectations of the Company’s management and are not predictions of actual performance. These forward-looking statements are provided for illustrative purposes only and are not intended to serve as, and must not be relied on by any investor as, a guarantee, an assurance, a prediction or a definitive statement of fact or probability. Actual events and circumstances are difficult or impossible to predict and will differ from assumptions. You are therefore cautioned not to place undue reliance on such statements. Any forward-looking statement speaks only as of the date on which it is made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events, except as required by law.
i
Cepton, Inc.
Quarterly Report on Form 10-Q
Table of Contents
ii
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CEPTON, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands, except share data)
(unaudited)
| September 30, 2022 | December 31, 2021 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Short-term investments | ||||||||
| Accounts receivable, net of allowance for doubtful accounts of $ | ||||||||
| Inventories | ||||||||
| Right-of-use assets | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES, CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Operating lease liabilities | ||||||||
| Accrued expenses and other current liabilities | ||||||||
| Total current liabilities | ||||||||
| Long-term debt | ||||||||
| Warrant liability | ||||||||
| Earnout liability | ||||||||
| Other long-term liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 17) | ||||||||
| Convertible preferred stock: | ||||||||
| Convertible preferred stock – Par value $ | ||||||||
| Stockholders’ equity (deficit): | ||||||||
| Preferred stock – Par value $ | ||||||||
| Common stock – Par value $ | ||||||||
| Class F stock – Par value $ | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity (deficit) | ( | ) | ||||||
| Total liabilities, convertible preferred stock and stockholders’ equity (deficit) | $ | $ | ||||||
See accompanying notes to the condensed consolidated financial statements
1
CEPTON, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
(In thousands, except share and per share data)
(unaudited)
| Three
Months Ended September 30, | Nine
Months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Lidar sensor and prototype revenue | $ | $ | $ | $ | ||||||||||||
| Development revenue | ||||||||||||||||
| Total revenue | $ | $ | $ | $ | ||||||||||||
| Lidar sensor and prototype cost of revenue | ||||||||||||||||
| Development cost of revenue | ||||||||||||||||
| Total cost of revenue | ||||||||||||||||
| Gross profit (loss) | ( | ) | ( | ) | ( | ) | ||||||||||
| Operating expenses: | ||||||||||||||||
| Research and development | ||||||||||||||||
| Selling, general and administrative | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Operating loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense) | ||||||||||||||||
| Change in fair value of earnout liability | ( | ) | ||||||||||||||
| Change in fair value of warrant liability | ( | ) | ||||||||||||||
| Other income (expense), net | ( | ) | ( | ) | ||||||||||||
| Interest (expense) income, net | ( | ) | ( | ) | ||||||||||||
| Income (loss) before income taxes | ( | ) | ( | ) | ( | ) | ||||||||||
| Provision for income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net income (loss) | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||
| Net income (loss) per share, basic | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||
| Net income (loss) per share, diluted | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||
| Weighted-average common shares, basic | ||||||||||||||||
| Weighted-average common shares, diluted | ||||||||||||||||
| Net income (loss) | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||
| Other comprehensive income (loss), net of tax: | ||||||||||||||||
| Changes in unrealized gain (loss) on available-for-sale securities | ( | ) | ( | ) | ||||||||||||
| Foreign currency translation adjustments | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total other comprehensive income ( loss), net of tax | ( | ) | ( | ) | ( | ) | ||||||||||
| Comprehensive income (loss) | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||
See accompanying notes to the condensed consolidated financial statements
2
CEPTON, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)
(In thousands, except share and per share data)
(unaudited)
| Convertible Preferred Stock | Preferred Stock | Common Stock | Class F Stock | Additional | Accumulated | Accumulated | Total Stockholders’ Equity | |||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Loss | Deficit | (Deficit) | |||||||||||||||||||||||||||||||||||||
| Balance — December 31, 2021 | $ | — | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||
| Retroactive application of exchange ratio | — | |||||||||||||||||||||||||||||||||||||||||||||||
| Conversion of convertible preferred stock to common stock | ( | ) | ( | ) | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Conversion of Class F stock to common stock | — | — | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||
| Reverse recapitalization, net of transaction costs | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||
| Exercise of Trinity warrants | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Exercise of SVB warrants | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Exercise of stock options | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Unrealized gain on available-for-sale investments | — | — | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Cumulative translation adjustment | — | — | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Balance — March 31, 2022 | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||
| Exercise of stock options | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock to LPC | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Vesting of early exercised options | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Incremental direct transaction costs related to reverse recapitalization | — | — | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Unrealized gain on available-for-sale investments | — | — | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Cumulative translation adjustment | — | — | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Balance — June 30, 2022 | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||
