UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2022

 

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from               to               

 

 

 

Cepton, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware

  001-39959   27-2447291

(State or other jurisdiction of
incorporation or organization)

  (Commission File Number)  

(I.R.S. Employer
Identification Number)

 

399 West Trimble Road
San Jose, California

  95131
(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
Common stock, par value $0.00001 per share   CPTN   The Nasdaq Capital Market
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. Yes ☒ No ☐

 

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). Yes ☒ No ☐

 

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
Non-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, 156,413,640 shares of common stock, par value $0.00001, of the registrant were issued and outstanding.

 

 

 

 

 

 

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

 

 

  Page No.
     
PART I. FINANCIAL INFORMATION  
     
Item 1. Financial Statements (Unaudited) 1
     
  Condensed Consolidated Balance Sheets 1
     
  Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) 2
     
  Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit) 3
     
  Condensed Consolidated Statements of Cash Flows 5
     
  Notes to Condensed Consolidated Financial Statements 6
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 27
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 40
     
Item 4. Controls and Procedures 41
     
PART II. OTHER INFORMATION  
     
Item 1. Legal Proceedings 42
     
Item 1A. Risk Factors 42
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 81
     
Item 3. Defaults Upon Senior Securities 81
     
Item 4. Mine Safety Disclosures 81
     
Item 5. Other Information 81
     
Item 6. Exhibits 81
     
SIGNATURES 82

 

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  $3,312   $3,654 
Short-term investments   18,306    2,836 
Accounts receivable, net of allowance for doubtful accounts of $0 and $0, respectively   1,386    500 
Inventories   2,516    2,523 
Right-of-use assets   474     
Prepaid expenses and other current assets   4,864    6,998 
Total current assets   30,858    16,511 
Property and equipment, net   840    480 
Other assets   1,137    293 
Total assets  $32,835   $17,284 
           
LIABILITIES, CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)          
           
Current liabilities:          
Accounts payable  $1,740   $2,547 
Operating lease liabilities   653     
Accrued expenses and other current liabilities   3,399    2,777 
Total current liabilities   5,792    5,324 
Long-term debt   9,370     
Warrant liability   766     
Earnout liability   4,130     
Other long-term liabilities   343    23 
Total liabilities   20,401    5,347 
           
Commitments and contingencies (Note 17)   
 
    
 
 
           
Convertible preferred stock:          
Convertible preferred stock – Par value $0.00001 per share – No shares authorized at September 30, 2022; 22,806,009 shares authorized at December 31, 2021; No shares issued and outstanding at September 30, 2022; 21,671,491 shares issued and outstanding at December 31, 2021 (aggregate liquidation preference of $96.7 million at December 31, 2021)       99,470 
           
Stockholders’ equity (deficit):          
Preferred stock – Par value $0.00001 per share – 5,000,000 shares authorized at September 30, 2022; No shares authorized at December 31, 2021; No shares issued and outstanding at September 30, 2022 or December 31, 2021        
Common stock – Par value $0.00001 per share – 350,000,000 and 75,000,000 shares authorized at September 30, 2022 and December 31, 2021, respectively; 156,235,659 and 67,645,189 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively   2     
Class F stock – Par value $0.00001 per share – No shares of Class F stock authorized as of September 30, 2022; 8,402,000 shares authorized at December 31, 2021; No shares of Class F stock issued and outstanding as of September 30, 2022; 8,372,143 shares issued and outstanding at December 31, 2021        
Additional paid-in capital   83,332    7,949 
Accumulated other comprehensive loss   (92)   (43)
Accumulated deficit   (70,808)   (95,439)
Total stockholders’ equity (deficit)   12,434    (87,533)
Total liabilities, convertible preferred stock and stockholders’ equity (deficit)  $32,835   $17,284 

 

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  $1,778   $656   $4,642   $1,989 
Development revenue   26    1,235    1,207    1,235 
Total revenue  $1,804   $1,891   $5,849   $3,224 
                     
Lidar sensor and prototype cost of revenue   1,872    617    5,608    3,053 
Development cost of revenue   3    376    600    376 
Total cost of revenue   1,875    993    6,208    3,429 
Gross profit (loss)   (71)   898    (359)   (205)
                     
