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What changed in Palladyne AI Corp.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Palladyne AI Corp.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+583 added−832 removedSource: 10-K (2024-02-28) vs 10-K (2023-03-16)

Top changes in Palladyne AI Corp.'s 2023 10-K

583 paragraphs added · 832 removed · 344 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

44 edited+77 added−208 removed9 unchanged
Biggest changeWe believe that our innovations, including advances in energetic outdoor mobile manipulation, human like dexterity, intelligent AI-based software for controls and outdoor autonomy and immersive teleoperation technology for natural 17 extended reality interactions between humans and robots, together with advances in electronics, materials, motors and other components of our products, will enable us to produce machines that do not suffer from historical limitations and are intuitive to use and relatively quick and easy for setup and workflow changeover.
Biggest changeWe believe that leveraging our previous innovations in hardware and related software, including advances in energetic outdoor mobile manipulation, human like dexterity and immersive teleoperation technology for natural extended reality interactions between humans and robots will enable us to transition our previous software development into a hardware agnostic AI/ML Software Platform to bring the benefits of our software to a much broader base of robots.
Many of our previously issued patents have expired, with others set to expire on dates ranging from 2023 to 2040, exclusive of any patent term adjustment or patent term extension. We do not know whether all of our pending patent applications will result in issued patents, or whether the examination process will require a narrowing of claimed subject matter.
Many of our previously issued patents have expired, with others set to expire on dates ranging from 2023 to 2040, exclusive of any patent term adjustment or patent term extension. We do not know whether our pending patent applications will result in issued patents, or whether the examination process will require a narrowing of claimed subject matter.
History and Corporate Information Sarcos is the result of a decades-long effort in research and development of robotic systems and solutions. Our original predecessor was spun-out of the University of Utah in 1983. In 2007, our predecessor was acquired by Raytheon and was operated until 2014 as a division of Raytheon known as Raytheon Sarcos.
History, Corporate Information and Website Sarcos is the result of a decades-long effort in research and development of robotic systems and solutions. Our original predecessor was spun-out of the University of Utah in 1983. In 2007, our predecessor was acquired by Raytheon and was operated until 2014 as a division of Raytheon known as Raytheon Sarcos.
These reports and other information are also available, free of charge, at www.sec.gov. In addition, our Code of Business Conduct and Ethics is available through the www.sarcos.com website and any amendments to or waivers of the Code of Conduct will be disclosed on that website.
These reports and other information are also available, free of charge, at www.sec.gov. In addition, our Code of Business Conduct and Ethics is available through the www.sarcos.com website and any amendments to or waivers of the Code of Conduct will be disclosed on that website. 14
Facilities We currently operate in a corporate and manufacturing facility in Salt Lake City, Utah consisting of approximately 61,000 square feet, and in three facilities in Pittsburgh, Pennsylvania. The lease of our Salt Lake City facility expires in May 2033 and has two options to extend the lease for a three-year period each.
Facilities We currently operate in a corporate and manufacturing facility in Salt Lake City, Utah consisting of approximately 61,000 square feet, The lease of our Salt Lake City facility expires in May 2033 and has two options to extend the lease for a three-year period each.
However it is possible that these assumptions will proved incorrect, and, as a result, actual results and market sizes may deviate materially from our estimates. See Part I Item 1A Risk Factors - “Our operating and financial projections rely on management assumptions and analyses.
However, it is possible that these beliefs and assumptions will prove incorrect, and, as a result, actual results and market sizes may deviate materially from our estimates. See Part I Item 1A Risk Factors - “Our operating and financial projections rely on management assumptions and analyses.
We have spent many years working with and listening to people with experience in the industries we expect to target, including advisors and development customers. These early engagements have helped us form relationships with potential customers, helped fund our development efforts and provided critical customer insight and feedback into our development plans and product designs.
We have spent many years working with and listening to people with experience in the industries we expect to target, including advisors and development customers. These early engagements have helped us form relationships with potential customers, helped fund our development efforts and provided critical customer insight and feedback into our development plans and software design.
Changes in, and responses to, U.S. trade policy could reduce the competitiveness of our products and cause our sales to drop or make it difficult or impossible to enter affected markets, which could have a material adverse effect on our business, prospects, financial condition or results of operations.
Changes in, and responses to, U.S. trade policy could reduce the competitiveness of our products by making it difficult or impossible to enter affected markets, which could have a material adverse effect on our business, prospects, financial condition or results of operations.
These competitors also compete with us in recruiting and retaining qualified research and development, sales, marketing and management personnel, as well as in acquiring technologies complementary to, or necessary for, our products. Additional mergers and acquisitions in the cobot and industrial robotics market may result in even more resources being concentrated in our competitors.
These competitors also compete with us in recruiting and retaining qualified research and development, sales, marketing, and management personnel, as well as in acquiring technologies complementary to, or necessary for, our products. Additional mergers and acquisitions by our existing or potential competitors may result in even more resources being concentrated in our competitors.
Our robotic platforms must comply with the rules of the Federal Communications Commission (FCC) with respect to: any radio frequency, or RF, spectrum utilized for such components as the remote control or teleoperation system; the power level and frequency of any RF energy emitted (intentionally or otherwise); and any conditions imposed by the FCC on the device certification(s) issued to us or to third parties for any modular transmitters installed in our products.
Aspects of our use of sensors in connection with our AI/ML Software Platform must comply with the rules of the Federal Communications Commission (FCC), including with respect to: the use of any radio frequency, or RF, spectrum utilized for such components as the remote control or teleoperation system; the power level and frequency of any RF energy emitted (intentionally or otherwise); and any conditions imposed by the FCC on the device certification(s) issued to us or to third parties for any modular transmitters installed in our products.
We believe that as we show the commercial viability and benefits of our products in our initial target markets and use-cases, customers and potential customers will want to use robotics, and specifically our products, to address other use-cases that previously have not been conducive to automation.
We believe that as we show the commercial viability and benefits of our AI/ML Software Platform in our initial target markets and use-cases, customers and potential customers will want to use our AI/ML Software Platform to address other use-cases that previously have not been conducive to automation.
We are also subject to U.S. laws and regulations that may limit and restrict the export of some of our products and services and may restrict our transactions with certain customers, suppliers, business partners and other persons. These laws and regulations may include outright prohibitions or export license requirements.
We are also subject to U.S. laws and regulations that may limit and restrict the export of our products and services and may restrict our ability to transact with certain potential customers, suppliers, business partners and other persons. These laws and regulations include outright prohibitions on certain types of transactions and impose license or other government authorization requirements on others.
We intend to pursue strategic relationships with systems integrators, companies with complementary technologies, software application providers, distributors and consulting firms to expand the channels in which our robotic systems and solutions are marketed.