| Exercise of stock options | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock to LPC | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Vesting of early exercised options | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Unrealized gain on available-for-sale investments | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Cumulative translation adjustment | — | — | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Balance — September 30, 2022 | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||
3
| Convertible Preferred Stock | Preferred Stock | Common Stock | Class F Stock | Additional Paid-in | Accumulated Other Comprehensive | Accumulated | Total Stockholders’ Equity | |||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Loss | Deficit | (Deficit) | |||||||||||||||||||||||||||||||||||||
| Balance — December 31, 2020 (as previously reported) | $ | — | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||
| Retroactive application of exchange ratio | — | |||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock upon exercise of stock options | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Unrealized gain/loss on available-for-sale securities, net of tax | — | — | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | — | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Balance — March 31, 2021 | — | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||
| Exercise of stock options | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Unrealized gain/loss on available-for-sale securities | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income, net of tax | — | — | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Balance — June 30, 2021 | — | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||
| Exercise of stock options | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income, net of tax | — | — | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Balance — September 30, 2021 | — | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||
See accompanying notes to the condensed consolidated financial statements
4
CEPTON, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In thousands)
(unaudited)
| Nine
Months Ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net income (loss) | $ | $ | ( | ) | ||||
| Adjustments to reconcile net income (loss) to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Stock-based compensation | ||||||||
| Amortization of right-of-use asset | ||||||||
| Amortization, other | ||||||||
| Change in fair value of earnout liability | ( | ) | ||||||
| Change in fair value of warrant liability | ( | ) | ||||||
| Loss on disposal of property and equipment | ||||||||
| Gain from debt forgiveness | ( | ) | ||||||
| Other | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable, net | ( | ) | ( | ) | ||||
| Inventories | ||||||||
| Prepaid expenses and other current assets | ( | ) | ( | ) | ||||
| Other long-term assets | ( | ) | ( | ) | ||||
| Accounts payable | ( | ) | ||||||
| Accrued expenses and other current liabilities | ||||||||
| Operating lease liabilities | ( | ) | ||||||
| Other long-term liabilities | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchases of property and equipment | ( | ) | ( | ) | ||||
| Purchases of short-term investments | ( | ) | ( | ) | ||||
| Proceeds from sales of short-term investments | ||||||||
| Proceeds from maturities of short-term investments | ||||||||
| Net cash provided by (used in) investing activities | ( | ) | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from Business Combination and private offering | ||||||||
| Payments of Business Combination and private offering transaction costs | ( | ) | ||||||
| Proceeds from issuance of debt and warrants, net of debt discount | ||||||||
| Proceeds from issuance of common stock options | ||||||||
| Proceeds from issuance of common stock | ||||||||
| Net cash provided by financing activities | ||||||||
| Effect of exchange rate changes on cash | ( | ) | ( | ) | ||||
| Net decrease in cash and cash equivalents | ( | ) | ( | ) | ||||
| Cash and cash equivalents, beginning of period | ||||||||
| Cash and cash equivalents, end of period | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for income taxes | $ | $ | ||||||
| Business Combination transaction costs, accrued but not paid | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING INFORMATION | ||||||||
| Purchases of property and equipment in accounts payable | $ | $ | ||||||
| Vesting of early exercised stock options | $ | $ | ||||||
| Right-of-use assets obtained in exchange for new operating lease liabilities | $ | $ | ||||||
See accompanying notes to the condensed consolidated financial statements
5
Note 1. Description of Business and Summary of Significant Accounting Policies
Description of Business
Cepton, Inc., and its wholly owned subsidiaries, (collectively, the “Company”) formerly known as Growth Capital Acquisition Corp. (“GCAC”), was originally incorporated in Delaware on January 4, 2010, under the name PinstripesNYS, Inc. GCAC changed its name to Growth Capital Acquisition Corp. on February 14, 2020. GCAC was a special purpose acquisition company formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization, or other similar business combination with one or more target businesses. On February 2, 2021, the Company consummated its initial public offering (the “IPO”), following which its shares began trading on the Nasdaq National Market (“Nasdaq”). On August 4, 2021, GCAC entered into a Business Combination Agreement (as amended, the “Merger Agreement”) with Cepton Technologies, Inc. (“Legacy Cepton”) and GCAC Merger Sub Inc., a wholly owned subsidiary of GCAC (“Merger Sub”). On February 10, 2022 (the “Closing Date”), the transactions contemplated by the Merger Agreement (the “Business Combination”) were consummated. In connection with the closing of the Business Combination, GCAC changed its name to Cepton, Inc. and its shares and public warrants began trading on the Nasdaq under the symbols “CPTN” and “CPTNW”, respectively. As a result of the Business Combination, Cepton, Inc. became the owner, directly or indirectly, of all of the equity interests of Legacy Cepton and its subsidiaries.