Operating expenses:                    
Research and development   8,227    6,331    24,368    17,321 
Selling, general and administrative   6,722    3,520    21,954    9,992 
Total operating expenses   14,949    9,851    46,322    27,313 
Operating loss   (15,020)   (8,953)   (46,681)   (27,518)
Other income (expense)                    
Change in fair value of earnout liability   (1,440)       70,868     
Change in fair value of warrant liability   (135)       2,549     
Other income (expense), net   (493)   1,096    (487)   1,098 
Interest (expense) income, net   (318)       (1,597)   14 
Income (loss) before income taxes   (17,406)   (7,857)   24,652    (26,406)
Provision for income taxes   (5)   (5)   (21)   (16)
                     
Net income (loss)  $(17,411)  $(7,862)  $24,631   $(26,422)
                     
Net income (loss) per share, basic  $(0.11)  $(0.12)  $0.17   $(0.39)
Net income (loss) per share, diluted  $(0.11)  $(0.12)  $0.16   $(0.39)
Weighted-average common shares, basic   155,689,414    67,199,734    142,744,165    67,000,984 
Weighted-average common shares, diluted   155,689,414    67,199,734    152,048,431    67,000,984 
                     
Net income (loss)  $(17,411)  $(7,862)  $24,631   $(26,422)
Other comprehensive income (loss), net of tax:                    
Changes in unrealized gain (loss) on available-for-sale securities   13        (35)   (4)
Foreign currency translation adjustments   (2)   (6)   (14)   (17)
Total other comprehensive income ( loss), net of tax   11    (6)   (49)   (21)
Comprehensive income (loss)  $(17,400)  $(7,868)  $24,582   $(26,443)

 

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
Paid-in

  

Accumulated
Other
Comprehensive

  

Accumulated

  

Total Stockholders’

Equity

 
   Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Loss   Deficit  (Deficit) 
Balance — December 31, 2021   21,671,491   $99,470            27,618,907   $    —    8,372,143   $   $7,949   $          (43)  $(95,439)  $(87,533)
Retroactive application of exchange ratio   31,407,080                40,026,282        12,133,201                     
Conversion of convertible preferred stock to common stock   (53,078,571)   (99,470)           53,078,571    1            99,470        1    99,472 
Conversion of Class F stock to common stock                   20,505,344        (20,505,344)                    
Reverse recapitalization, net of transaction costs                   11,845,943    1            (33,051)           (33,050)
Exercise of Trinity warrants                   237,571                547            547 
Exercise of SVB warrants                   146,954                             
Exercise of stock options                   511,890                273            273 
Stock-based compensation expense                                   1,357            1,357 
Unrealized gain on available-for-sale investments                                       (11)       (11)
Cumulative translation adjustment                                       (4)       (4)
Net income                                           41,198    41,198 
Balance — March 31, 2022                   153,971,462    2            76,545    (58)   (54,240)   22,249 
Exercise of stock options                   404,167                211            211 
Issuance of common stock to LPC                   21,186                50            50 
Stock-based compensation expense                                   2,229            2,229 
Vesting of early exercised options                   45,923                38            38 
Incremental direct transaction costs related to reverse recapitalization                                   (226)           (226)
Unrealized gain on available-for-sale investments                                        (37)       (37)
Cumulative translation adjustment                                       (8)       (8)
Net income                                           843    843 
Balance — June 30, 2022                   154,442,738    2            78,847    (103)   (53,397)   25,349 
Exercise of stock options                   490,986                261            261 
Issuance of common stock to LPC                   1,271,319                1,831            1,831 
Vesting of early exercised options                   30,616                25            25 
Stock-based compensation expense                                   2,368            2,368 
Unrealized gain on available-for-sale investments                                        13        13 
Cumulative translation adjustment                                       (2)       (2)
Net loss                                           (17,411)   (17,411)
Balance — September 30, 2022                   156,235,659    2            83,332    (92)   (70,808)   12,434 

 

