Financial Performance - The company incurred a net loss of $115.6 million for the year ended December 31, 2023, compared to a net loss of $157.1 million for the year ended December 31, 2022[78]. - Negative cash flow from operating activities was $76.6 million for the year ended December 31, 2023, up from $65.4 million in 2022[84]. - The company expects to continue incurring significant losses until achieving substantial software licensing revenue[79]. - The company anticipates fluctuations in financial results due to variations in operating costs, revenues, and product demand, particularly as it commercializes its AI/ML Software Platform[142]. - The company incurs significant expenses as a publicly-traded entity, which may adversely affect its financial condition and operating results[147]. - The company does not expect to achieve profitability in the near future, and its ability to utilize tax attributes may be restricted[155]. - The company has recorded a full valuation allowance related to its net operating loss carryforwards and other deferred tax assets due to uncertainty in realizing future benefits[156]. Strategic Focus and Development - The company announced a strategic pivot on November 14, 2023, to focus resources on the development of its AI/ML Software Platform, discontinuing hardware product development[80]. - The anticipated revenue will primarily derive from the development and licensing of the AI/ML Software Platform, which is still under development[87]. - The company expects to incur substantial research and development costs, which could significantly reduce profitability and may not result in revenue[129]. - The company may seek strategic alliances, joint ventures, and acquisitions, but there is no guarantee these will lead to successful business relationships[157]. - The company expects strategic business relationships to be crucial for future growth, but identifying and securing these opportunities may require significant management resources[158]. Market and Competitive Risks - There is uncertainty regarding the market acceptance and commercialization of the AI/ML Software Platform, which may delay anticipated revenue[86]. - The company has no previous experience in commercializing software products, which may hinder effective market entry[85]. - Customer trials and discussions for the AI/ML Software Platform may not lead to purchases, impacting revenue generation[89]. - The evolving market for AI/ML solutions presents risks, and failure to meet customer expectations could adversely affect future revenue[92]. - The company faces challenges in hiring and retaining qualified personnel, which could affect product development timelines[86]. - The company anticipates that many potential customers will be large businesses with significant negotiating power, making sales challenging[102]. - Market demand, pricing, and adoption rates for the software platform are uncertain, which could materially affect business results[99]. - The AI/ML and robotics industries are rapidly evolving, and the company may struggle to keep pace with technological changes and competition[104]. Operational Challenges - The company faces challenges in completing product development and commercialization of the AI/ML Software Platform within expected timelines[110]. - The company has limited negotiating leverage with suppliers, which may lead to unfavorable pricing and terms, impacting costs and component availability[131]. - The company plans to maintain a limited set of suppliers for hardware components, with some being sole or single source suppliers, increasing supply chain risk[130]. - The company faces risks related to supply chain disruptions caused by external factors, which could significantly impact operations[133]. - The company may face challenges in exporting software due to compliance with export control laws, which could hinder revenue generation[184]. Legal and Regulatory Risks - The introduction of AI/ML technologies may result in increased regulatory scrutiny and potential legal liabilities, impacting the company's operations and financial results[160]. - The company is subject to evolving data privacy laws, which may increase compliance costs and potential liabilities[167]. - The company may face stringent penalties under the GDPR and other international data protection laws, impacting its operations and financial condition[169]. - Legal claims and regulatory proceedings could materially affect the company's financial condition and operating results[165]. - Compliance with government contracting laws and regulations poses increased risks, including potential audits and investigations that could adversely affect business operations[178]. - The company is subject to U.S. and foreign anti-corruption laws, with violations potentially leading to significant legal and financial consequences[180]. Intellectual Property Risks - The company's intellectual property protection relies on patents and trade secrets, with uncertainties in patent positions potentially affecting competitive advantage[187]. - The company may face intellectual property infringement claims that could limit its ability to commercialize software products and result in significant litigation costs[197]. - The outcome of patent litigation is often uncertain, and there is no assurance that existing patents do not infringe on others[198]. - The company has taken precautions to protect its proprietary information, but unauthorized use or reverse engineering by competitors could harm its competitive position[191]. - Trademark rights enforcement is complex, and claims of infringement could lead to limitations or loss of trademark rights, resulting in costly litigation[192]. Workforce and Management Changes - The company conducted two reductions in force (RIFs) in the past year, affecting approximately 24% of the workforce in July and 70% in November, as part of a strategic pivot to focus on the AI/ML Software Platform[126]. - The company is highly dependent on key personnel, including its Chief Technology Officer, and any unexpected loss could materially affect product development and business operations[143]. - The company has experienced changes in its senior management team, with a new CEO effective February 23, 2024, which may lead to operational and strategic changes[144]. - The company faces intense competition for qualified AI/ML software engineers, which may increase recruitment costs and affect its ability to execute its strategy[145]. - The company has closed its facility in Pittsburgh, Pennsylvania, as part of a strategic pivot to focus on its AI/ML Software Platform, potentially limiting its ability to attract skilled employees[146]. Financial Market and Stock Risks - The company received a deficiency notice from Nasdaq on October 24, 2023, indicating it no longer meets the minimum bid price requirement, with a closing bid price below $1.00 for 30 consecutive business days[209]. - The company has a market value of publicly held shares at $11.7 million as of February 14, 2024, which is below the $15 million minimum market value requirement[210]. - The company has until April 22, 2024, to regain compliance with the minimum bid price requirement by maintaining a closing bid price of at least $1.00 for 10 consecutive business days[209]. - If compliance is not regained, the company may transfer to the OTC Markets, which typically has lower trading volumes and higher volatility compared to Nasdaq[212]. - The company may consider a reverse stock split as an option to resolve noncompliance with the minimum bid price requirement[211]. - The trading price of the company's securities has been volatile, influenced by various market factors beyond its control[204]. - The company's stock price may decline due to the large number of shares subject to employee equity awards, leading to concentrated selling periods[202]. Security and Compliance Risks - The company is subject to cybersecurity risks that may disrupt operations and compromise sensitive data, with increasing incidents of sophisticated attacks reported in the industry[171]. - The company is implementing additional security measures to protect data and systems, but these measures cannot guarantee complete security[174]. - The company anticipates incurring significant costs to detect and prevent privacy and security breaches, which could impact financial condition and operations[177]. - The company has identified material weaknesses in its internal control over financial reporting and is undertaking remediation efforts, which may increase legal and compliance costs[150]. - Increased scrutiny regarding environmental, social, and governance (ESG) practices may lead to additional costs and impact the company's reputation and customer retention[186].
Sarcos Technology and Robotics (STRC) - 2023 Q4 - Annual Report