We intend to pursue strategic relationships with systems integrators, companies with complementary technologies, software application providers, distributors, and consulting firms as and when we deem appropriate to expand the channels in which our AI/ML Software Platform is marketed.
Fraser Smith and technology and telecom entrepreneur Benjamin Wolff, our former Chief Executive Officer and current member of the Board of Directors. This acquisition was the basis for the establishment of Old Sarcos, which was incorporated in Utah in February 2015 as Sarcos Corp.
Fraser Smith, and technology and telecom entrepreneur Benjamin Wolff, our Chief Executive Officer, President and member of the Board of Directors. This acquisition was the basis for the establishment of Sarcos Corp., a Utah corporation (“Old Sarcos”), which was incorporated in Utah in February 2015 as Sarcos Corp. On September 24, 2021, Old Sarcos merged with Rotor Acquisition Corp.
Our competitor base may change or expand as we continue to develop and commercialize our robotic systems and solutions in the future. These or other competitors may develop new technologies or products that provide superior results to customers or are less expensive than our products. Our technologies and products could be rendered obsolete by such developments.
These or other competitors may develop new technologies or products that provide superior results to customers or are less expensive 10 than our products. Our technologies and products could be rendered obsolete by such developments.
As of December 31, 2023, we had approximately 280 full-time and part-time employees with the majority of our employees based in the Salt Lake City, Utah and Pittsburgh, Pennsylvania areas. We also engage consultants and contractors to supplement our permanent workforce on an as-needed basis. Approximately 45% of our employees are involved in engineering functions, including research and development.
Following the completion of the RIFs, as of February 1, 2024, we had approximately 70 full-time and part-time employees, with most employees located in our Salt Lake City, Utah office. We also engage consultants and contractors to supplement our permanent workforce on an as-needed basis. Approximately 65% of our employees are involved in engineering functions, including research and development.
On September 24, 2021, we completed the Business Combination whereby Old Sarcos became a wholly-owned subsidiary of Rotor Acquisition Corp. and Rotor Acquisition Corp. changed its name to Sarcos Technology and Robotics Corporation. In April 2022, we acquired RE2, Inc., a Pittsburgh, Pennsylvania based robotics company.
(“Rotor”), a Delaware corporation. On September 24, 2021, Rotor changed its name to Sarcos Technology and Robotics Corporation. In April 2022, we acquired RE2, Inc., (“RE2”) a Pittsburgh, Pennsylvania based robotics company.
We rely upon a combination of protections afforded to owners of patents, copyrights, trade secrets and trademarks, along with employee and third-party non-disclosure agreements and other contractual restrictions to establish and protect our intellectual property rights. 20 We pursue patent protection at times when we believe we have developed a patentable invention and the benefits of obtaining a patent outweigh the risks of making the invention public through patent filings.
We rely upon a combination of protections afforded to owners of patents, copyrights, trade secrets and trademarks, along with employee and third-party non-disclosure agreements and other contractual restrictions to establish and protect our intellectual property rights.
We believe working with these development customers will allow us to accelerate our brand awareness within these and adjacent industries and develop products that will meet the needs of a variety of potential customers. These relationships have already played an important role in helping us select the markets, use-cases and product capabilities we are currently pursuing.
We believe working with these development customers will allow us to accelerate our brand awareness within our targeted industries and develop products that will meet the needs of a variety of potential customers.
Compliance with these laws has not significantly limited our sales or other transactions with third parties but could significantly limit them in the future.
To date, compliance with these laws has not significantly hampered our efforts to engage and transact with third parties but could further limit them in the future.
Furthermore, in light of the highly active fields of technology in which we are involved, particularly the field of robotics, our patents and pending patent applications may not provide us with broad-level protection.
Considering the highly active fields of technology in which we are involved, particularly the field of artificial intelligence, our patents and pending patent applications may not provide us with broad-level protection. To protect our brand, we also pursue the registration of our domain names and various trademarks in the United States and in select international locations.
We believe working with these partners will accelerate our brand awareness within various industries and provide complementary capabilities and differentiation that will attract new customers while helping us expand our customer base.
We believe working with these partners will accelerate our brand awareness and path 11 to market within various industries and provide complementary capabilities and differentiation that will attract new customers while helping us expand our customer base. We currently expect to offer our AI/ML Software Platform through a term-based licensing model that would result in a recurring revenue stream.
Legal Proceedings From time to time, we may be subject to legal proceedings. We are not currently a party to or aware of any proceedings that we believe will have, individually or in the aggregate, a material adverse effect on our business, financial condition or results 22 of operations.
We are not currently a party to or aware of any proceedings that we believe will have, individually or in the aggregate, a material adverse effect on our business, financial condition, or results of operations. Regardless of outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.
Our competitors may be able to deploy greater resources 19 to the design, development, manufacturing, distribution, promotion, sales, marketing and support of their cobot and industrial robotics programs than we can. Additionally, our competitors may have greater name recognition, longer operating histories, larger sales forces, broader customer and industry relationships and other tangible and intangible resources than we have.
Additionally, some of our competitors have greater name recognition, longer operating histories, larger sales forces, broader customer and industry relationships and other tangible and intangible resources than we have.
This allows us to reduce our net loss and use of cash while continuing product development efforts to improve and commercialize our products, develop new products and establish relationships with potential commercial and government customers that have helped us create products designed to meet their needs.
This approach allows us to reduce our net loss and net use of cash while learning from our future customers’ experience with the AI/ML Software Platform, continuing product development efforts to improve and commercialize our product, and establish relationships with potential commercial and government customers.
Additionally, while our focus has been primarily on the U.S. domestic market, we intend to explore opportunities in select non-U.S. markets as and when we deem appropriate.
Additionally, while the initial focus of our sales and marketing efforts has been primarily on the U.S. domestic market, we intend to explore opportunities in select non-U.S. markets as and when we deem appropriate. Suppliers We have a limited set of suppliers for the minimal hardware components that will be offered with our AI/ML Software Platform.
We believe our early efforts to get this feedback and build these relationships with potential customers situate us well to create robotic systems and solutions that meet customer needs. Visionary and Experienced Management We have a proven and experienced team with deep operational expertise in bringing emerging technologies to market.
We believe our early efforts to get this feedback and build these relationships with potential customers situate us well to effectively commercialize our AI/ML Software Platform. Visionary and Experienced Management We have an experienced and talented team with deep operational expertise.
We assume that our initial customer base will be comprised of innovators and early adopters in the industries we are targeting. Following successful deployment with these early adopters, we believe that there will be many potential customers that are fast-followers.
We believe that if we are successful demonstrating the value of our AI/ML Software Platform with these early adopters, there will be many potential customers that are fast followers. In the long run, we believe that our AI/ML Software Platform will benefit many markets and industries.