The Company provides state-of-the-art, intelligent, lidar-based solutions for a range of markets such as automotive, smart cities, smart spaces, and smart industrial applications. The Company’s patented lidar technology enables reliable, scalable, and cost-effective solutions that deliver long range, high resolution 3D perception for smart applications. The Company is headquartered in San Jose, California, USA, with a presence in Germany, Canada, Japan, China and India.
Basis of Presentation and Principles of Consolidation
The condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The condensed consolidated financial statements include the accounts of our wholly owned subsidiaries in Canada, Germany, Japan, China and the United Kingdom. All intercompany balances and transactions have been eliminated in consolidation.
The
accompanying condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern. As
of September 30, 2022, the Company had cash and cash equivalents of $
The Company is subject to risks and uncertainties frequently encountered by early-stage companies including, but not limited to, the uncertainty of successfully developing its products, securing certain contracts, building its customer base, successfully executing its business and marketing strategy and hiring appropriate personnel.
To date, the Company has been funded primarily by equity financings, convertible promissory notes and the net proceeds we received through the Business Combination, PIPE offering, and private placements of the Legacy Cepton convertible preferred stock. Failure to generate sufficient revenues, achieve planned gross margins and operating profitability, control operating costs, or secure additional funding may require the Company to modify, delay, or abandon some of its planned future expansion or development, or to otherwise enact operating cost reductions available to management, which could have a material adverse effect on the Company’s business, operating results, financial condition, and ability to achieve its intended business objectives. For further information regarding our pending financing activities, see Note 21.
6
Concentration of Risk
Financial instruments that subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents, short-term investments, and accounts receivable. The Company maintains a substantial portion of its cash and cash equivalents and short-term investments in money market funds, commercial paper, corporate debt securities, and asset backed securities. Management believes that the financial institutions that hold its cash, cash equivalents, and short-term investments are financially sound and, accordingly, represent minimal credit risk. Deposits held with banks may exceed the amount of federal insurance limits provided on such deposits.
As
of September 30, 2022 and December 31, 2021, two and three customers, respectively, each accounted for more than
Customers
with revenue equal to or greater than
| Three
Months Ended September 30, | Nine
Months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Customer A | % | % | % | % | ||||||||||||
| Customer B | % | % | % | % | ||||||||||||
| Customer C | % | % | % | % | ||||||||||||
Use of Estimates
The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant items subject to such estimates and assumptions include, but are not limited to, estimating the standalone selling prices of performance obligations for revenue recognition, allowances for doubtful accounts, inventory valuation and reserves, valuation allowance for deferred tax assets, useful lives of property and equipment, income tax uncertainties, the valuation of certain derivative liabilities, and other loss contingencies. The Company evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors and adjusts those estimates and assumptions when facts and circumstances dictate. Actual results could differ from those estimates, and such differences could be material to the Company’s condensed consolidated financial condition and results of operations.
Product Warranties
The Company typically provides a one-year warranty on its products. Estimated future warranty costs are accrued and charged to cost of goods sold in the period that the related revenue is recognized. These estimates are derived from historical data and trends of product reliability and costs of repairing and replacing defective products. The Company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary. Through September 30, 2022, there were immaterial changes to the accrued warranty liability which was recorded in accrued expenses and other current liabilities on the consolidated balance sheet.
Reclassifications
During the course of preparing the financial statements, the Company identified an immaterial error in its misapplication of accounting guidance related to the presentation of certain costs related to research and development expenses and costs of revenue for the nine months ended September 30, 2021. The Company concluded the misstatement was not material to the financial statement of any interim period. The error had no impact on reported operating loss or net loss.
