Cyngn(CYN) - 2022 Q4 - Annual Report

PART I Business Cyngn Inc. develops the Enterprise Autonomy Suite (EAS) for industrial autonomous vehicles, generating revenue from deployments, subscriptions, and non-recurring engineering General Overview and Market Opportunity Cyngn is an industrial AV technology company targeting the $119 billion material transport market with its vehicle-agnostic DriveMod software, addressing labor shortages and high automation costs - Cyngn is an autonomous vehicle (AV) technology company focused on industrial applications, integrating its full-stack autonomous driving software, DriveMod, onto vehicles from Original Equipment Manufacturers (OEMs)[20][22] - The company's Enterprise Autonomy Suite (EAS) is designed to be a vehicle-agnostic solution, having already been deployed on over ten different vehicle types, from stockchasers to electric forklifts[25][48] - The industrial automation market is projected to grow from $164.2 billion in 2020 to $306.2 billion by 2027, with a 9.3% CAGR. Cyngn targets the material transport vehicle market, where fewer than 1% of vehicles shipped are automated, representing a $119 billion market potential based on labor costs[29][33] - Key industry challenges addressed by Cyngn's technology include labor shortages, difficulty in scaling traditional automation, lagging technological advancement from incumbents, and high barriers to adoption for customers[34][35][36] The Enterprise Autonomy Suite (EAS) and Products The Enterprise Autonomy Suite (EAS) integrates DriveMod AV software, Cyngn Insight for fleet management, and Cyngn Evolve for AI/ML development, enabling continuous improvement and vehicle-agnostic scalability - EAS consists of three core components: DriveMod (on-vehicle AV software), Cyngn Insight (customer-facing fleet management and data tools), and Cyngn Evolve (internal AI/ML training and simulation infrastructure)[40][51] - DriveMod is a modular, vehicle-agnostic software that can be retrofitted to existing vehicles or integrated into new ones at assembly. It is deployed via 'DriveMod Kits,' with the kit for Columbia Stockchasers being commercially released[52][53] - Cyngn Insight provides customers with analytics dashboards, vehicle telemetry, and tools for remote vehicle operation, enabling flexible fleet management[56] - Cyngn Evolve is an internal tool suite that uses real-world and simulated data to test, validate, and deploy new DriveMod releases, creating a continuous improvement cycle[58][59] Strategy and Revenue Sources Cyngn's strategy involves OEM partnerships and a 'land and expand' approach, generating revenue from deployment fees, recurring EAS subscriptions, and non-recurring engineering for customizations - The go-to-market strategy involves collaborating with industrial vehicle OEMs, using a 'land & expand' approach with end customers, and partnering with adjacent technology providers[71][72][73] - The company's initial focus is on manufacturing and distribution material handling vehicles, with plans to broaden into mining, construction, and agriculture[62][63] - Revenue is generated from three main sources: Deployment (project-based fees for setup), EAS Subscription (recurring revenue for software and data services), and DriveMod Customization (NRE contracts for new vehicle integrations or features)[65][66][68] Technology, Competition, and Regulations Cyngn's DriveMod technology integrates proprietary AV systems, competes with diverse industry players, mitigates regulatory risks by focusing on private property, and prioritizes data privacy and electric vehicle platforms - The core technology stack includes proprietary systems for mapping & localization, perception (sensor fusion), dynamic path planning, and a decision engine[75][76][77] - The 'Cyngn-by-Wire' (CbW) software subsystem enables AV actuation on vehicles with both modern Drive-by-Wire (DbW) and legacy electronic control units (ECUs)[79] - Competition includes traditional industrial vehicle manufacturers (e.g., Crown Equipment), robotics providers (e.g., Locus Robotics, SeeGrid), and software companies (e.g., Brain Corp, Oxbotica)[83] - The company primarily targets enterprise customers on private property to reduce exposure to complex public road regulations, while complying with workplace standards like OSHA and ISO on a case-by-case basis[85][86] Intellectual Property, Human Capital, and Corporate Information Cyngn protects its technology with 3 granted and 19 pending patents, employs 66 staff, and pivoted from a mobile OS to autonomous driving in 2017, with its stock trading on Nasdaq - As of the report date, the company has 3 granted patents and 19 pending patent applications covering its technology stack of over 30 subsystems[90] - The company had 66 full-time employees as of the report date, with the majority located in Silicon Valley, California[91] - Originally founded as Cyanogen, Inc. in 2013 to commercialize a mobile operating system, the company pivoted to autonomous driving and was renamed Cyngn Inc. in May 2017[95][96] Risk Factors The company faces significant risks from emerging AV technology, limited operating history, intense competition, financial losses, capital needs, operational challenges, IP protection, data privacy, and stock market volatility Risks Related to Technology, Business, and Industry Cyngn's business faces risks from emerging AV technology, reliance on third-party OEMs, limited