See Part I Item 1A Risk Factors - “ We operate in a competitive industry that is subject to rapid technological change, and we expect competition to increase.” We expect that we will compete on the following factors: • technological innovation; • product quality, reliability and safety; • product features and performance, including from our intelligent software; • product pricing; • manufacturing efficiency and resources; • brand; • customer experience, including support; and • existing customer relationships.
See Part I Item 1A Risk Factors - “ We operate in a competitive industry that is subject to rapid technological change, and we expect competition to increase. Our products may not be competitive with other alternatives.” We expect that we will compete favorably due to our technical innovation and product features and performance.
We believe that should we need additional or different space we will be able to obtain such space on commercially reasonable terms. 23
As announced on November 14, 2023, we are in the process of winding down our operations in our Pittsburgh, Pennsylvania office. We believe that should we need additional or different space we will be able to obtain such space on commercially reasonable terms.
The acquisition added engineering talent, technology, products and customers and expanded the potential use-cases and target markets we can address. Our principal executive offices are located at 650 South 500 West, Suite 150, Salt Lake City, Utah, 84101. Our telephone number is 888-927-7296. Company Website We maintain a company website with the address www.sarcos.com.
Our principal executive offices are located at 650 South 500 West, Suite 150, Salt Lake City, Utah, 84101. Our telephone number is 888-927-7296. We maintain a company website with the address www.sarcos.com. We are not including the information contained on our website as a part of, or incorporating it by reference into, this Annual Report on Form 10-K.
Industry Background Evolution of Robotics Industrial robots have been commercially available and used in industrial and manufacturing environments for many decades. They are typically large, stationary machines designed to automate repetitive tasks in a controlled environment (e.g., a factory assembly line) that require speed and strength greater than what a human can accomplish.
These industrial robots are typically large, stationary robotic arms designed to automate repetitive tasks in a controlled environment (e.g., a factory assembly line) that require consistency, speed and strength greater than what a human can accomplish. Industrial robots generally execute plans by rote programming (functions that are programmed in advance by a human engineer).
We must also comply with export restrictions and laws imposed by other countries affecting trade and investments to the extent applicable. We maintain export compliance controls and procedures but there are risks that these compliance controls might not be effective, in which case we could be exposed to legal liabilities.
We must also comply with export restrictions and other laws affecting trade and investments imposed by other countries to the extent applicable.
Most of our supplier relationships are purchase order based and we do not have many long-term supply contracts.
We expect most of our suppliers to be based in the United States and expect most of our supplier relationships to be purchase order based rather than long-term supply contracts.
Based on product testing and trials and customer feedback, we expect our robotic systems and solutions to increase productivity across a variety of use-cases, while significantly reducing the risk, and associated costs, of employee injuries. We believe that our core strength is in the design and development of highly complex and technologically advanced robotic systems and solutions, including associated software.
Based on product testing and trials, we expect our AI/ML Software Platform to greatly increase productivity across a variety of use-cases, while significantly reducing associated costs of programming and deploying these systems.
As our products are highly complex, we want to ensure that we continue to develop new systems and solutions to address new markets and use-cases, and thereby grow our business. Continued Investment in Innovation We will continue to invest significant resources in developing proprietary technologies across hardware, firmware, software and controls to commercialize our robotic systems and solutions.
As our products are highly complex, we want to ensure that we continue to develop new systems and solutions to address new markets and use-cases, and thereby grow our business. Focused Effort on Commercialization while Collaborating with Development Customers Our AI/ML Software Platform is in its development phase.
We believe this will prove the benefits of our systems and solutions in everyday working conditions while confirming market demand and achieving and growing product revenue. Continue to Develop our Robotic Systems and Solutions We plan to pursue continuous improvement of our current systems and solutions and to develop additional systems and solutions over time.
We will continue to focus on the development and commercialization of our AI/ML Software Platform to bring the initial commercial version to market in a timely manner targeting specific use-cases. We believe this will prove the benefits of our AI/ML Software Platform in everyday working conditions while confirming market demand and achieving and growing product revenue.
Aubry Company and baggage-loader/unloader systems such as those provided by Beumer Group and BBHS. Many of our competitors and potential competitors have products that are commercially available and/or in development. We expect some products currently in development to become commercially available in the next few years.
We expect some products currently in development by such competitors and potential competitors to become commercially available in the next few years. Our competitor base may change or expand as we continue to develop and commercialize our AI/ML Software Platform and develop new functionality or products, or if we return to efforts to develop and commercialize hardware systems.
In many cases, these development customers pay us to develop our products, and this constitutes the bulk of our services revenue.
We intend to engage in the future with development customers in various industries. In some cases, these development customers may pay us to develop our products.
We expect that our systems and solutions can benefit a wide variety of markets, including the aerospace and aviation, construction, defense, distribution and warehousing, industrial manufacturing, maritime, mining, power and utilities and solar energy industries, among others.
Because our AI/ML Software Platform is being designed to work with most industrial robots being sold today, we expect that our AI/ML Software Platform can benefit a wide variety of industries such as industrial manufacturing, warehousing and logistics, defense, infrastructure maintenance and repair, energy and aerospace and aviation, among others.
We are a pioneer in the robotic systems industry and benefit from lessons learned over more than 30 years and $375 million in research and development investment in our proprietary technologies, as well as our extensive patent portfolio.
Our approach also reduces the expense typically associated with transmitting large amounts of data to and from the cloud. As a pioneer in the robotic systems industry, we benefit from both experiences and lessons gained from our 30-plus years, as well as significant investment in our internal research and development efforts.
Government Regulation We are subject to various U.S. federal, state and local laws and regulations governing the occupational health and safety of our employees and wage regulations, including the requirements of the U.S. Occupational Safety and Health Act, as amended, or OSHA, and comparable state laws that protect and regulate employee health and safety.
Occupational Safety and Health Act, as amended, and complementary state requirements (including the Utah Occupational Safety and Health Division’s Utah State Plan) that protect and regulate employee health and safety.
Through the end of 2022 our customers have primarily been development customers – customers paying us to fund our product research and development efforts.
Customers and Partners Through the end of 2023, our customers have primarily been development customers: customers funding our hardware product research and development efforts for which we have suspended development efforts. However, our many years of work with potential customers in many different industries and the U.S.
We believe we do and will compete favorably on the basis of these factors; however, our potential competitors may have greater financial, technical, manufacturing and other resources than we have.
Some of our potential competitors have greater financial, technical and other resources than we have. Our competitors may be able to deploy greater resources to the design, development, distribution, promotion, sales, marketing and support of competitive products than we can.
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Overview We are a technology leader in the design, development and manufacture of advanced robotic systems and solutions that redefine human possibilities. Our mission is to increase worker productivity and longevity and prevent injuries through robotics.
