Cyngn Inc. — 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 segment and is headquartered in Menlo Park, California. This unaudited quarterly report covers the three and nine months ended September 30, 2021, with comparisons to the corresponding 2020 periods.
The company had not yet commercially launched its Enterprise Autonomy Suite and had generated no recurring revenue. Management expected to begin marketing EAS in 2022, limited paid pilots in 2022 and 2023, and scaled deployments beginning in 2024.
Financial Metrics
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development expense | $1.2 million | $1.5 million | $2.9 million | $4.2 million |
| General and administrative expense | $1.0 million | $0.3 million | $2.9 million | $1.9 million |
| Total operating expenses | $2.1 million | $1.8 million | $5.8 million | $6.1 million |
| Net loss | $2.1 million | $1.8 million | $5.7 million | $6.1 million |
| Basic and diluted loss per share | $2.17 | $1.85 | $5.94 | $6.38 |
| Net cash used in operating activities | Not separately provided | Not separately provided | $5.7 million | $5.9 million |
At September 30, 2021, cash and cash equivalents were $1.65 million, restricted cash was $50,000, total assets were $2.1 million, and total liabilities were $2.1 million. Stockholders’ equity was only $29,692, compared with $5.6 million at December 31, 2020. The accumulated deficit was $114.4 million.
Debt consisted primarily of two PPP notes totaling approximately $1.6 million at September 30, 2021: the original $695,078 note at 0.98% interest and a $892,115 PPP2 note at 1% interest. Both notes were subsequently approved for forgiveness.
Material Changes Versus Prior Comparable Period
- Revenue remained zero in both the quarter and year-to-date periods.
- Third-quarter net loss increased by approximately $337,000, or 19%, primarily because higher general and administrative costs more than offset lower research and development expense.
- Nine-month net loss decreased by approximately $334,000, or 5%, reflecting lower research and development expense, partly offset by higher general and administrative expense.
- Research and development expense declined 23% in the quarter and 30% year to date, primarily because of lower engineering headcount compared with pre-COVID-19 levels.
- General and administrative expense increased 264% in the quarter and 46% year to date, driven primarily by personnel and professional-service costs associated with becoming a public company.
- Unrestricted cash declined from $6.1 million at December 31, 2020 to $1.7 million at September 30, 2021. Total cash, including restricted cash, declined from $6.5 million to $1.7 million.
- Common shares outstanding increased from 951,794 at December 31, 2020 to 966,210 at September 30, 2021, excluding the subsequent IPO.
Cash Flow, Liquidity and Outlook
Cash used in operating activities was $5.7 million for the first nine months of 2021. Investing activities provided net cash of $29,000, reflecting $18,000 of equipment purchases and $47,000 of asset-disposal proceeds. Financing activities provided $916,000, principally from the PPP2 note and stock-option exercises.
On October 22, 2021, after the reporting date, Cyngn completed an IPO of 3.5 million shares at $7.50 per share and received approximately $23.3 million of net proceeds. All outstanding convertible preferred stock automatically converted into common stock. The underwriters also received an option to purchase up to 525,000 additional shares and 140,000 warrants were issued.
Management stated that existing cash, projected financing and operating cash flows were sufficient to meet obligations for at least one year from the report issuance date. However, the company has incurred losses since inception, has no revenue, and remains dependent on achieving revenue growth, controlling expenses and obtaining financing.
Risks, Contingencies and Unusual Items
- Management concluded that disclosure controls and procedures were not effective as of September 30, 2021, despite remediation efforts related to previously identified material weaknesses in internal control over financial reporting.
- The business model remains unproven: EAS was still under development, recurring revenue had not begun, and planned commercialization and deployment timelines may not be achieved.
- Future operations are expected to require substantial research and development spending, with management expecting annual R&D expenditures to equal or exceed 2019 and 2020 levels.
- COVID-19 caused limited reported disruption, but continued uncertainty could affect customers, markets, operations and the timing of deployments.
- The company had no material pending or threatened litigation as of September 30, 2021 and no material legal proceedings were reported in Part II.
- The original PPP note was forgiven in October 2021 and the PPP2 note was forgiven in November 2021. The related gains on extinguishment of debt were expected to be recorded in the fourth quarter of 2021.
- The company leases office space at approximately $15,500 per month, with the primary lease expiring in February 2022 and an annual renewal option.
Most Important Facts to Verify
- Whether IPO proceeds materially extended the company’s cash runway and how proceeds were allocated after September 30, 2021.
- Whether Cyngn began generating paid pilot, deployment or recurring SaaS revenue in 2022 and whether the stated 2024 scaled-deployment target remains realistic.
- The timing and accounting impact of PPP debt forgiveness and the resulting fourth-quarter gain.
- Progress in remediating ineffective disclosure controls and previously identified internal-control material weaknesses.
- Cash-burn trends, future R&D commitments, additional financing needs and potential dilution from preferred-stock conversion, options and warrants.
- Execution against the company’s technology, customer, OEM-partnership and commercialization plans, including the nine prototype vehicle deployments and limited prior paid trial activity.