7
The corrections to the Company’s condensed consolidated statement of operations for the nine months ended September 30, 2021 were as follows (in thousands):
| Nine Months Ended September 30, 2021 | ||||||||||||
| (As Previously Reported) | Corrections | (as Corrected) | ||||||||||
| Lidar sensor and prototype revenue | $ | $ | $ | |||||||||
| Development revenue | ||||||||||||
| Total revenue | ||||||||||||
| Lidar sensor and prototype cost of revenue | ||||||||||||
| Development cost of revenue | ( | ) | ||||||||||
| Total cost of revenue | ( | ) | ||||||||||
| Gross loss | ( | ) | ( | ) | ||||||||
| Operating expenses: | ||||||||||||
| Research and development | ||||||||||||
| Selling, general and administrative | ||||||||||||
| Total operating expenses | ||||||||||||
| Operating loss | ( | ) | ( | ) | ||||||||
| Net loss | $ | ( | ) | $ | $ | ( | ) | |||||
During
the Company’s preparation of its condensed consolidated financial statements for the nine months ended September 30, 2022, the
Company identified an immaterial misclassification error related to the common shares issued to Lincoln Park as a commitment fee. The
common shares issued as a commitment fee to Lincoln Park should have been recorded as an equity-linked derivative liability within additional
paid-in capital at a market value of $
The
condensed consolidated statements of convertible preferred stock and stockholders’ equity (deficit) included in this Quarterly
Report as of September 30, 2022 differ from our Form 10-Q’s for the periods ended March 31, 2022 and June 30, 2022, reflecting
immaterial error corrections, including the misclassification of $
Recently Adopted Accounting Pronouncements
In May 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2021-04, Earnings Per Share (Topic 260), Debt - Modifications and Extinguishments (Topic 470-50), Compensation - Stock Compensation (Topic 718), and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40), which clarifies existing guidance for freestanding written call options which are equity classified and remain so after they are modified or exchanged in order to reduce diversity in practice. The Company is required to apply the amendments within this ASU prospectively to modifications or exchanges occurring on or after the effective date of the amendment. The standard is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. The Company adopted this standard beginning on January 1, 2022, and the adoption did not have a material impact on its condensed consolidated financial statements.
8
In August 2020, the FASB issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The ASU is part of the FASB’s simplification initiative, which aims to reduce unnecessary complexity in U.S. GAAP. As the Company expects to be an emerging growth company, ASU 2020-06 will be effective for interim and annual periods in fiscal years beginning after December 15, 2023, with earlier adoption permitted for fiscal years beginning after December 15, 2020. The Company early adopted this standard beginning January 1, 2022, and the adoption did not have a material impact on its condensed consolidated financial statements.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which simplifies various aspects related to accounting for income taxes. The pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. ASU 2019-12 is effective for the Company beginning January 1, 2022. The standard eliminates certain exceptions to the general principles in Accounting Standards Codification (“ASC”) 740 and makes amendments to other areas with a focus on simplification and consistent application of US GAAP. The Company adopted this standard beginning January 1, 2022, and the adoption did not have a material impact on its condensed consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which supersedes the previous accounting guidance for leases included within ASC 840. Under the new guidance, a lessee is required to recognize assets and liabilities for finance and operating leases. The ASU also requires disclosures on the amount, timing, and uncertainty of cash flows arising from leases. The Company adopted this standard beginning January 1, 2022, using a modified retrospective approach that included a number of optional practical expedients that the Company elected to apply. See Note 16 for disclosure on the impact of adopting this standard.
Recently Issued Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which significantly changes the way entities recognize credit losses and impairment of financial assets recorded at amortized cost. Currently, the credit loss and impairment model for loans and leases is based on incurred losses, and investments are recognized as impaired when there is no longer an assumption that future cash flows will be collected in full under the originally contracted terms. Under the new current expected credit loss (“CECL”) model, the standard requires immediate recognition of estimated credit losses expected to occur over the remaining life of the asset. As the Company is an emerging growth company, the standard will be effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the potential impact on its condensed consolidated financial statements and related disclosures from the adoption of this standard.
