Cyngn Inc. 2023 Q3 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 customer deployments, non-recurring engineering contracts, enterprise autonomy subscriptions and Infinitracker sales.
This unaudited Form 10-Q covers the three and nine months ended September 30, 2023, with comparable periods ended September 30, 2022. The filing was signed November 8, 2023. Cyngn is a non-accelerated filer, smaller reporting company and emerging growth company.
Financial Highlights
| Metric | Q3 2023 | Q3 2022 | 9M 2023 | 9M 2022 |
|---|---|---|---|---|
| Revenue | $25,210 | $0 | $1,448,961 | $0 |
| Cost of revenue | $42,414 | $0 | $1,121,732 | $0 |
| Gross profit (loss) | $(17,204) | $0 | $327,229 | $0 |
| Gross margin | (68.2%) | Not meaningful | 22.6% | Not meaningful |
| Research and development | $2,929,225 | $2,725,919 | $9,697,099 | $6,662,730 |
| General and administrative | $2,663,272 | $2,552,418 | $8,580,113 | $7,047,181 |
| Loss from operations | $(5,609,701) | $(5,278,337) | $(17,949,983) | $(13,709,911) |
| Net loss | $(5,471,512) | $(5,259,364) | $(17,453,669) | $(13,690,364) |
| Loss per share | $(0.14) | $(0.14) | $(0.47) | $(0.41) |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $(14,440,102) | $(11,598,985) |
Q3 operating margin was approximately negative 22,252%; the ratio is distorted by very low revenue. Nine-month operating margin was approximately negative 1,239%. Other income for the nine months was $496,314, including interest income of $98,698 and realized investment gains included in other income of approximately $397,616.
Liquidity, Capital Resources and Balance Sheet
- September 30, 2023 cash was $3.54 million and short-term U.S. Treasury investments were $4.62 million, for total cash and short-term investments of approximately $8.16 million.
- Cash and short-term investments declined from $22.60 million at December 31, 2022 to approximately $8.16 million at September 30, 2023.
- Total assets were $11.55 million, compared with $25.51 million at December 31, 2022. Stockholders’ equity was $10.20 million, compared with $24.12 million.
- Total liabilities were $1.35 million, all current. The filing reports no debt borrowings; current liabilities include a $413,371 operating lease liability. The Menlo Park lease expires in May 2024 and requires monthly payments of approximately $48,000.
- Net cash used in operating activities increased 24% to $14.44 million for the nine months. Investing activities provided $6.37 million, primarily because investment maturities exceeded purchases. Financing activities provided $1.02 million from equity issuances.
- The company sold 1,360,620 shares under its ATM facility through September 30, 2023, generating approximately $1.01 million of net proceeds. Approximately $7.7 million remained available under the facility at that date.
Material Changes Versus the Prior Comparable Period
- Revenue began in 2023: $25,210 in Q3 and $1.45 million for the nine-month period, compared with no revenue in the comparable 2022 periods. Nine-month revenue was substantially associated with NRE contracts; Q3 revenue was substantially associated with EAS.
- Despite initial revenue, the nine-month net loss increased $3.76 million, or approximately 27%, to $17.45 million.
- Nine-month R&D expense increased $3.03 million, or approximately 46%, to $9.70 million, driven primarily by higher personnel, stock-based compensation and external contractors.
- Nine-month general and administrative expense increased approximately $1.53 million, or 22%, to $8.58 million, reflecting higher personnel, public-company, marketing, legal and professional costs.
- Common shares outstanding increased to 35.21 million at September 30, 2023 from 33.68 million at December 31, 2022. Weighted-average shares for the nine months increased to 37.34 million from 33.46 million.
- Stock-based compensation increased to $2.52 million for the nine months from $1.99 million. Approximately $7.3 million of unrecognized stock-based compensation remained at September 30, 2023.
Guidance, Outlook, Risks and Unusual Items
- Management expects annual R&D expenditures to exceed 2022 levels, expects R&D costs to increase over time and plans to continue expanding engineering and R&D personnel.
- Management expects limited paid deployments in 2023 and targets scaled deployments beginning in 2024. The filing states that Cyngn has not yet generated significant recurring EAS revenue.
- The company states that it has substantial doubt about its ability to continue as a going concern for the 12 months following issuance of the interim financial statements. Management believes existing funds are insufficient for sustainable operations without additional funding transactions.
- Management expects to rely primarily on equity and/or debt financing, increased revenue and cost control. Management’s plans do not alleviate the substantial doubt, and the filing warns that failure to obtain capital could require delaying or discontinuing development, pursuing a sale, filing for bankruptcy or ceasing operations.
- Cyngn received a Nasdaq notice on August 24, 2023 for failure to meet the $1.00 minimum bid-price requirement. The company was required to regain compliance by maintaining a closing bid price of at least $1.00 for 10 consecutive business days before February 20, 2024.
- After quarter-end, Cyngn issued a 10% stock dividend totaling 3,572,978 shares, adjusted warrant exercise prices, increased authorized common shares from 100 million to 200 million, expanded its equity incentive plan authorization from 12 million to 17 million shares and sold an additional 2,370,904 ATM shares for net proceeds of $770,092 through November 7, 2023.
- Revenue concentration is significant: two domestic customers represented approximately 38% and 60% of nine-month revenue, respectively. The filing identifies inflation, rising interest rates, geopolitical disruption, supply-chain disruption, cyberattacks, natural disasters and pandemics as risks.
- No material pending or threatened litigation was reported. Disclosure controls and procedures were assessed as effective as of September 30, 2023.
Most Important Facts for Investors to Verify
- Whether the company can secure sufficient equity or debt financing before cash and short-term investments are depleted.
- The timing, size and economics of scaled customer deployments and whether EAS subscriptions generate material recurring revenue.
- Whether operating cash burn and R&D spending can be reduced or offset by revenue growth.
- The status of Nasdaq’s minimum bid-price deficiency and the risk of delisting.
- The dilutive effect of ATM issuances, the 10% stock dividend, outstanding options and approximately 6.59 million warrants outstanding at September 30, 2023.
- The sustainability and concentration of NRE revenue, including dependence on two customers.
- Whether capitalized software and other intangible assets remain recoverable given continuing operating losses and limited revenue.