operating history, intense competition, regulatory challenges, and an unproven business model for scaled commercialization - Autonomous driving is an emerging technology with significant risks; the company's technology is dependent on partnerships with OEMs and other third-party suppliers, exposing it to risks of component defects and development delays[99][100] - The company has a limited operating history in a new, rapidly evolving market and its technology has not yet been commercialized at scale[103][104] - The market for autonomous industrial vehicles is highly competitive, with competition from traditional vehicle manufacturers, robotics companies, software firms, and large corporations with greater financial resources[108][110][112] - Strategic collaborations with third parties are crucial but subject to risks such as termination of agreements, which could delay deployment and commercialization efforts[113][114] Risks Related to Financial Position and Need for Additional Capital The company has a history of significant net losses, with a $19.2 million loss in 2022 and a $135.7 million accumulated deficit, anticipating higher future losses and a need for additional dilutive capital Net Loss and Accumulated Deficit | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Net Loss | $19.2M | $7.8M | | Accumulated Deficit (as of Dec 31) | $135.7M | $116.5M | - The company expects to incur significantly higher losses in future periods due to increased spending on R&D, commercial deployments, sales and marketing, and G&A functions to support growth as a public company[116] - The commercialization of autonomous vehicles is capital-intensive, and the company may need to raise additional funds through equity or debt financing, which could result in substantial dilution to existing stockholders[121][122] Risks Related to Business Operations Cyngn's success depends on key personnel, effective growth management, and mitigating risks from product liability, software failures, negative publicity, and global events impacting operations and capital - The company's success depends on retaining its senior management and key technical employees, facing intense competition for talent in the technology industry[124][125] - Expected business growth will place a significant strain on managerial, operational, and financial resources, requiring effective management and scaling of infrastructure[126] - The company may be subject to product liability or warranty claims if its autonomous technology is involved in an accident, which could result in significant costs and reputational harm[131] - Pandemics like COVID-19, geopolitical conflicts such as the war in Ukraine, and other global events could disrupt business operations, supply chains, and capital markets[134][135][138] Risks Related to Intellectual Property, IT, and Data Privacy The company faces IP infringement litigation risks, challenges in protecting its own IP, open-source software disclosure risks, cybersecurity threats to vehicle safety, and complex data privacy compliance issues - The company may face litigation from third parties for intellectual property infringement, which could result in substantial costs, injunctions, or the need to redesign technology[140][142] - Failure to adequately protect its own intellectual property could result in competitors offering similar products, leading to a loss of competitive advantage[146] - The use of open-source software in products could require public disclosure of proprietary source code under certain licenses, harming the company's competitive position[160] - The company is subject to a variety of complex U.S. and foreign data privacy laws (e.g., GDPR), and failure to comply could result in significant fines, regulatory action, and reputational harm[163][165][166] Risks Related to Common Stock Common stock risks include potential Nasdaq delisting, high public company compliance costs, price volatility, dilution from future sales, concentrated ownership, and reduced reporting as an emerging growth company - On December 15, 2022, the company received a notification from Nasdaq for not meeting the minimum $1.00 per share bid price requirement, posing a risk of delisting if compliance is not regained by June 13, 2023[173] - Operating as a public company incurs significant legal and accounting costs, and management must devote substantial time to compliance with regulations like the Sarbanes-Oxley Act[175][176] - Executive officers, directors, and principal stockholders beneficially own approximately 52% of the common stock, giving them the ability to significantly influence all matters submitted to stockholders for approval[184] - The company is an "emerging growth company" and has elected to use exemptions from certain reporting requirements, which may make its common stock less attractive to investors[189] Unresolved Staff Comments The company reports that it has no unresolved staff comments from the SEC - None[197] Properties The company's corporate headquarters and main operational facility is a leased space of approximately 16,400 square feet located in Menlo Park, California - The company's corporate headquarters is a leased facility of approximately 16,400 square feet in Menlo Park, California, which houses its vehicle engineering, software engineering, and business units[198] Legal Proceedings The company is not a party to any material pending legal proceedings outside the