Cyngn Inc. 2022 Third-Quarter Form 10-Q Summary
Business Context and Reporting Period
Cyngn develops autonomous-driving software for industrial vehicles, including DriveMod, Cyngn Insight and Cyngn Evolve. The company operates as one business segment and is focused on industrial autonomous-vehicle deployments in controlled environments. This unaudited Form 10-Q covers the three and nine months ended September 30, 2022, with comparisons to the corresponding 2021 periods.
Cyngn had 33,680,790 common shares outstanding as of November 9, 2022. The filing was signed on November 10, 2022.
Financial Performance and Position
| Metric | Three Months Ended September 30 | Nine Months Ended September 30 |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development expense | $2.7 million | $6.7 million |
| General and administrative expense | $2.6 million | $7.0 million |
| Total operating expenses | $5.3 million | $13.7 million |
| Net loss | $5.3 million | $13.7 million |
| Basic and diluted net loss per share | $0.16 loss | $0.45 loss |
| Net cash used in operating activities | Not separately provided | $11.6 million |
Operating and net margins were not meaningful because the company generated no revenue. Stock-based compensation was $0.8 million in the third quarter and $2.0 million for the first nine months. Depreciation and amortization for the nine-month period was $0.4 million.
| Balance Sheet Metric | September 30, 2022 | December 31, 2021 |
|---|---|---|
| Unrestricted cash | $5.6 million | $21.9 million |
| Restricted cash | $0.05 million | $0.05 million |
| Short-term investments | $22.0 million | $0 |
| Total current assets | $28.2 million | $22.5 million |
| Total assets | $29.7 million | $22.7 million |
| Total current liabilities | $0.9 million | $0.4 million |
| Stockholders’ equity | $28.8 million | $22.2 million |
Short-term investments consisted of U.S. Treasury bills carried at amortized cost; all were expected to mature within six months of September 30, 2022. The company reported no outstanding balance under its forgiven PPP loans and no other debt balance is disclosed. Operating lease liabilities were $0.5 million, with the related office lease expiring in August 2023.
Cash Flow, Financing and Liquidity
- Operating cash use increased to $11.6 million from $5.7 million in the prior-year period.
- Investing cash use was $23.0 million, primarily reflecting $27.0 million of Treasury-bill purchases, approximately $1.0 million of property, equipment and intangible-asset purchases, and $5.0 million of investment maturities.
- Financing activities provided $18.2 million, including $18.1 million of net proceeds from the April 2022 private placement and $0.1 million from stock-option exercises.
- Cash and restricted cash decreased by $16.3 million during the first nine months, ending at $5.7 million.
- The company stated that cash, short-term investments and projected operating and financing activity are sufficient to meet obligations for at least one year from the report issuance date. Continued operations depend on increasing revenue, controlling expenses and obtaining additional outside financing as needed.
Material Changes Versus the Prior Comparable Period
- Revenue remained at zero for both the third quarter and first nine months of 2022, unchanged from the comparable 2021 periods.
- Third-quarter research and development expense increased 137% to $2.7 million; nine-month expense increased 128% to $6.7 million.
- Third-quarter general and administrative expense increased 162% to $2.6 million; nine-month expense increased 147% to $7.0 million.
- Third-quarter net loss increased to $5.3 million from $2.1 million. Nine-month net loss increased to $13.7 million from $5.7 million.
- Per-share losses improved because of the substantial increase in the weighted-average common-share count following the IPO and subsequent equity financing: third-quarter loss per share was $0.16 versus $2.17, and nine-month loss per share was $0.45 versus $5.94.
- Common shares outstanding increased to 33.7 million at September 30, 2022, from 26.5 million at December 31, 2021.
- Cyngn completed a private placement that generated approximately $18.1 million of net proceeds and issued 6.45 million common warrants exercisable at $2.98 per share through April 2027. No common warrants had been exercised as of September 30, 2022.
- Operating assets increased, including property and equipment, a new operating lease right-of-use asset and intellectual-property rights acquired for $0.1 million.
Guidance, Outlook, Risks and Unusual Items
- Cyngn had not generated recurring EAS revenue and stated that limited paid pilot deployments in 2022 and 2023 were expected to offset some research and development costs.
- Management expects annual research and development expenditures in the foreseeable future to equal or exceed 2020 and 2021 levels and targets scaled deployments beginning in 2024. The filing does not provide quantified revenue or earnings guidance.
- The company expects revenue from project-based deployment activities and recurring EAS subscriptions under a software-as-a-service model.
- Cyngn disclosed that it has deployed DriveMod on nine vehicle form factors, including two customer-site deployments. One customer deployment generated $166,000, but no revenue was recognized in the periods reported.
- Management identified inflation, rising interest rates, the Russia-Ukraine conflict, cyberattacks, supply-chain disruption, COVID-19 and other external events as risks that could adversely affect operations and financial performance.
- Disclosure controls and procedures were deemed ineffective because of a material weakness involving oversight of third parties assisting with financial reporting and disclosure. Remediation processes were implemented but had not been fully tested; management expected testing and remediation during the fourth quarter of 2022.
- No material pending or threatened litigation was disclosed, and the filing reported no material changes to the risk factors in the prior Form 10-K.
Important Facts for Investors to Verify
- Whether Cyngn converts pilot and prototype activity into recurring EAS revenue and achieves its targeted scaled deployments beginning in 2024.
- The pace of cash burn relative to the $5.6 million of unrestricted cash and $22.0 million of short-term investments at September 30, 2022.
- Whether additional equity or other financing will be required before the company reaches positive operating cash flow.
- The impact of 6.59 million outstanding warrants, approximately 9.8 million outstanding stock options and other equity awards on potential dilution.
- Whether the disclosed material weakness in financial-reporting controls is fully remediated and tested.
- Whether research and development and general and administrative spending continue to rise faster than the company’s ability to commercialize its technology.