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We use the terms “Sarcos,” “the Company,” “we,” “us,” and “our” to refer to Sarcos Technology and Robotics Corporation. Overview Our mission is to deliver software to our customers that enhances the utility and functionality of third-party stationary and mobile robotic systems by enabling these systems to quickly observe, learn, reason and act in structured and unstructured environments.
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Our robotic systems are designed to augment and increase human productivity by combining human intelligence, instinct and judgment with the strength, endurance and precision of machines.
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Our AI/ML Software Platform is being designed with artificial intelligence (AI) and machine learning (ML) techniques to enable robotic systems to perceive their environment and quickly adapt to changing circumstances by generalizing (i.e., learning) from their past experience using dynamic real-time operations “on the edge” (i.e., on the robotic system) without extensive programming and with minimal robot training.
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We aim to bring the benefits of robotics to dynamic and unstructured environments (i.e., environments that change or that require our robotic systems to perform different tasks at different times in different places, especially outdoor environments). To do this, we design our robotic systems to be mobile, dexterous and adaptable through the use of flexible hardware designs and intelligent software.
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We believe this “human-like” ability to learn and adapt will be a key differentiator in helping our customers maintain optimal productivity in dynamic or unstructured environments, where new situations and unexpected challenges are more likely to cause delays and costly downtime.
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Our core systems consist of the Guardian XM (formerly known as the Sapien 6M), Guardian XT and Guardian Sea Class teleoperated/semi-autonomous systems and the Guardian XO exoskeleton. Our teleoperated/semi-autonomous systems are comprised of mobile robotic arms, sensing, wireless communications, control stations with intuitive human-robot interfaces and application-specific end-of-arm attachments (end-effectors), such as grippers, drills or spray nozzles.
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Our value proposition is further enhanced relative to other competitive solutions because robotic systems using our AI/ML Software Platform are not required to be continuously connected to the cloud for our software to function, thereby reducing the performance issues associated with poor connectivity and latency typically associated with processing in the cloud.
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We create our solutions by combining our systems with use-case specific features and components, which may include third-party hardware, such as lifts, bucket trucks and underwater remotely operated vehicles, or ROVs, as well as use-case specific hardware designs, software and end-effectors.
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Software has been an integral part of our development efforts over the years. Our vision for our AI/ML Software Platform began in 2017 as a foundational technology to enhance training for the autonomous operation of our own internally developed hardware solutions and progressed to our first CYTAR (Cybernetic Training for Autonomous Robots) government project in 2019.
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In general, the use-cases we are targeting are currently being done by humans, at times with the aid of generic industrial equipment like a crane or forklift, and involve dangerous or injury-prone activities in areas experiencing, and expected to continue to experience, labor shortages.
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Significant design and development work began in 2020 when our Chief Technology Officer, Dr. Denis Garagic, joined our team. We have since continued to develop our AI/ML software both for the U.S. Department of Defense and in connection with our development of commercial robotic systems.
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As a result, we believe our systems and solutions will increase safety and reduce injuries, prolong careers, broaden the pool of available workers by equalizing physical capabilities and increase productivity.
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As previously disclosed, in November 2023, we decided to suspend our hardware product development efforts to focus on commercializing our AI/ML Software Platform, although some de minimis hardware-related research and development efforts continue.
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While taking advantage of our proprietary intelligent software, humans continue to be an essential part of our systems’ operation, whether through teleoperation, supervised autonomy or directly operating the robot (e.g., by wearing an exoskeleton). In this way, human jobs and health are preserved while increasing productivity and helping to address labor shortages in our target markets.
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By de-coupling our AI/ML Software Platform from our own hardware systems and applying it to a wide range of third-party robotics systems, from industrial robots and cobots to mobile systems potentially including drones, autonomous mobile robots (AMR), autonomous underwater vehicles (AUV) and remotely operated vehicles (ROV), we believe we can reach a much broader market more quickly and better utilize our remaining cash resources.
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While we ultimately expect our systems and solutions to benefit a wide variety of markets, we are currently focusing our systems and solutions on use-cases in the aviation, construction, defense, maritime, power and utility and solar energy industries. We adapt our teleoperated/semi-autonomous core systems for specific use-cases based on the capabilities and characteristics of each system to create solutions.
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We are designing our AI/ML Software Platform to be hardware agnostic in order to be compatible with most industrial robots being sold today and to support other specific types of commercially available robots with additional development and the necessary application programming interface (API).
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We may also combine aspects of multiple systems or create a specific system for a particular solution. For example, we currently expect that the next version of our solar field construction solution will be a hybrid of our Guardian XM and Guardian XT systems, and the baggage-handling solution we are developing uses a specific system designed for that solution.
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The AI/ML Software Platform is expected to enable robotic systems to perform tasks that involve variations in the environment and the objects being manipulated by the robot.
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Our product development efforts are led by a highly experienced robotics team, with some members of our engineering team having worked together for over 20 years. We also benefit from more than $375 million in research and development investment in our proprietary technologies and an extensive patent portfolio. Much of our technology we leverage across our systems and solutions.
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Specifically, we expect our AI/ML Software Platform to incorporate internal and external environmental inputs that allow robots to comprehend their environment, determine reasonable behavior given these inputs and to act in real time to achieve the expected task. Each newly learned task will then be incorporated and used to perform future tasks.
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For example, various technologies and inventions developed for the Guardian XO have been incorporated into the Guardian XT.
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We believe this closed-loop autonomy approach is the key to how our software can expedite robot training, expand the tasks that a robot can perform, reduce costly workflow stoppages, mitigate downtimes and reduce human labor requirements. A variety of industries ranging from manufacturing to warehousing encounter lengthy and costly efforts to program, manage, and modify their robotic systems.
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Combined with our advanced, success-based learning artificial intelligence, or AI approach, our supervised autonomy software framework uses multi-modal sensor data to optimally perceive, interact, and conceptualize dynamic, unstructured environments to harness the power of real-time and learned-behavior data inputs that allow our robotic systems and solutions to successfully execute task-specific autonomy in unstructured environments.
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These industries also experience significant limitations with the tasks that existing robotic platforms can perform, resulting in more human labor required and a lower return on investment from robotic system deployments than what we believe will be possible when our software is deployed on these machines.
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Our advanced, success-based AI enables human workers’ flexibility, creativity and improvisation skills to deliver improved workflow performance and safer interactions between humans and machines in unstructured environments.
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We are designing our AI/ML Software Platform to enable industrial robotic systems to function with human-like reasoning through flexible and adaptable learning capabilities such that an industrial robot can perform a variety of tasks without the need for costly 5 reprogramming efforts.
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Based on interest shown by our development customers and potential commercial customers in purchasing our systems and solutions, we have decided to offer our products primarily through a sales business model where the customer purchases a system or solution for a one-time, upfront amount.