Note 2. Business Combination
The Business Combination was accounted for as a reverse recapitalization as Legacy Cepton was determined to be the accounting acquirer under FASB ASC Topic 805, Business Combinations (ASC 805). The determination is primarily based on the evaluation of the following facts and circumstances:
| ● | the equity holders of Legacy Cepton hold the majority of voting rights in the Company; |
| ● | the board of directors of Legacy Cepton represent a majority of the members of the board of directors of the Company or were appointed by Legacy Cepton; |
| ● | the senior management of Legacy Cepton became the senior management of the Company; and |
| ● | the operations of Legacy Cepton comprise the ongoing operations of the Company. |
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In connection with the Business Combination, outstanding capital stock of Legacy Cepton was converted into common stock of Legacy Cepton and then subsequently converted into Class A common stock of the Company, representing a recapitalization, and the net assets of the Company were acquired at historical cost, with no goodwill or intangible assets recorded. Legacy Cepton was deemed to be the predecessor of the Company, and the consolidated assets and liabilities and results of operations prior to the Closing Date are those of Legacy Cepton. The shares and corresponding capital amounts and net loss per share available to common stockholders, prior to the Business Combination, have been retroactively restated as shares reflecting the Exchange Ratio (defined below). Operations prior to the Business Combination will be those of Legacy Cepton in future reports of the combined entity.
Recapitalization
In connection with the Business Combination, the following occurred to recapitalize the Company:
| ● | Shares of Legacy Cepton convertible preferred stock and Class F stock issued and outstanding, were converted into common stock of Legacy Cepton, and thereafter, all shares of Legacy Cepton common stock were subsequently converted into the Company’s Class A common stock, par value $0.0001 per share, at a rate of approximately 2.449 (the “Exchange Ratio”); |
| ● | Vested stock options to purchase or receive shares of Legacy Cepton common stock (see Note 12) converted into options to purchase or receive shares of the Company’s Class A common stock, par value $0.0001 per share, in accordance with the Exchange Ratio; |
| ● | Outstanding warrants, whether vested or unvested, to purchase shares of Legacy Cepton common stock (see Note 14) converted into shares of the Company’s Class A common stock, par value $0.0001 per share, in accordance with the Exchange Ratio; |
| ● | Outstanding unvested stock options to purchase or receive shares of Legacy Cepton common stock (see Note 12) converted into unvested stock options to purchase or receive shares of the Company’s Class A common stock upon the same terms and conditions that were in effect with respect to such stock options immediately prior to the Business Combination, after giving effect to the Exchange Ratio; |
| ● | The Company’s certificate of incorporation was amended and restated to, among other things, increase the total number of authorized shares of capital stock to 355,000,000 shares, of which 350,000,000 shares were designated common stock, $0.00001 par value per share, and of which 5,000,000 shares were designated preferred stock, $0.00001 par value per share and to reclassify each share of Class A common stock and Class B common stock into one share of common stock. |
PIPE Investment
Contemporaneously
with the execution of the Merger Agreement, GCAC entered into subscription agreements with certain investors (the “PIPE Investors”),
pursuant to which the PIPE Investors agreed to purchase an aggregate of
Redemption
Prior
to the closing of the Business Combination on February 10, 2022, certain GCAC public shareholders exercised their right to redeem certain
of their outstanding shares for cash, resulting in the redemption of
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Public and Private Placement Warrants
GCAC
warrants issued in connection with the IPO (“Public Warrants”) and in connection with the private placement units held by
the Sponsor (“Private Placement Warrants”) remained outstanding after the closing of the Business Combination. The warrants
became exercisable to purchase shares of the Company’s common stock at an exercise price of $
Transaction Costs
The
Company incurred direct and incremental costs of approximately $
Transaction Proceeds
Upon
closing of the Business Combination, the Company received gross proceeds of $
| Cash – Trust and cash, net of redemptions | $ | |||
| Cash – PIPE Investment | ||||
| Gross Proceeds from the Business Combination | ||||
| Less: transaction costs and advisory fees, paid | ( | ) | ||
| Net proceeds from the Business Combination | ||||
| Less: transaction costs and advisory fees, accrued | ( | ) | ||
| Less: Private Placement Warrants assumed | ( | ) | ||
