Cyngn(US:CYN)2022-11-09 16:00PART I - FINANCIAL INFORMATION This section presents the company's unaudited interim financial statements, management's analysis of financial condition and operations, market risk disclosures, and internal controls assessment Item 1. Financial Statements The company reported no revenue for the periods ended September 30, 2022 and 2021, with net loss for the nine months ended September 30, 2022, significantly increasing to $13.7 million from $5.7 million in the prior-year period due to higher operating expenses, while total assets strengthened to $29.7 million from $22.7 million at year-end 2021, primarily due to cash from financing activities being converted into short-term investments, with robust cash flows from financing activities at $18.2 million fueled by a private placement offering Consolidated Balance Sheets As of September 30, 2022, the company's total assets grew to $29.7 million, up from $22.7 million at the end of 2021, driven by the addition of $22.0 million in short-term investments, although cash decreased from $21.9 million to $5.6 million, while total liabilities increased to $0.95 million from $0.41 million, and total stockholders' equity rose to $28.8 million from $22.2 million, reflecting proceeds from stock issuances Consolidated Balance Sheet Highlights (Unaudited) | Account | September 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Cash | $5,631,256 | $21,945,981 | | Short-term investments | $21,987,662 | $0 | | Total Assets | $29,732,557 | $22,654,989 | | Total current liabilities | $945,749 | $407,427 | | Total Stockholders' Equity | $28,786,808 | $22,247,562 | | Total Liabilities and Stockholders' Equity | $29,732,557 | $22,654,989 | Consolidated Statements of Operations The company generated no revenue in the third quarter or first nine months of 2022, with the net loss for the third quarter of 2022 more than doubling to $5.3 million from $2.1 million in Q3 2021, and for the nine-month period, the net loss increased to $13.7 million from $5.7 million year-over-year, primarily due to significant increases in both Research and Development (R&D) and General and Administrative (G&A) expenses Consolidated Statements of Operations Highlights (Unaudited, in thousands) | Metric | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $0 | $0 | $0 | $0 | | Research and development | $2,725.9 | $1,151.1 | $6,662.7 | $2,917.3 | | General and administrative | $2,552.4 | $973.9 | $7,047.2 | $2,851.1 | | Loss from operations | ($5,278.3) | ($2,125.1) | ($13,709.9) | ($5,768.4) | | Net loss | ($5,259.4) | ($2,099.2) | ($13,690.4) | ($5,742.6) | | Net loss per share | ($0.16) | ($2.17) | ($0.45) | ($5.94) | Consolidated Statements of Cash Flows For the nine months ended September 30, 2022, net cash used in operating activities increased to $11.6 million from $5.7 million in the prior-year period, reflecting the higher net loss, while net cash used in investing activities was $23.0 million, mainly for purchasing short-term investments, and net cash provided by financing activities was $18.2 million, primarily from a private placement offering, resulting in a net decrease in cash and restricted cash of $16.3 million, with the period-end balance at $5.7 million Consolidated Cash Flow Highlights (Unaudited, for the nine months ended September 30) | Cash Flow Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | $(11,598,985) | $(5,684,666) | | Net cash (used in) provided by investing activities | $(22,954,516) | $28,965 | | Net cash provided by financing activities | $18,238,776 | $900,195 | | Net decrease in cash and restricted cash | $(16,314,725) | $(4,755,506) | | Cash and restricted cash, end of period | $5,681,256 | $1,700,684 | Notes to Consolidated Financial Statements The notes detail the company's business as an autonomous driving software developer (DriveMod), its recent financing activities including a 2021 IPO and a 2022 private placement, and its accounting policies, highlighting the full forgiveness of PPP loans, an increase in intangible assets from an IP acquisition, and a significant rise in stock-based compensation, while maintaining a full valuation allowance against its deferred tax assets and reporting no material legal contingencies - Cyngn develops autonomous driving software (DriveMod) for industrial vehicles, operating as a single business segment24 - In April 2022, the company closed a private placement offering, selling common stock and warrants for gross proceeds of approximately $20 million2933 - Management asserts that based on current cash, short-term investments, and projections, the company has sufficient funds to operate for at least one year from the report's issuance date36 - All Paycheck Protection Program (PPP) loans received in 2020 and 2021 have been fully forgiven by the SBA, with no outstanding balance as of September 30, 20228182 - Stock-based compensation expense for the nine months ended September 30, 2022, was $2.0 million, a substantial increase from $0.2 million in the same period of 2021110 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses its focus on developing its Enterprise Autonomy Suite (EAS) for industrial vehicles, with a go-to-market strategy targeting OEMs and end-users, noting that the company has not yet generated recurring revenue but anticipates project-based revenue from pilot deployments in 2022-2023, with scaled deployments targeted for 2024, while attributing the significant increase in operating expenses to expanded R&D personnel and costs associated with being a public company, and confirming strong liquidity following a 2021 IPO and a 2022 private placement, with sufficient funds projected for at least the next year Overview Cyngn is an autonomous vehicle (AV) technology company focused on industrial applications, with its core offering being the Enterprise Autonomy Suite (EAS), which includes DriveMod (AV software), Cyngn Insight (fleet management), and Cyngn Evolve (AI/ML development tools), planning to generate revenue through deployment projects and a Software as a Service (SaaS) subscription model, and while components of EAS have been used in paid trials, recurring revenue has not yet been established, with scaled deployments targeted for 2024 - The company is developing an Enterprise Autonomy Suite (EAS) for industrial AVs, comprising DriveMod, Cyngn Insight, and Cyngn Evolve126128 - The revenue model is expected to be a combination of initial deployment project fees and ongoing Software as a Service (SaaS) subscriptions131 - The company targets scaled deployments to begin in 2024, with limited paid pilot deployments expected in 2022 and 2023 to offset some R&D costs133 Results of Operations The company generated no revenue, with R&D expenses for the nine months ended September 30, 2022, increasing 128% to $6.7 million, driven by higher personnel and contractor costs, and General and administrative expenses rising 147% to $7.0 million over the same period, due to increased staff, occupancy costs, D&O insurance, and public company compliance fees Operating Expense Comparison (Nine Months Ended Sep 30) | Expense Category | 2022 | 2021 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Research and Development | $6.7M | $2.9M | +$3.7M | +128% | | General and Administrative | $7.0M | $2.9M | +$4.2M | +147% | - The increase in R&D expense is attributed to a rise in personnel, external contractors, occupancy costs, and travel related to AV technology development149150 - The increase in G&A expense was driven by higher personnel costs, expanded office lease, D&O insurance, and professional fees for compliance and regulatory filings post-IPO151153 Liquidity and Capital Resources As of September 30, 2022, the company's liquidity consisted of $5.6 million in unrestricted cash and $22.0 million in short-term investments, with its financial position significantly strengthened by net proceeds of $23.3 million from its October 2021 IPO and $18.1 million from an April 2022 private placement, leading management to believe these funds are sufficient to sustain operations for at least one year - As of September 30, 2022, the company had $5.6 million in unrestricted cash and $22.0 million in short-term investments157 - Liquidity was bolstered by net proceeds of $23.3 million from the 2021 IPO and $18.1 million from the 2022 private placement157 - Management has concluded that the company has sufficient funds for sustainable operations for at least one year from the report's issuance date159 Item 3. Quantitative and Qualitative Disclosures About Market Risk This section is not required for smaller reporting companies, and therefore no information is provided - Disclosure is not required for smaller reporting companies168 Item 4. Controls and Procedures Management concluded that as of September 30, 2022, the company's disclosure controls and procedures were not effective, based on a material weakness identified in the second quarter of 2022 related to ineffective oversight of third-party financial reporting assistance, but the company has implemented changes to remediate this weakness and expects it to be fully remediated and tested during the fourth quarter of 2022 - Management concluded that disclosure controls and procedures were not effective as of September 30, 2022170 - A material weakness was identified in Q2 2022 related to 'ineffective oversight of third parties engaged to assist in the Company's financial reporting and disclosure process'171 - Remediation actions have been implemented, and the company expects the material weakness to be fully remediated and tested in Q4 2022171 PART II - OTHER INFORMATION This section addresses legal proceedings, updates on risk factors, and details on unregistered equity sales Item 1. Legal Proceedings The company reports that it is not currently a party to any material legal proceedings - As of the reporting date, the company is not involved in any material legal proceedings176 Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K - No material changes have occurred to the risk factors disclosed in the Form 10-K177 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during the period - None reported178