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)  21,671,491    $99,470          27,184,882   $   8,372,143   $     —   $2,286   $                (18)  $(58,197)  $(55,929)
Retroactive application of exchange ratio   31,407,080                 39,397,278        12,133,201                     
Issuance of common stock upon exercise of stock options                    177,602                254            254 
Stock-based compensation                                    298            298 
Unrealized gain/loss on available-for-sale securities, net of tax                                        (5)       (5)
Foreign currency translation adjustment                                        (8)       (8)
Net loss                                            (8,359)   (8,359)
Balance — March 31, 2021   53,078,571     99,470            66,759,762        20,505,344        2,838    (31)   (66,556)   (63,749)
Exercise of stock options                    50,500                80            80 
Stock-based compensation                                    1,779            1,779 
Unrealized gain/loss on available-for-sale securities                                        1        1 
Other comprehensive income, net of tax                                        (3)       (3)
Net loss                                            (10,201)   (10,201)
Balance — June 30, 2021   53,078,571     99,470            66,810,262        20,505,344        4,697    (33)   (76,757)   (72,093)
Exercise of stock options                    561,460                166            166 
Stock-based compensation                                    1,293            1,293 
Other comprehensive income, net of tax                                        (6)       (6)
Net loss                                            (7,862)   (7,862)
Balance — September 30, 2021   53,078,571     99,470            67,371,722        20,505,344        6,156    (39)   (84,619)   (78,502)

 

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)  $24,631   $(26,422)
Adjustments to reconcile net income (loss) to net cash used in operating activities:          
Depreciation and amortization   224    151 
Stock-based compensation   5,954    3,339 
Amortization of right-of-use asset   993     
Amortization, other   838    246 
Change in fair value of earnout liability   (70,868)    
Change in fair value of warrant liability   (2,549)    
Loss on disposal of property and equipment       42 
Gain from debt forgiveness       (1,121)
Other   181     
Changes in operating assets and liabilities:          
Accounts receivable, net   (886)   (490)
Inventories   7    583 
Prepaid expenses and other current assets   (472)   (4,413)
Other long-term assets   (864)   (279)
Accounts payable   (807)   929 
Accrued expenses and other current liabilities   962    1,374 
Operating lease liabilities   (1,169)    
Other long-term liabilities   320    (1,163)
Net cash used in operating activities   (43,505)   (27,224)
           
CASH FLOWS FROM INVESTING ACTIVITIES:          
Purchases of property and equipment   (584)   (162)
Purchases of short-term investments   (32,368)   (8,455)
Proceeds from sales of short-term investments   8,303    3,615 
Proceeds from maturities of short-term investments   8,624    28,200 
Net cash provided by (used in) investing activities   (16,025)   23,198 
           
CASH FLOWS FROM FINANCING ACTIVITIES:          
Proceeds from Business Combination and private offering   76,107     
Payments of Business Combination and private offering transaction costs   (29,031)    
Proceeds from issuance of debt and warrants, net of debt discount   9,724     
Proceeds from issuance of common stock options   707    386 
Proceeds from issuance of common stock   1,700     
Net cash provided by financing activities   59,207    386 
           
Effect of exchange rate changes on cash   (19)   (18)
           
Net decrease in cash and cash equivalents   (342)   (3,658)
Cash and cash equivalents, beginning of period   3,654    11,312 
Cash and cash equivalents, end of period  $3,312   $7,654 
           
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION          
Cash paid for interest  $741   $ 
Cash paid for income taxes  $12   $2 
Business Combination transaction costs, accrued but not paid  $135   $1,113 
           
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING INFORMATION          
Purchases of property and equipment in accounts payable  $   $7 
Vesting of early exercised stock options  $101   $114 
Right-of-use assets obtained in exchange for new operating lease liabilities  $1,827   $ 

 

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 $3.3 million, short-term investment of $18.3 million, and an accumulated deficit of $70.8 million. During the nine months ended September 30, 2022, the Company incurred an operating loss of $46.7 million and had negative cash flows from operating activities of $43.5 million. Although much of the negative cash flow resulted from an increase in expenses for research and development projects and administrative expenses to support growth of the Company, the Company expects to continue to invest in research and development and generate operating losses in the future.

 

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 10% of accounts receivable.