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We believe that the AI/ML Software Platform will enable autonomous functionality to address challenging and dynamic environments for industries that can benefit from a high degree of adaptability and efficiency. Industry Background Robots have been commercially available and used in industrial and manufacturing automation for many decades.
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As a result, we do not expect the Robot-as-a-Service (RaaS) model that we had previously planned to apply to our Guardian XO and Guardian XT systems to be a focus of our business model going 6 forward. We also plan to offer software upgrades and additional capabilities and to offer for sale add-on hardware components (such as additional interchangeable end-effectors).
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Over time, industrial robots have become more sophisticated and are now widely adopted in a host of applications and across many industries. While this kind of automation brings significant benefits to industrial and manufacturing efforts, it also has its limitations.
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We are not including the information contained on our website as a part of, or incorporating it by reference into, this Annual Report on Form 10-K.
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For example, these robots are typically deployed in controlled settings, fixed in place, used to accomplish a single repetitive task and not easily reprogrammed without costly and time-consuming retraining. In the industrial and manufacturing automation space, productivity and cost-effectiveness depend greatly on avoiding downtimes.
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For manufacturing tasks, industrial robots generally execute plans by rote programming (functions that are programmed in advance by a human engineer). Over time, industrial robots have become more sophisticated. Industrial robots have seen widespread adoption in a host of applications and have gained acceptance across many industries.
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Downtime can be caused by many factors, but we believe the most significant are due to programming and reprogramming of robotic systems, disruptions to the controlled environment, whether due to physical obstacles or imprecise positioning, and the need to implement production change-overs. Initial programming or reprogramming of robotic systems is a costly and time-intensive task, requiring highly skilled programmers.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

243 edited+121 added−209 removed136 unchanged
Biggest change") or after exercise of any of our Warrants or the exercise or vesting of employee equity awards; • any major change in our board of directors or management; • sales of substantial amounts of Common Stock by our directors, officers or significant stockholders or the perception that such sales could occur; • the realization of any of the risk factors discussed herein; • additions or departures of key personnel; • failure to comply with Nasdaq listing requirements (see “Our Common Stock may be delisted from The Nasdaq Global Market if we cannot satisfy Nasdaq’s continued listing requirements.” ); • failure to comply with the Sarbanes-Oxley Act of 2002 or other laws or regulations; 56 • actual, potential or perceived control, accounting or reporting problems; • changes in accounting principles, policies and guidelines; and • general economic and political conditions such as recessions, interest rates, fuel prices, international currency fluctuations and acts of war or terrorism.
Biggest changeFactors affecting the trading price of our securities may include: • actual or anticipated fluctuations in our quarterly financial results or the quarterly financial results of companies perceived to be similar to us; • changes in the market’s expectations about our operating results; • the public’s reaction to our press releases, our other public announcements and our filings with the SEC; • changes in strategy or financial condition; • speculation in the press or investment community; • success of competitors; • our operating results failing to meet the expectation of securities analysts or investors in a particular period; • changes in operating performance and stock market valuations of robotics software or other technology companies, or those in our industry in particular; • changes in financial estimates and recommendations by securities analysts concerning our company or the market in general; • operating and stock price performance of other companies that investors deem comparable to us; • our ability to market, sell and deliver our AI/ML Software Platform on a timely basis; • changes in laws and regulations affecting our business; • commencement of, or involvement in, litigation; • changes in our capital structure, such as future issuances of securities or the incurrence of additional debt; • the volume of shares of the Common Stock and Public Warrants available for public sale, including as a result of the exercise of any of our Warrants or the exercise or vesting of employee equity awards; • any major change in our board of directors or management; • sales of substantial amounts of Common Stock by our directors, officers or significant stockholders or the perception that such sales could occur; • the realization of any of the risk factors discussed herein; • additions or departures of key personnel; • failure to comply with Nasdaq listing requirements (see “Our Common Stock may be delisted from The Nasdaq Global Market if we cannot satisfy Nasdaq’s continued listing requirements” ); • failure to comply with the Sarbanes-Oxley Act of 2002 or other laws or regulations; • actual, potential or perceived control, accounting or reporting problems; • changes in accounting principles, policies and guidelines; and • general economic and political conditions such as recessions, interest rates, fuel prices, international currency fluctuations and acts of war or terrorism.
References in this Item 1A Risk Factors to financial information as of dates or for periods ended on or prior to April 25, 2022 do not include the financial information of RE2 as of those dates or for those periods.
References in this Item 1A Risk Factors to financial information as of dates for periods ended on or prior to April 25, 2022 do not include the financial information of RE2 as of those dates or for those periods.
Under the Tax Cuts and Jobs Act of 2017 (the Tax Act), as modified by the Coronavirus Aid, Relief and Economic Security Act (the CARES Act), U.S. federal net operating loss carryforwards generated in taxable periods beginning after December 31, 2017, may be carried forward indefinitely, but the deductibility of such net operating loss carryforwards in taxable years beginning after December 31, 2020, is limited to 80% of taxable income.
Under the Tax Cuts and Jobs Act of 2017 (the Tax Act), as modified by the Coronavirus Aid, Relief and Economic Security Act of 2020 (the CARES Act), U.S. federal net operating loss carryforwards generated in taxable periods beginning after December 31, 2017, may be carried forward indefinitely, but the deductibility of such net operating loss carryforwards in taxable years beginning after December 31, 2020, is limited to 80% of taxable income.
Changes in tax laws, as well as other factors, could cause us to experience fluctuations in our tax obligations and effective tax rates and otherwise adversely affect our tax positions and/or our tax liabilities.
Changes in tax laws, as well as other factors, could cause us to experience fluctuations in our tax obligations and effective tax rates or otherwise adversely affect our tax positions and/or our tax liabilities.
We will remain an emerging growth company until the earliest of (i) the last day of the fiscal year (a) following January 20, 2026, the fifth anniversary of Rotor’s initial public offering, (b) in which we have total annual gross revenue of at least $1.235 billion or (c) in which we are deemed to be a large accelerated filer, which means the market value of our Common Stock and Public Warrants that is held by non-affiliates exceeds $700 million as of the last business day of our prior second fiscal quarter, and (ii) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period.
We will remain an emerging growth company until the earliest of (i) the last day of the fiscal year (a) following January 20, 2026, the fifth anniversary of Rotor’s initial public offering, (b) in which we have total annual gross revenue of at least $1.235 billion or (c) in which we are deemed to be a large accelerated filer, which means the market value of our Common Stock and Public 44 Warrants that is held by non-affiliates exceeds $700 million as of the last business day of our prior second fiscal quarter, and (ii) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period.
