Business context and reporting period
This is CF Finance Acquisition Corp. III’s unaudited Form 10-Q for the quarter ended March 31, 2021, filed May 14, 2021—not an operating-company 10-Q filed by AEye, Inc. CF Finance was a SPAC with no operating revenue or business operations, seeking a business combination. It had agreed to combine with AEye, a LiDAR technology company; the transaction remained subject to stockholder approval and other closing conditions.
Financial results and liquidity
| Metric | Three months ended March 31, 2021 | Comparable 2020 period |
|---|---|---|
| Operating revenue | None | None |
| Net income | $338,104 | $0 |
| Operating expenses / loss from operations | $684,335 | $0 |
| Operating cash flow | $(20,000) | $0 |
- 2021 net income primarily reflected a $1.017 million gain from the decrease in warrant-liability fair value and $5,672 of trust-account interest, offset by general and administrative costs of $573,810, related-party administrative expense of $30,000, and franchise tax expense of $80,525.
- At March 31, 2021, total assets were $230.8 million, including $230.0 million held in the trust account. Operating cash was $31,491; current liabilities were $1.127 million and working capital deficit was approximately $614,000.
- Sponsor-loan borrowings were approximately $733,000. Warrant liability was $11.045 million. Stockholders’ equity was $5.0 million; 21.36 million Class A shares were classified as subject to possible redemption at $10 per share.
- Cash increased by $30,241 during the quarter, including $43,750 net financing cash inflow and $6,491 withdrawn from the trust account to pay taxes.
Changes versus the prior comparable period
The 2020 quarter had no revenue, operating activity, or net income. The 2021 quarter’s reported profit was driven by warrant remeasurement, not business operations. Compared with December 31, 2020, operating cash rose from $1,250 to $31,491, the working capital deficit widened from approximately $46,000 to $614,000, and sponsor-loan borrowings increased from approximately $428,000 to $733,000. The warrant liability declined from $12.062 million to $11.045 million.
Outlook, risks and unusual items
- CF Finance had entered into a merger agreement with AEye on February 17, 2021, amended April 30, 2021. The associated PIPE commitments totaled $225 million at $10 per share, subject to closing.
- On April 30, 2021, the Sponsor deposited $2.3 million to extend the combination deadline from May 17 to September 17, 2021, and agreed to fund a further extension to January 17, 2022 if needed. Additional four-month extensions were possible subject to Sponsor funding.
- Management disclosed substantial doubt about CF Finance’s ability to continue as a going concern if it failed to complete a business combination within the permitted period. If no combination is completed, public shares are to be redeemed from the trust account; warrants may expire worthless.
- A $8.65 million marketing fee would be payable to Cantor Fitzgerald upon completion of a business combination. Sponsor funding was available for expenses, but additional working-capital loans were not assured.
- Management concluded disclosure controls were ineffective because of a material weakness in accounting for warrants, following a restatement of 2020 financial statements. Management described remediation efforts but gave no assurance they would be effective.
- The filing stated that COVID-19 could affect the company or its target search, but the impact was not readily determinable. No material changes to previously disclosed risk factors were reported.
Important facts for investors to verify
- Confirm that the merger, PIPE financing, required approvals, and other closing conditions were completed; this filing reports them as pending.
- Review AEye’s own financial statements and the merger registration statement for operating performance, transaction terms, dilution, and post-combination capitalization; this 10-Q reports CF Finance’s SPAC financials.
- Check the status and terms of Sponsor extension funding, sponsor loans, redemption levels, and the trust-account balance.
- Review the warrant accounting restatement and remediation of the disclosed material weakness, along with the $8.65 million transaction marketing fee.