 

Customers with revenue equal to or greater than 10% of total revenue for the periods indicated were as follows:

 

   Three Months Ended
September 30,
   Nine Months Ended
September 30,
 
   2022   2021   2022   2021 
Customer A   16%   80%   35%   71%
Customer B   21%   4%   24%   3%
Customer C   40%   %    15%   %

 

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  $1,989   $
   $1,989 
Development revenue   1,235    
    1,235 
Total revenue   3,224    
    3,224 
                
Lidar sensor and prototype cost of revenue   3,053    
    3,053 
Development cost of revenue   3,104    (2,728)   376 
Total cost of revenue   6,157    (2,728)   3,429 
                
Gross loss   (2,933)   2,728    (205)
                
Operating expenses:               
Research and development   14,593    2,728    17,321 
Selling, general and administrative   9,992    
    9,992 
Total operating expenses   24,585    2,728    27,313 
                
Operating loss   (27,518)   
    (27,518)
                
Net loss  $(26,422)  $
   $(26,422)

 

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 $9.94 per share, which was the closing price of GCAC common stock as of November 24, 2021, the inception of the Lincoln Park agreement, as opposed to recording a deferred transaction cost asset within prepaid expenses and other current assets. Upon the closing of the Business Combination and issuance of the commitment shares on February 10, 2022 and August 11, 2022, the obligation became fully extinguished on August 11, 2022 and the amount reflected within additional paid-in capital. The Company corrected the error in the condensed consolidated financial statements for the nine months ended September 30, 2022. The Company believes the correction of the error is immaterial to the previously issued condensed consolidated financial statements for prior periods.

 

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 $1.6 million from prepaid expenses and other current assets to additional paid-in capital for the Lincoln Park commitment fee obligation as of March 31, 2022.

 

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.

 

9

 

 

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 5,950,000 shares of common stock at a purchase price of $10.00 per share, or an aggregate purchase price of $59.5 million (the “PIPE Investment”).

 

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 15,589,540 shares of GCAC Class A common stock for an aggregate payment of $155.9 million.

 

10

 

 

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 $11.50 per share 30 days after the completion of the Business Combination, subject to other conditions, including with respect to the effectiveness of a registration statement covering the shares of common stock underlying such warrants, and will expire five years after the completion of the Business Combination or earlier upon redemption or liquidation. The Public Warrants are equity-classified and were valued based on the instruments’ publicly listed trading price as of the Closing Date. The Private Placement Warrants are liability-classified and are valued on a recurring basis with changes in fair value recognized as a gain or loss upon remeasurement (see Note 14).

 

Transaction Costs

 

The Company incurred direct and incremental costs of approximately $31.8 million in connection with the Business Combination and the related equity issuance, consisting primarily of investment banking, legal, accounting, and other professional fees, which were recorded to additional paid-in capital as a reduction of proceeds. An approximate additional $2.6 million of transaction costs were recorded in general and administrative expense related to the liability classified instruments assumed subsequent to the Business Combination. Lastly, the Company recognized approximately $4.4 million and $1.9 million of prepaid director and officer insurance in prepaid expenses and other current assets and other long-term assets, respectively, in the condensed consolidated balance sheet.

 

Transaction Proceeds

 

Upon closing of the Business Combination, the Company received gross proceeds of $76.1 million from the Business Combination and PIPE Investment, offset by total transaction costs of $40.7 million. The following table reconciles the elements of the Business Combination to the condensed consolidated statements of cash flows and the condensed consolidated statement of changes in stockholders’ equity (deficit) for the period ended September 30, 2022 (in thousands):

 

Cash – Trust and cash, net of redemptions  $16,607 
Cash – PIPE Investment   59,500 
Gross Proceeds from the Business Combination   76,107 
Less: transaction costs and advisory fees, paid   (31,662)
Net proceeds from the Business Combination   44,445 
Less: transaction costs and advisory fees, accrued   (135)
Less: Private Placement Warrants assumed   (2,588)
Less: Earnout liability assumed   (74,998)
Reverse recapitalization, net   (33,276)
Add: Private Placement Warrants assumed   2,588 
Add: Earnout liability assumed   74,998 
Add: Transaction costs recorded to general and administrative expense   2,631 
Add: Transaction costs accrued   135 
Business Combination proceeds, net  $47,076 