Any actual or perceived security breach or security incident, or any systems outages or other disruption to systems used in our business, could interrupt our operations, result in loss or improper access to, or acquisition, unavailability, modification, disclosure or other processing of, data or a loss of intellectual property protection, harm our reputation and competitive position, reduce demand for our products, damage our relationships with customers, partners, collaborators or others or result in claims, regulatory investigations and proceedings and significant legal, regulatory and financial exposure, and any such incidents or any perception that our security measures are inadequate could lead to loss of confidence in us and harm to our reputation, any of which could adversely affect our business, financial condition and results of operations.
Any actual or perceived security breach or security incident, or any systems outages or other disruption to systems used in our business, could interrupt our operations, result in loss or improper access to, or acquisition, unavailability, modification, disclosure or other processing of, data or a loss of intellectual property protection, harm our reputation and competitive position, reduce demand for our software products, damage our relationships with customers, partners, collaborators or others or result in claims, regulatory investigations and proceedings and significant legal, regulatory and financial exposure, and any such incidents or any perception that our security measures are inadequate could lead to loss of confidence in us and harm to our reputation, any of which could adversely affect our business, financial condition and results of operations.
Because techniques used to obtain 46 unauthorized access to or to sabotage information systems change frequently and may not be known until launched against a target, we may be unable to anticipate or prevent these attacks, react in a timely manner or implement adequate preventive measures, and we may face delays in our detection or remediation of, or other responses to, security breaches and other privacy-and security-related incidents.
Because techniques used to obtain unauthorized access to or to sabotage information systems change frequently and may not be known until launched against a target, we may be unable to anticipate or prevent these attacks, react in a timely manner or implement adequate preventive measures, and we may face delays in our detection or remediation of, or other responses to, security breaches and other privacy-and security-related incidents.
Accordingly, there is uncertainty as to whether a court would enforce such a forum selection provision as written in connection with claims arising under the Securities Act. 59 The JOBS Act permits “emerging growth companies” like us to take advantage of certain exemptions from various reporting requirements applicable to other public companies that are not emerging growth companies .
Accordingly, there is uncertainty as to whether a court would enforce such a forum selection provision as written in connection with claims arising under the Securities Act. The JOBS Act permits “emerging growth companies” like us to take advantage of certain exemptions from various reporting requirements applicable to other public companies that are not emerging growth companies .
Moreover, there may be pending, published or allowed applications that may disclose, but not claim, subject matter covering our products, technology or methods, where such pending or published applications may be amended, or one or more continuation or divisional applications may be filed, in an attempt to capture, to the extent possible, such products, technology or methods that are in the public domain, and which may result in issued patents that our current or future products infringe.
Moreover, there may be pending, published or allowed applications that may disclose, but not claim, subject matter covering our software, technology or methods, where such pending or published applications may be amended, or one or more continuation or divisional applications may be filed, in an attempt to capture, to the extent possible, such software, technology or methods that are in the public domain, and which may result in issued patents that our current or future products infringe.
In addition, as a result of actual or perceived noncompliance with government contracting laws, regulations or contractual provisions, we may be subject to non-ordinary course audits and internal investigations which may prove costly to our business financially, divert management time or limit our ability to continue selling our products to our government customers.
In addition, as a result of actual or perceived noncompliance with government contracting laws, regulations or contractual provisions, we may be subject to non-ordinary course audits and internal investigations which may prove costly to our business financially, divert management time or limit our ability to continue selling our software products to our government customers.
Any such damages, penalties, disruption or limitation in our ability to do business with a government would adversely impact, and could have a material adverse effect on, our business, prospects, financial condition and operating results. We are subject to U.S. and foreign anti-corruption and anti-money laundering laws and regulations.
Any such damages, penalties, disruption or limitation in our ability to do business with a government would adversely impact, and could have a material adverse effect on, our business, prospects, financial condition and operating results. 35 We are subject to U.S. and foreign anti-corruption and anti-money laundering laws and regulations.
In addition, responding to any investigation or action will likely result in a significant diversion of management’s attention and resources and significant defense costs and other professional fees. 48 We are subject to governmental export and import controls and laws that could subject us to liability if we are not in compliance with such laws.
In addition, responding to any investigation or action will likely result in a significant diversion of management’s attention and resources and significant defense costs and other professional fees. We are subject to governmental export and import controls and laws that could subject us to liability if we are not in compliance with such laws.
A loss of key personnel or their work product could hamper or prevent our ability to commercialize our products, which could severely harm our business. Even if we are successful in defending against these claims, litigation could result in substantial costs and demand on management resources.
A loss of key personnel or their work product could hamper or prevent our ability to commercialize our software products, which could severely harm our business. Even if we are successful in defending against these claims, litigation could result in substantial costs and demand on management resources.
If we are found to infringe another party’s patents, we could be required to pay damages. We could also be prevented from selling our infringing products, unless we can obtain a license to use the technology covered by such patents or can redesign our products so that they do not infringe.
If we are found to infringe another party’s patents, we could be required to pay damages. We could also be prevented from selling our infringing software products, unless we can obtain a license to use the technology covered by such patents or can redesign our software products so that they do not infringe.
If any analyst covering our company now or in the future were to cease coverage of us or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could cause the prices and trading volumes of the Common Stock and Public Warrants to decline.
If any remaining analyst covering our company now or in the future were to cease coverage of us or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could cause the prices and trading volumes of the Common Stock and Public Warrants to decline.
Such incidents could: materially disrupt our operational systems; result in loss of intellectual property, trade secrets or other proprietary or competitively sensitive information; compromise certain information of customers, employees, suppliers or others; jeopardize the security of our facilities; or affect the performance of in-product technology and the integrated software in our systems.
Such incidents could: materially disrupt our operational systems; result in loss of intellectual property, trade secrets or other proprietary or competitively sensitive information; compromise certain information of customers, employees, or others; jeopardize the security of our facilities; or affect the performance of in-product technology and the integrated software in our systems.
These indemnification agreements also require us to advance expenses reasonably and actually incurred by them in investigating or defending any such claims, and it may be difficult or 49 impossible to recover any advanced expenses if it turns out the person was not entitled to indemnification.
These indemnification agreements also require us to advance expenses reasonably and actually incurred by them in investigating or defending any such claims, and it may be difficult or impossible to recover any advanced expenses if it turns out the person was not entitled to indemnification.
Broad market and industry factors may materially harm the market price of our securities irrespective of our operating performance or any of the factors listed above. The securities markets in general have experienced price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of the particular companies affected.
Broad market and industry factors may materially harm the market price of our securities irrespective of our operating performance or any of the factors listed above. The securities markets in general have experienced price and volume fluctuations 41 that have often been unrelated or disproportionate to the operating performance of the particular companies affected.
We have the ability to redeem outstanding Warrants at any time after they become exercisable and prior to their expiration, subject to certain exceptions, provided that the last reported sales price of our Common Stock equals or exceeds $10.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalization and the like) for any 20 trading days within a 30 trading-day period ending on the third trading day prior to the date on which we give proper notice of such redemption to the Warrant holders and provided certain other conditions are met.