| Less: Earnout liability assumed | ( | ) | ||
| Reverse recapitalization, net | ( | ) | ||
| Add: Private Placement Warrants assumed | ||||
| Add: Earnout liability assumed | ||||
| Add: Transaction costs recorded to general and administrative expense | ||||
| Add: Transaction costs accrued | ||||
| Business Combination proceeds, net | $ |
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The number of shares of common stock issued immediately following the consummation of the Business Combination were:
| GCAC Class A common stock, outstanding prior to Business Combination | ||||
| Less: Redemption of GCAC Class A common stock | ( | ) | ||
| Class A common stock of GCAC | ||||
| GCAC founder shares | ||||
| GCAC shares issued in PIPE Investment | ||||
| Business Combination and PIPE shares | ||||
| Legacy Cepton shares | ||||
| Class A common stock immediately after Business Combination |
The number of Legacy Cepton shares was determined as follows:
| Legacy Cepton shares | Legacy Cepton shares, after Exchange Ratio | |||||||
| Balance at December 31, 2021 | ||||||||
| Convertible preferred stock | ||||||||
| Class F stock | ||||||||
| Option exercises (1) | ||||||||
| Warrants exercises (2) | ||||||||
| Total | ||||||||
| (1) | |
| (2) |
Note 3. Revenue
The Company disaggregates its revenue from contracts with customers by country of domicile based on the shipping location of the customer. Total revenue disaggregated by country of domicile is as follows (dollars in thousands):
| Three Months Ended September 30, | ||||||||||||||||
| 2022 | 2021 | |||||||||||||||
| Revenue | % of Revenue | Revenue | % of Revenue | |||||||||||||
| Revenue by country of domicile: | ||||||||||||||||
| Japan | $ | % | $ | % | ||||||||||||
| United States | $ | % | $ | % | ||||||||||||
| China | % | % | ||||||||||||||
| Other | % | % | ||||||||||||||
| Total | $ | % | $ | % | ||||||||||||
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| Nine Months Ended September 30, | ||||||||||||||||
| 2022 | 2021 | |||||||||||||||
| Revenue | % of Revenue | Revenue | % of Revenue | |||||||||||||
| Revenue by country of domicile: | ||||||||||||||||
| Japan | $ | % | $ | % | ||||||||||||
| United States | % | % | ||||||||||||||
| China | % | % | ||||||||||||||
| Other | % | % | ||||||||||||||
| Total | $ | % | $ | % | ||||||||||||
As
of September 30, 2022 and December 31, 2021, the Company had $
Note 4. Fair Value Measurement
The following table summarize our assets and liabilities measured at fair value on a recurring basis, by level, within the fair value hierarchy (in thousands):
| September 30, 2022 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Assets: | ||||||||||||||||
| Cash equivalents: | ||||||||||||||||
| Money market fund | $ | $ | $ | $ | ||||||||||||
| Total cash equivalents | $ | $ | $ | $ | ||||||||||||
| Short-term investments: | ||||||||||||||||
| Commercial paper | $ | $ | $ | $ | ||||||||||||
| U.S. treasury securities | ||||||||||||||||
| U.S. government agency securities | ||||||||||||||||
| Corporate debt securities | ||||||||||||||||
| Total short-term investments | ||||||||||||||||
| Total assets measured at fair value | $ | $ | $ | $ | ||||||||||||
| Liabilities: | ||||||||||||||||
| Private placement warrants | $ | $ | $ | $ | ||||||||||||
| Earnout liability | ||||||||||||||||
| Total liabilities measured at fair value | $ | $ | $ | $ | ||||||||||||
| December 31, 2021 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Assets: | ||||||||||||||||
| Cash equivalents: | ||||||||||||||||
| Money market fund | $ | $ | $ | $ | ||||||||||||
| Total cash equivalents | $ | $ | $ | $ | ||||||||||||
| Short-term investments: | ||||||||||||||||
| Corporate debt securities | $ | $ | $ | $ | ||||||||||||
| Total short-term investments | ||||||||||||||||
| Total assets measured at fair value | $ | $ | $ | $ | ||||||||||||
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Cash equivalents consist primarily of money market funds with original maturities of three months or less at the time of purchase, and the carrying amount is a reasonable estimate of fair value. Short-term investments consist of investment securities with original maturities greater than three months but less than twelve months and are included as current assets in the condensed consolidated balance sheets. For corporate debt securities, the fair value as of September 30, 2022 and December 31, 2021 approximates amortized cost basis.
Because the transfer of Private Placement Warrants to non-permitted transferees would result in the Private Placement Warrants having substantially the same terms as the Public Warrants, the Company determined that the fair value of each Private Placement Warrant is consistent with that of a Public Warrant. Accordingly, the Private Placement Warrants are classified as Level 2 financial instruments.
The value of the earnout liability is classified as Level 3 under the fair value hierarchy because it has been valued based on significant inputs not observable in the market.