 

11

 

 

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   17,250,000 
Less: Redemption of GCAC Class A common stock   (15,589,540)
Class A common stock of GCAC   1,660,460 
GCAC founder shares   4,312,500 
GCAC shares issued in PIPE Investment   5,950,000 
Business Combination and PIPE shares   11,922,960 
Legacy Cepton shares   142,075,043 
Class A common stock immediately after Business Combination   153,998,003 

 

The number of Legacy Cepton shares was determined as follows:

 

   Legacy Cepton shares  

Legacy Cepton shares, after

Exchange Ratio

 
Balance at December 31, 2021   27,618,907    67,645,189 
Convertible preferred stock   21,671,491    53,078,571 
Class F stock   8,372,143    20,505,344 
Option exercises (1)   259,348    635,204 
Warrants exercises (2)   86,041    210,735 
Total        142,075,043 

 

 

(1) Option exercises during the period of January 1, 2022 to February 10, 2022.
(2) Represents warrants that were net exercised prior to the Business Combination (See Note 14).

 

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  $376    21%  $1,644    87%
United States  $684    38%  $147    8%
China   719    40%       % 
Other   25    1%   100    5%
Total  $1,804    100%  $1,891    100%

 

12

 

 

   Nine Months Ended September 30, 
   2022   2021 
   Revenue   % of Revenue   Revenue   % of Revenue 
                 
Revenue by country of domicile:                
Japan  $2,640    45%  $2,520    79%
United States   2,177    37%   402    12%
China   879    15%       % 
Other   153    3%   302    9%
Total  $5,849    100%  $3,224    100%

 

As of September 30, 2022 and December 31, 2021, the Company had $0.4 million and $0.3 million of contract liabilities included in accrued expenses and other current liabilities, respectively, and no contract assets.

 

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  $2,599   $   $   $2,599 
Total cash equivalents  $2,599   $   $   $2,599 
Short-term investments:                    
Commercial paper  $   $7,985   $   $7,985 
U.S. treasury securities       2,500        2,500 
U.S. government agency securities       4,712        4,712 
Corporate debt securities       3,109        3,109 
Total short-term investments       18,306        18,306 
Total assets measured at fair value  $2,599   $18,306   $   $20,905 
                     
Liabilities:                    
Private placement warrants  $   $766   $   $766 
Earnout liability           4,130    4,130 
Total liabilities measured at fair value  $   $766   $4,130   $4,896 

 

   December 31, 2021 
   Level 1   Level 2   Level 3   Total 
Assets:                
Cash equivalents:                
Money market fund  $932   $   $   $932 
Total cash equivalents  $932   $   $   $932 
Short-term investments:                    
Corporate debt securities  $   $2,836   $   $2,836 
Total short-term investments       2,836        2,836 
Total assets measured at fair value  $932   $2,836   $   $3,768 

 

13

 

 

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  $1,189   $891 
Work-in-process   1,103    518 
Finished goods   224    1,114 
Total inventories  $2,516   $2,523 

 

Inventories are carried at the lower of cost or net realizable value. Write-downs were $0.4 million and $0.6 million for the nine months ended September 30, 2022 and 2021, respectively. Write-downs were $0.4 million and immaterial for the three months ended September 30, 2022 and 2021, respectively.

 

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  $   $4,688 
Other prepaid expenses   675    1,153 
Payroll tax receivable   865    980 
Prepaid insurance   3,010    162 
Prepaid rent       11 
Other current assets   314    4 
Total prepaid expenses and other current assets  $4,864   $6,998 

 

14

 

 

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  $1,184   $698 
Automobiles   101    101 
Leasehold improvements   189    120 
Computer and equipment   116    87 
Total property, and equipment   1,590    1,006 
Less: accumulated depreciation and amortization   (750)   (526)
Total property and equipment, net  $840   $480 

 

Depreciation and amortization related to property and equipment was $0.2 million and $0.2 million for the nine months ended September 30, 2022 and 2021, respectively. Depreciation and amortization related to property and equipment was immaterial for the three months ended September 30, 2022 and 2021, respectively.