We have the ability to redeem outstanding Warrants at any time after they become exercisable and prior to their expiration, subject to certain exceptions, provided that the last reported sales price of our Common Stock equals or exceeds $60.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalization and the like) for any 20 trading days within a 30 trading-day period ending on the third trading day prior to the date on which we give proper notice of such redemption to the Warrant holders and provided certain other conditions are met.
If these technologies are material to our business after the term of the license, our inability to use them could adversely affect our business and profitability. We also have taken and continue to take precautions to initiate safeguards to protect our information technology systems.
If these technologies are material to our business after the term of the license, our inability to use them could adversely affect our business and profitability. We have taken and continue to take precautions to initiate safeguards to protect our information technology systems.
If we fail to maintain effective systems of disclosure controls and procedures and internal control over financial reporting, our ability to produce timely and accurate financial statements or comply with applicable regulations could be adversely affected.
If we fail to maintain and strengthen effective systems of disclosure controls and procedures and internal control over financial reporting, our ability to produce timely and accurate financial statements or comply with applicable regulations could be adversely affected.
The development and implementation of the standards and controls necessary for us to achieve the level of accounting standards required of a public company have increased and may continue to increase our legal and compliance costs, and such costs may be greater than expected.
The development and implementation of the processes and controls necessary for us to achieve the level of accounting standards required of a public company have increased and may continue to increase our legal and compliance costs, and such costs may be greater than expected.
Any failure to maintain the adequacy of our internal controls, or consequent inability to produce 43 accurate financial statements on a timely basis, could increase operating costs and could materially and adversely affect our ability to operate our business.
Any failure to maintain the adequacy of our internal controls, or consequent inability to produce accurate financial statements on a timely basis, could increase operating costs and could materially and adversely affect our ability to operate our business.
If our internal controls are perceived as inadequate or if we are perceived to be unable to produce timely or accurate financial statements, investors may lose confidence in our operating results and the trading price of our securities could decline.
If our internal controls are or are perceived to be inadequate or if we are or are perceived to be unable to produce timely or accurate financial statements, investors may lose confidence in our operating results and the trading price of our securities could decline.
Sales of substantial numbers of such shares in the public market could adversely affect the market price of our Common Stock or Public Warrants. 58 The Private Placement Warrants are identical to the Public Warrants except that, so long as they are held by the initial purchasers or their permitted transferees, (i) they will not be redeemable by us subject to certain exceptions, (ii) they may be exercised by the holders on a cashless basis and (iii) they are subject to registration rights.
Sales of substantial numbers of such shares in the public market could adversely affect the market price of our Common Stock or Public Warrants. 43 The Private Placement Warrants are identical to the Public Warrants except that, so long as they are held by the initial purchasers or their permitted transferees, (i) they will not be redeemable by us subject to certain exceptions, (ii) they may be exercised by the holders on a cashless basis and (iii) they are subject to registration rights.
Further, under certain circumstances we may have contractual or other legal obligations to indemnify and to incur legal expenses on behalf of investors, directors, officers employees, customers, vendors or other third-parties.
Further, under certain circumstances we have or may take on contractual or other legal obligations to indemnify and to incur legal expenses on behalf of investors, directors, officers, employees, customers, vendors or other third-parties.
Companies operating in the robotics industry may face difficulty enforcing their patent and other intellectual property rights and may become subject to a substantial amount of litigation over these rights.
Companies operating in the robotics software industry may face difficulty enforcing their patent and other intellectual property rights and may become subject to a substantial amount of litigation over these rights.
Additionally, as our international presence expands, we may become subject to or face increasing obligations under laws and regulations in countries outside the United States, many of which, such as the European Union’s General Data Protection Regulation (“GDPR”) and national laws supplementing the GDPR, as well as legislation substantially implementing the GDPR in the United Kingdom, are significantly more stringent than those currently enforced in the United States.
Additionally, as our international presence expands, we may become subject to or face increasing obligations under laws and regulations in countries outside the United States, many of which, such as the European Union’s General Data Protection Regulation (“GDPR”) and national laws supplementing the GDPR, as well as legislation substantially implementing the GDPR in the United Kingdom, which generally are more stringent than those currently enforced in the United States.
These products may compete with our products and our patents and other intellectual property rights may not be effective or sufficient to prevent them from competing in those jurisdictions.
These products may compete with our software products and our patents and other intellectual property rights may not be effective or sufficient to prevent them from competing in those jurisdictions.
We may be subject to intellectual property infringement claims or misappropriation claims, which may be time consuming and expensive and, if adversely determined, could limit our ability to commercialize our products.
We may be subject to intellectual property infringement claims or misappropriation claims, which may be time consuming and expensive and, if adversely determined, could limit our ability to commercialize our software products.
Any failure to implement and maintain effective internal controls also could adversely affect the results of periodic management evaluations and annual independent registered public accounting firm attestation reports regarding the effectiveness of our internal control over financial reporting that we are required to include in our periodic reports that we file with the SEC under Section 404 of the Sarbanes-Oxley Act.
Any failure to implement and maintain effective internal controls also could adversely affect the results of periodic management evaluations and annual independent registered public accounting firm attestation reports regarding the effectiveness of our internal control over financial reporting to the extent we are required to include such evaluations and reports in our periodic reports that we file with the SEC under Section 404 of the Sarbanes-Oxley Act.
No assurance can be given that patents containing claims covering our products, technology or methods do not exist, have not been filed or could not be filed or issued.
No assurance can be given that patents containing claims covering our software products, technology or methods do not exist, have not been filed or could not be filed or issued.
If the U.S. government exercised its march-in rights in our future intellectual property rights that are generated through the use of U.S. government funding or grants, we could be forced to license or sublicense intellectual property we developed or that we license on terms unfavorable to us, and there can be no assurance that we would receive compensation from the U.S. government for the exercise of such rights.
If the U.S. government exercised its march-in rights in our intellectual property rights generated through the use of U.S. government funding or grants, we could be forced to license or sublicense intellectual property we developed or that we license on terms unfavorable to us, and there can be no assurance that we would receive compensation from the U.S. government for the exercise of such rights.
In addition, we have seen a significant increase in personnel and materials costs due to shortages of qualified personnel in the labor market and general inflationary pressures.
In addition, we have seen a significant increase in personnel costs due to shortages of qualified personnel in the labor market and general inflationary pressures.
We have been and may in the future be a target for cybersecurity attacks designed to disrupt our operations or to attempt to gain access to our systems, data processed or maintained in our business, trade secrets or other proprietary information or financial resources. Many of our employees work remotely which has increased security risks.
We have been and may in the future be a target for cybersecurity attacks designed to disrupt our operations or to attempt to gain access to our systems, data processed or maintained in our business, trade secrets or other proprietary information or financial resources. Some of our employees work remotely which has increased security risks.