ordinary course of business - The company is not a party to any pending legal proceeding that is not in the ordinary course of business or otherwise material to its financial condition[199] Mine Safety Disclosures This item is not applicable to the company - Not Applicable[200] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Cyngn's common stock trades on Nasdaq (CYN) since October 2021, with 89 shareholders of record, and the company does not intend to pay cash dividends, retaining earnings for business development - The company's common stock trades on the Nasdaq Capital Market under the symbol 'CYN' since October 20, 2021[202] - As of December 31, 2022, there were 89 shareholders of record[203] - The company has no present intention of paying cash dividends and plans to retain all future earnings to fund business expansion[204] Management's Discussion and Analysis of Financial Condition and Results of Operations In 2022, Cyngn recognized its first revenue of $262.0 thousand, but net loss increased to $19.2 million due to higher R&D and G&A expenses, with liquidity supported by $10.5 million cash and $12.1 million investments Results of Operations In 2022, Cyngn generated $262.0 thousand in revenue, primarily from NRE, but R&D expenses rose 90.0% to $9.5 million and G&A expenses increased 126.7% to $10.0 million, leading to a $19.2 million net loss Comparison of Operations (2022 vs 2021) | Financial Metric | 2022 | 2021 | Change (%) | | :--- | :--- | :--- | :--- | | Revenue | $262.0K | $0 | N/A | | Cost of Revenue | $186.8K | $0 | N/A | | Research and Development | $9.5M | $5.0M | +90.0% | | General and Administrative | $10.0M | $4.4M | +126.7% | | Loss from Operations | ($19.4M) | ($9.4M) | +106.4% | | Net Loss | ($19.2M) | ($7.8M) | +146.8% | - Revenue in 2022 was primarily derived from fixed-price NRE contracts ($250.0 thousand) and sales of the Infinitracker device ($12.0 thousand)[225][226] - Cost of revenue in 2022 included a $114.7 thousand provision for an anticipated loss on an NRE contract[228] Liquidity and Capital Resources As of December 31, 2022, liquidity included $10.5 million cash and $12.1 million short-term investments, bolstered by $18.1 million from a private placement, with management projecting sufficient funds for one year Liquidity Position (as of Dec 31) | Asset | 2022 | 2021 | | :--- | :--- | :--- | | Unrestricted Cash | $10.5M | $21.9M | | Short-term Investments | $12.1M | $0 | - The company received net proceeds of approximately $18.1 million from a private placement offering on April 29, 2022[236] Cash Flow Summary (2022 vs 2021) | Cash Flow Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net Cash Used in Operating | ($16.3M) | ($8.6M) | | Net Cash Used in Investing | ($13.3M) | ($20K) | | Net Cash Provided by Financing | $18.2M | $24.2M | - Management believes that existing cash and short-term investments are sufficient to fund operations for at least one year from the report's issuance date[238] Quantitative and Qualitative Disclosures About Market Risk Disclosure is not required as the company qualifies as a 'Smaller Reporting Company' - Disclosure is not required as the company qualifies as a 'Smaller Reporting Company'[245] Financial Statements and Supplementary Data The audited consolidated financial statements for 2022 show total assets of $25.5 million, liabilities of $1.4 million, equity of $24.1 million, revenue of $262,000, and a net loss of $19.2 million Consolidated Financial Statements Consolidated financial statements show total assets of $25.5 million and liabilities of $1.4 million as of December 31, 2022, with 2022 revenue of $262,000 and a net loss of $19.2 million Consolidated Balance Sheet Data (as of Dec 31) | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Total Assets | $25.5M | $22.7M | | Total Liabilities | $1.4M | $0.4M | | Total Stockholders' Equity | $24.1M | $22.2M | Consolidated Statement of Operations Data (Year Ended Dec 31) | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Revenue | $262K | $0 | | Total Costs and Expenses | $19.7M | $9.4M | | Net Loss | ($19.2M) | ($7.8M) | | Net Loss Per Share (basic & diluted) | ($0.62) | ($1.33) | Consolidated Cash Flow Data (Year Ended Dec 31) | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Net Cash Used in Operating Activities | ($16.3M) | ($8.6M) | | Net Cash Used in Investing Activities | ($13.3M) | ($20K) | | Net Cash Provided by Financing Activities | $18.2M | $24.2M | Notes to Consolidated Financial Statements Notes detail the 2021 IPO ($23.3 million net proceeds) and 2022 private placement ($20 million gross proceeds), first revenue in 2022 (95.4% from one customer), and significant NOL carryforwards with a full valuation allowance - The company closed its IPO on October 22, 2021, generating net proceeds of $23.3 million[269] - A private placement offering on April 29, 2022, resulted in gross proceeds of approximately $20 million from the sale of common stock, pre-funded warrants, and common warrants[273][276] - One domestic customer accounted for 95.4% of the revenue recognized in 2022[317] - As of December 31, 2022, the company had significant federal ($109.1M) and state ($105.9M) net operating loss carryforwards, but a full valuation allowance has been provided against the resulting deferred tax assets[360][361] Changes in and Disagreements With Accountants on Accounting and Financial Disclosure The company reports that there were