Sarcos Technology and Robotics (STRC) - 2021 Q4 - Annual Report

Part I Business Sarcos develops highly-dexterous mobile robotic systems, Guardian XO and XT, for industrial use, targeting early 2023 commercial launch via a RaaS model - Sarcos designs and produces highly-dexterous mobile robotic systems to augment human performance, combining human intelligence with machine strength and precision[22] - The company plans to offer its primary products, the Guardian XO and Guardian XT, through a Robot-as-a-Service (RaaS) subscription model to lower upfront costs for customers and generate recurring revenue[25][61] - Initial production of commercial units for the Guardian XO and Guardian XT is targeted for the end of 2022, with customer delivery expected in early 2023[36][59] - The company estimates its Total Addressable Market (TAM) was approximately $147 billion in 2020, driven by the number of workers in occupations suitable for their robotic systems[57] - As of March 2022, Sarcos held approximately 172 patents and had 108 filed patent applications, underscoring its focus on proprietary technology[68][96] Risk Factors The company faces significant risks including net losses, potential product launch delays, unproven RaaS market demand, supply chain dependencies, and internal control weaknesses - The company is an early-stage entity with a history of losses and expects to incur significant expenses and net losses for the foreseeable future, particularly through 2023[104] Net Loss | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Net Loss | $81.5 million | $20.9 million | - There is a significant risk that the initial production and delivery of the Guardian XO and Guardian XT products may be delayed beyond the end of 2022 and early 2023, respectively, due to supply chain disruptions, labor shortages, and development challenges[111][113][114] - The company's core products represent a new category, and assumptions about market demand, pricing, and adoption rates are unproven; there are currently no binding orders for the commercial versions of these products[122][123] - The Robot-as-a-Service (RaaS) subscription model is untested and may not gain commercial acceptance, which is a core part of the company's strategy[128] - Sarcos is dependent on suppliers, some of which are single or sole source, and is experiencing interruptions and cost increases for materials; the company has not yet finalized all suppliers or a contract manufacturing partner[169][171] - Both Old Sarcos and Rotor (the SPAC) identified a material weakness in their internal control over financial reporting prior to the business combination, and the weakness related to Old Sarcos remains[195][197][199] Unresolved Staff Comments The company reports that it has no unresolved staff comments from the Securities and Exchange Commission - There are no unresolved staff comments[286] Properties Sarcos operates a 60,000 sq ft corporate and manufacturing facility in Salt Lake City, Utah, under a lease expiring in May 2033, deemed adequate for current needs - The company's main facility is a 60,000 sq. ft. space in Salt Lake City, Utah, under a lease expiring in May 2033[287] Legal Proceedings The company is not currently a party to any legal proceedings that it believes would have a material adverse effect on its business, financial condition, or results of operations - Sarcos is not currently involved in any material legal proceedings[288] Mine Safety Disclosures This item is not applicable to the company - Mine safety disclosures are not applicable[289] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock and warrants trade on Nasdaq, with no intention to pay cash dividends, retaining earnings for growth - Common Stock and Warrants are traded on Nasdaq under symbols STRC and STRCW[292] - The company has never paid cash dividends and does not intend to in the foreseeable future, retaining funds for business growth[294] Management's Discussion and Analysis of Financial Condition and Results of Operations Sarcos reported a significant net loss in 2021 due to decreased revenue and surged operating expenses, with cash bolstered by the business combination Financial Highlights (in thousands) | (In thousands) | 2021 | 2020 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Revenue, net | $5,075 | $8,813 | ($3,738) | (42)% | | Cost of revenue | $3,867 | $5,602 | ($1,735) | (31)% | | Research and development | $17,516 | $14,117 | $3,399 | 24% | | General and administrative | $58,059 | $7,297 | $50,762 | 696% | | Sales and marketing | $6,624 | $2,796 | $3,828 | 137% | | Total operating expenses | $86,066 | $29,812 | $56,254 | 189% | | Loss from operations | ($80,991) | ($20,999) | | | - The 42% decrease in revenue was primarily driven by a $3.2 million (47%) reduction in research and development services as the company narrowed its focus to projects aligned with product commercialization[339] - The 696% increase in General and Administrative expenses was mainly due to $41.8 million in stock-based compensation recognized for awards that vested or began vesting upon the closing of the Business Combination[345] - The company secured approximately $228.8 million in net cash proceeds from the Business Combination and PIPE Financing, ending 2021 with $217.1 million in cash and cash equivalents[350][351] - On March 28, 2022, Sarcos announced a definitive agreement to acquire RE2, Inc. for approximately $100 million, consisting of $30 million in cash and $70 million in common stock[310] Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Sarcos is not required to provide the information for this item - The company is not required to provide this information as it qualifies as a smaller reporting company[370] Financial Statements and Supplementary Data The 2021 consolidated financial statements reflect significant changes post-business combination, including increased assets and equity, a substantial net loss, and cash flow primarily from financing activities Consolidated Balance Sheet Data (in thousands) | | Dec 31, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Cash and cash equivalents | $217,114 | $33,664 | | Total Assets | $235,823 | $38,051 | | Total Liabilities | $21,861 | $5,147 | | Total Stockholders' Equity | $213,962 | $32,904 | Consolidated Statement of Operations Data (in thousands) | | Year Ended Dec 31, 2021 | Year Ended Dec 31, 2020 | | :--- | :--- | :--- | | Revenue, net | $5,075 | $8,813 | | Loss from operations | ($80,991) | ($20,999) | | Net loss | ($81,508) | ($20,926) | | Net loss per share | ($0.72) | ($0.21) | Consolidated Cash Flow Data (in thousands) | | Year Ended Dec 31, 2021 | Year Ended Dec 31, 2020 | | :--- | :--- | :--- | | Net cash used in operating activities | ($42,103) | ($16,882) | | Net cash used in investing activities | ($4,688) | ($950) | | Net cash provided by financing activities | $230,241 | $42,301 | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - There were no disagreements with accountants on accounting and financial disclosure[511] Controls and Procedures Management concluded disclosure controls were ineffective as of December 31, 2021, due to a material weakness in internal control over financial reporting, with remediation efforts underway - Management concluded that disclosure controls and procedures were not effective as of December 31, 2021[512] - The ineffectiveness is due to a material weakness in internal control over financial reporting associated with accounting for unique and nonstandard transactions, which was identified at Old Sarcos prior to the merger[512] - Remediation efforts are underway, including strengthening the accounting function with new hires and engaging a third-party consulting firm[518] - Management excluded a formal report on internal control over financial reporting (ICFR) for fiscal year 2021 due to the timing of the business combination[514] Other Information There is no other information to report for this item - None[519] Part III Directors, Executive Officers and Corporate Governance The company's leadership includes Kiva Allgood as CEO and Benjamin G. Wolff as Executive Chairman, with a classified, mostly independent board and four established committees - The executive team is led by Kiva Allgood (President, CEO) and Benjamin G. Wolff (Executive Chairman)[522] - The board of directors is classified into three staggered three-year terms[544] - Seven of the nine board members are considered independent under Nasdaq rules[547] - The board has four primary committees: Audit, Compensation, Nominating and Corporate Governance, and Strategic Transaction[548][550][552][554] Executive Compensation Executive compensation for 2021 was significantly impacted by large equity awards tied to the business combination and new employment agreements, with new equity and ESPP plans established 2021 Summary Compensation Table (Select Officers) | Name and Principal Position | Salary ($) | Stock Awards ($) | Option Awards ($) | Total ($) | | :--- | :--- | :--- | :--- | :--- | | Kiva Allgood, CEO | 8,654 | 3,000,002 | 3,001,038 | 6,009,694 | | Benjamin Wolff, Exec. Chairman | 396,258 | 45,049,998 | 5,565,845 | 51,237,601 | | Marian Joh, former COO | 256,923 | 1,802,000 | 2,202,861 | 4,261,784 | - Executive employment agreements are in place, providing for base salary, bonus eligibility, and severance payments/benefits upon certain termination events, including enhanced benefits following a change in control[597][600][604] - The company adopted a new 2021 Equity Incentive Plan with 30,000,000 shares initially authorized, plus assumed and forfeited awards from the prior plan[617] - A new 2021 Employee Stock Purchase Plan (ESPP) was established, authorizing 3,000,000 shares for issuance to eligible employees at a discount[639] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters As of February 15, 2022, directors and executive officers collectively owned 36.8% of common stock, with several individuals and institutions holding significant beneficial ownership - All directors and executive officers as a group beneficially own 36.8% of the company's common stock as of February 15, 2022[670] Beneficial Ownership of Key Individuals and 5% Holders | Holder | Ownership % | | :--- | :--- | | Benjamin G. Wolff (Executive Chairman) | 14.1% | | Brian D. Finn (Director) | 10.5% | | Dr. Fraser Smith (Chief Innovation Officer) | 9.9% | | BlackRock, Inc. | 13.8% | | Marc Olivier | 10.1% | | DIG Investments XVIII AB | 8.0% | | Rotor-Sarcos, LLC | 6.3% | | Schlumberger Technology Corporation | 5.6% | Certain Relationships and Related Transactions, and Director Independence The company discloses various related party transactions, including pre-combination financings and post-combination agreements with director-affiliated entities, all subject to audit committee oversight - Directors and affiliates of Rotor (the SPAC) participated in the purchase of Founder Shares and Private Placement Warrants[674][675] - In 2020, Old Sarcos' Series C Preferred Stock financing included participation from related parties such as Caterpillar Venture Capital, Director Dennis Weibling, DIG Investments, Rotor-Sarcos, LLC, and Schlumberger[688][689] - Julie Wolff, spouse of Executive Chairman Benjamin Wolff, serves as the company's Chief Legal Officer, earning total compensation of $342,820 in 2021[690] - The company has a Master Services Agreement with Sparks Marketing Group, where the brother-in-law of Executive Chairman Benjamin Wolff is a Vice President; Sarcos expects to pay Sparks approximately $890,000 during 2021 and 2022[699] - The company has adopted a formal policy for the review and approval of related person transactions, which is overseen by the audit committee[701] Principal Accountant Fees and Services Sarcos paid Ernst & Young LLP $1.675 million in audit fees for 2021, including $0.8 million for business combination services, with all services subject to audit committee pre-approval Fees Paid to Ernst & Young LLP (in thousands) | Fee Type | 2021 | 2020 | | :--- | :--- | :--- | | Audit Fees | $1,675 | $705 | | Audit-Related Fees | $0 | $0 | | Tax Fees | $0 | $0 | | Total Fees | $1,675 | $705 | - Audit fees for 2021 included $0.8 million for services related to the Business Combination[707] Part IV Exhibits, Financial Statement Schedules This section provides an index of financial statements referenced from Item 8 and a comprehensive list of all exhibits filed with the Form 10-K, including key corporate documents - This item incorporates the financial statements from Item 8 by reference[708] - An index of exhibits filed with the report is provided, including major agreements, corporate governance documents, and executive compensation plans[712] Form 10-K Summary The company indicates that there is no Form 10-K summary - None[717]