 

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  $1,240   $1,151 
Accrued payroll   1,756    826 
Accrued unvested option liability       101 
Deferred revenue   355    308 
Deferred rent       373 
Warranty reserve   48    18 
Total accrued expenses and other current liabilities  $3,399   $2,777 

 

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 $25.0 million through January 1, 2023 at a floating per annum rate equal to the greater of (i) 10.75% or (ii) the prime rate plus 7.0%. The loan has a maturity date of February 1, 2026. In connection with the Trinity Loan Agreement, Legacy Cepton issued a warrant to purchase 96,998 shares of common stock with an exercise price of $16.89 per share (see Note 14). Legacy Cepton accounted for the issuance of the warrant as a commitment fee asset recorded in prepaid expenses and other current assets in the condensed consolidated balance sheet. The fair value of the warrant was estimated to be $1.3 million on the date of issuance. On January 4, 2022, Legacy Cepton borrowed $10.0 million under the agreement, incurring $0.3 million in transaction costs which were accounted for as a debt discount. Legacy Cepton also recognized a pro rata portion of the warrant fair value as a debt discount related to the $10.0 million loan. Amortization of debt discounts, in accordance with the effective interest method, are recorded as interest expense in the accompanying condensed consolidated statement of operations and comprehensive income (loss). Obligations under the Trinity Loan Agreement are secured by interest in substantially all of the Company’s assets. The agreement contains customary affirmative and negative covenants.

 

15

 

 

For the three and nine months ended September 30, 2022, the Company recognized $0.4 million and $1.8 million in interest expense, respectively, in connection with the borrowings under the Trinity Loan Agreement.

 

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 $0.00001 par value Series A, Series B, Series B-1, and Series C preferred stock outstanding, all of which were convertible into shares of common stock of Legacy Cepton on a 1:1 basis, subject to certain anti-dilution protections.

 

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  July 6, 2016   8,000,000    8,000,000   $1.0000   $8,000,000 
Series B  July 13, 2018   4,069,600    4,069,600    6.2500    25,435,000 
Series B-1  July 13, 2018   3,272,475    3,272,475    3.1250    10,226,484 
Series C  February 4, 2020   7,463,934    6,329,416    8.3736    52,999,998 
       22,806,009    21,671,491        $96,661,482 

 

Upon the closing of the Business Combination, the 21,671,491 shares of convertible preferred stock issued and outstanding were converted into 53,078,571 shares of Class A common stock at the Exchange Ratio.

 

Note 11. Stockholders’ Equity (Deficit)

 

Common Stock

 

Holders of common stock were entitled to one vote per share, and to receive dividends when, as and if declared by the board of directors, and, upon liquidation or dissolution, were entitled to receive all assets available for distribution to stockholders. The holders had no preemptive or other subscription rights and there were no redemption or sinking fund provisions with respect to such shares.

 

Upon the closing of the Business Combination, the 27,618,907 shares of Legacy Cepton common stock issued and outstanding were converted into 67,645,189 shares of Class A common stock at the Exchange Ratio.

 

As of September 30, 2022, the Company had authorized 350,000,000 shares of common stock, each with a par value of $0.00001. As of September 30, 2022, there were 156,235,659 shares of common stock issued and outstanding.

 

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 $100.0 million of common stock (subject to certain limitations contained in the Purchase Agreement) from time to time over a 36-month period (the “Purchase Agreement”) after the consummation of the Business Combination and certain other conditions set forth in the Purchase Agreement. The Company may, from time to time and at its sole discretion, direct Lincoln Park to purchase Class A common stock in accordance with daily dollar thresholds as determined within the Purchase Agreement. The purchase price per share for Class A common stock will be the lower of: (i) the lowest trading price for shares of Class A common stock on the market in which it is listed, on the applicable purchase date and (ii) the average of the three (3) lowest closing sale price for Class A common stock during the ten (10) consecutive business days ending on the business day immediately preceding such purchase date. In consideration for entering into the Purchase Agreement, the Company issued, as a commitment fee, 50,000 shares of Class A common stock to Lincoln Park on the date of the closing of the Business Combination and subsequently an additional 150,000 shares of Class A common stock 180 days after the date of the closing of the Business Combination.

 

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