Note 5. Inventories
Inventories consist of the following as of September 30, 2022 and December 31, 2021 (in thousands):
| September 30, 2022 | December 31, 2021 | |||||||
| Raw materials | $ | $ | ||||||
| Work-in-process | ||||||||
| Finished goods | ||||||||
| Total inventories | $ | $ | ||||||
Inventories
are carried at the lower of cost or net realizable value. Write-downs were $
Note 6. Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consisted of the following as of September 30, 2022 and December 31, 2021 (in thousands):
| September 30, 2022 | December 31, 2021 | |||||||
| Deferred transaction costs | $ | $ | ||||||
| Other prepaid expenses | ||||||||
| Payroll tax receivable | ||||||||
| Prepaid insurance | ||||||||
| Prepaid rent | ||||||||
| Other current assets | ||||||||
| Total prepaid expenses and other current assets | $ | $ | ||||||
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Note 7. Property and Equipment, Net
Property and equipment, net, consists of the following as of September 30, 2022 and December 31, 2021 (in thousands):
| September 30, 2022 | December 31, 2021 | |||||||
| Machinery and equipment | $ | $ | ||||||
| Automobiles | ||||||||
| Leasehold improvements | ||||||||
| Computer and equipment | ||||||||
| Total property, and equipment | ||||||||
| Less: accumulated depreciation and amortization | ( | ) | ( | ) | ||||
| Total property and equipment, net | $ | $ | ||||||
Depreciation
and amortization related to property and equipment was $
Note 8. Accrued Expenses and Other Current Liabilities
Accrued expenses consisted of the following as of September 30, 2022 and December 31, 2021 (in thousands):
| September 30, 2022 | December 31, 2021 | |||||||
| Accrued expenses and taxes | $ | $ | ||||||
| Accrued payroll | ||||||||
| Accrued unvested option liability | ||||||||
| Deferred revenue | ||||||||
| Deferred rent | ||||||||
| Warranty reserve | ||||||||
| Total accrued expenses and other current liabilities | $ | $ | ||||||
Note 9. Debt
Trinity Loan Agreement
On
January 4, 2022, Legacy Cepton entered into a loan and security agreement and subsequent amendments (“Trinity Loan Agreement”)
with Trinity Capital Inc. (“Trinity”) to borrow up to $
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For
the three and nine months ended September 30, 2022, the Company recognized $
On November 7, 2022, the Company repaid all outstanding principal and accrued interest under and terminated the Trinity Loan Agreement with borrowings under a new Secured Term Loan Agreement entered into with Koito. See Note
21 for further information.
Note 10. Convertible Preferred Stock
As discussed in Note 2, the Company has retroactively adjusted the shares issued and outstanding prior to February 10, 2022 to give effect to the Exchange Ratio to determine the number of shares of common stock into which they were converted.
Prior
to the Business Combination, Legacy Cepton had shares of $
The authorized, issued, and outstanding shares of Convertible Preferred Stock, and liquidation preferences prior to February 10, 2022 were as follows:
| Issuance Date | Shares Authorized | Shares Issued and Outstanding | Original Issue Price per Share | Aggregate Liquidation Preference | ||||||||||||||
| Series A | $ | $ | ||||||||||||||||
| Series B | ||||||||||||||||||
| Series B-1 | ||||||||||||||||||
| Series C | ||||||||||||||||||
| $ | ||||||||||||||||||
Upon
the closing of the Business Combination, the
Note 11. Stockholders’ Equity (Deficit)
Common Stock
Upon
the closing of the Business Combination, the
As
of September 30, 2022, the Company had authorized
Lincoln Park Transaction
On
November 24, 2021, Legacy Cepton entered into a Purchase Agreement with Lincoln Park Capital Fund, LLC (“Lincoln Park” or
“LPC”), pursuant to which Lincoln Park has agreed to purchase up to $
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As
of and for the nine months ended September 30, 2022,
Class F Stock
Holders of Legacy Cepton’s Class F stock were entitled to the same voting rights as the equivalent number of common stock on an as-converted basis, and to receive dividends when, as and if declared by the board of directors. The holders had conversion rights for conversion into shares of common stock and preferred stock. The holders were subject to vesting terms wherein each holder acquired a vested interest in the stock over a service period of four years.
Upon
the closing of the Business Combination, the
Note 12. Stock-Based Compensation
Equity Incentive Plans
On
July 5, 2016, Legacy Cepton adopted the 2016 Stock Plan (the “2016 Plan”) under which