no disagreements with its accountants on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure during the last two fiscal years - There were no disagreements with accountants on accounting and financial disclosure during the two most recent fiscal years[375] Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2022, having remediated a material weakness in third-party oversight - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2022[377] - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2022[378] - A material weakness identified during the second quarter of 2022, related to ineffective oversight of third parties in the financial reporting process, was successfully remediated as of December 31, 2022[381] Other Information The company reports no other information - None[384] Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company - Not applicable[385] PART III Directors, Executive Officers and Corporate Governance Key leadership includes CEO Lior Tal and CFO Donald Alvarez, with a five-member board comprising three independent directors and three independent committees, complying with Nasdaq's diversity rules - The executive officers are Lior Tal (CEO), Donald Alvarez (CFO), and Ben Landen (VP of Business Development)[389] - The Board of Directors is comprised of five members: Lior Tal, Donald Alvarez, Karen Macleod, Colleen Cunningham, and James McDonnell. Ms. Macleod, Ms. Cunningham, and Mr. McDonnell are independent directors[401] - The board has three standing committees (Audit, Compensation, Nominating and Corporate Governance), each composed entirely of independent directors[405][406][408] - The company is in compliance with Nasdaq's board diversity rules, with a board composition of two female and three male directors as of March 16, 2023[413][414] Executive Compensation In 2022, CEO Lior Tal's total compensation was $1,952,831, including salary, bonus, and option awards, while independent directors received cash compensation and RSU awards 2022 Summary Compensation Table | Name and Principal Position | Salary ($) | Bonus ($) | Option Awards ($) | Total ($) | | :--- | :--- | :--- | :--- | :--- | | Lior Tal (CEO) | 500K | 300K | 1.15M | 1.95M | | Donald Alvarez (CFO) | 300K | - | 300K | 600K | | Ben Landen (VP of Business Development) | 250K | - | 81K | 331K | - CEO Lior Tal's 2022 employment agreement includes a $500,000 base salary and a target annual performance bonus of 60% of his base salary[417][418] - Independent directors receive $35,000 in annual cash compensation, plus additional fees for committee chairpersons, and are granted initial and annual RSU awards[426] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters As of March 15, 2023, 33.7 million shares were outstanding, with executive officers and directors owning 17.90%, and major beneficial owners including Benchmark (27.40%) and Andreessen Horowitz (15.52%) Beneficial Ownership (as of March 15, 2023) | Owner | Percentage of Common Stock | | :--- | :--- | | Entities affiliated with Benchmark | 27.40% | | Andreessen Horowitz Fund III, L.P. | 15.52% | | Entities affiliated with Redpoint | 7.31% | | All Executive Officers and Directors as a Group | 17.90% | - The calculation of beneficial ownership is based on 33,719,592 shares of common stock outstanding on March 15, 2023[429] - The 2021 Equity Incentive Plan includes an automatic annual increase to the share reserve, effective on the first day of each fiscal year[433] Certain Relationships and Related Transactions, and Director Independence The company has investor rights and indemnification agreements, a formal policy for audit committee approval of related party transactions, and a board with three independent directors - The company is party to an investor rights agreement that provides certain stockholders with registration rights for their shares[436] - Indemnification agreements are in place with all directors and executive officers, providing for indemnification and advancement of expenses to the fullest extent permitted by Delaware law[437] - A formal policy requires the audit committee to review and approve any related party transaction where the amount involved exceeds the lesser of $120,000 or 1% of the company's average total assets[443] - The board has determined that three of its five directors—Karen Macleod, Colleen Cunningham, and James McDonnell—are independent[445] Principal Accountant Fees and Services The company's principal accountant, Marcum LLP, billed a total of $268,011 in fees for the fiscal year ended December 31, 2022 Accountant Fees (Marcum LLP) | Fee Category | 2022 | 2021 | | :--- | :--- | :--- | | Audit fees | $230K | $185K | | Audit-related fees | $27K | $75K | | All other fees | $11K | $7K | | Total fees | $268K | $268K | PART IV Exhibits, Financial Statement Schedules This section lists exhibits filed with the Form 10-K, including corporate documents, material contracts, and officer certifications, with financial statement schedules omitted as not applicable - This section provides a list of all exhibits filed with the annual report, including corporate governance documents, material contracts, and required certifications[450] - All financial statement schedules have been omitted because they are not applicable or the necessary information is already present in the financial statements or accompanying notes[451] Form 10-K Summary The company has not provided a summary for its Form 10-K - None[454]