A license may not be available on commercially reasonable terms or at all, and we may not be able to redesign our products to avoid infringement.
A license may not be available on commercially reasonable terms or at all, and we may not be able to redesign our software products to avoid infringement.
In addition, the net operating loss carryforwards are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities.
In addition, our net operating loss carryforwards are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities.
Because of the innovative nature of our technology, individuals with the necessary experience have not been, and likely will continue not to be, readily available to hire, and as a result, we will need to expend significant time and expense to recruit and retain experienced employees and appropriately train any newly hired employees.
Because of the innovative and advanced nature of our technology, individuals with the necessary experience have not been, and likely will continue not to be, readily available to hire, and as a result, we may need to expend significant time and expense to recruit and retain experienced employees and appropriately train any newly hired employees.
Depending on the fair value 55 of our Common Stock and the number of awards vesting on any applicable vesting date, such net settlement could require us to expend substantial funds to satisfy tax withholding. The markets for our Common Stock and Warrants have been volatile and may not continue at all.
Depending on the fair value of our Common Stock and the number of awards vesting on any applicable vesting date, such net settlement could require us to expend substantial funds to satisfy tax withholding. 40 The markets for our Common Stock and Warrants have been volatile and may not continue at all.
Even if we are able to successfully develop our products when anticipated, we may not produce sales in excess of the costs of development, and our products may be quickly rendered obsolete by changing customer preferences or the introduction by competitors of products embodying new technologies or features.
Even if we are able to successfully develop our software platform when anticipated, we may not produce sales in excess of the costs of development, and our software platform may be quickly rendered obsolete by changing customer preferences or the introduction by competitors of products embodying new technologies or features.
In particular, given the popularity of social media, any negative publicity, whether true or not, could quickly proliferate and harm perceptions and confidence in our brands. Furthermore, there is the risk of potential adverse publicity related to our manufacturing or other partners whether or not such publicity is related to their collaboration with us.
In particular, given the popularity of social media, any negative publicity, whether true or not, could quickly proliferate and harm perceptions and confidence in our brands. Furthermore, there is the risk of potential adverse publicity related to our partners whether or not such publicity is related to their collaboration with us.
Moreover, strategic partners, competitors or others may raise legal challenges against our intellectual property rights or may infringe upon our intellectual property rights, including through means that may be difficult to detect or prevent. 52 Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions.
Moreover, strategic partners, competitors or others may raise legal challenges against our intellectual property rights or may infringe upon our intellectual property rights, including through means that may be difficult to detect or prevent. 38 Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions.
We are continuing to develop and refine our disclosure controls, internal control over financial reporting and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we will file with the SEC is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that information required to be disclosed in reports under the Exchange Act is accumulated and communicated to our principal executive and financial officers.
We are continuing to develop and refine our disclosure controls, internal control over financial reporting and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we will file with the SEC is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that information required to be disclosed in reports under the Exchange Act is accumulated and communicated to our principal executive and financial officers in a timely manner.
Also, because the claims of published patent applications can change between publication and patent grant, published applications that initially do not appear to be problematic may issue with claims that potentially cover our products, technology or methods.
Also, because the claims of published patent applications can change between publication and patent grant, published applications that initially do not appear to be problematic may issue with claims that potentially cover our software, technology or methods.
A product liability claim, regardless of its merit or eventual outcome, could result in significant legal defense costs and high punitive damage payments, damage to our reputation or require significant costs to redesign or fix our products. Although we maintain product liability insurance, the coverage is subject to deductibles and limitations, and may not be adequate to cover future claims.
A product liability claim, regardless of its merit or eventual outcome, could result in significant legal defense costs and high punitive damage payments, damage our reputation or require significant costs to redesign or fix our software platform. Although we maintain product liability insurance, the coverage is subject to deductibles and limitations, and may not be adequate to cover future claims.
Moreover, there are inherent risks associated with developing, improving, expanding and updating our current systems, such as the disruption of our data management, procurement, production execution, finance, supply chain and sales and service processes.
Moreover, there are inherent risks associated with developing, improving, expanding and updating our current systems, such as the disruption of our data management, procurement, production execution, finance and sales and service processes.
We have also entered into indemnification agreements with directors and officers that require us, among other things, to indemnify them against claims that may arise do to their service in those capacities.
We have also entered into indemnification agreements with directors and officers that require us, among other things, to indemnify them against claims that may arise due to their service in those capacities.
As a result, our future capital requirements are uncertain and actual capital requirements may be different from those we currently anticipate. We may need to seek equity or debt financing to finance a portion of our capital expenditures, and such financing might not be available to us in a timely manner or on terms that are acceptable, or at all.
As a result, our future capital requirements are uncertain and actual capital requirements may be different from those we currently anticipate. We may need to seek equity or debt financing to finance our expenses and capital expenditures, and such financing might not be available to us in a timely manner or on terms that are acceptable, or at all.
Moreover, international sales of certain of our products may be subject to first obtaining licenses, clearances or authorizations from various regulatory entities. If we are not allowed to export our products or the clearance process is burdensome and costly, our ability to generate revenue would be adversely affected.
Moreover, international sales of our software may be subject to first obtaining licenses, clearances or authorizations from various regulatory entities. If we are not allowed to export our software or the clearance process is burdensome and costly, our ability to generate revenue would be adversely affected.
In addition, we may fail to apply for or be unable to obtain patents necessary to protect our technology or products from competition or fail to enforce our patents due to lack of information about the exact use of technology or processes by third parties or for a variety of other reasons.
In addition, we may fail to apply for or be unable to obtain patents necessary to protect our technology or software platform from competition or fail to enforce our patents due to lack of information about the exact use of technology or processes by third parties or for a variety of other reasons.
As a publicly-traded company, we are incurring legal, accounting and other expenses that we previously did not have, and these expenses may increase even more as we continue to implement and strengthen controls, processes and systems and to hire related personnel and after we are no longer an emerging growth company, as defined in Section 2(a) of the Securities Act.
As a publicly-traded company, we are incurring legal, accounting and other expenses that we previously did not have, and these expenses may increase as we continue to implement and strengthen controls, processes and systems and employ related personnel and after we are no longer an emerging growth company, as defined in Section 2(a) of the Securities Act.
If we fail in defending such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel or be forced to seek a license, which may not be available on commercially acceptable terms or at all.
If we fail to defend against such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel or be forced to seek a license, which may not be available on commercially acceptable terms or at all.
If we do not regain compliance by July 22, 2023, we may be eligible for an additional 180 calendar day compliance period if we elect (and meet the listing standards) to transfer to The Nasdaq Capital Market to take advantage of the additional compliance period offered on that market, unless it does not appear to Nasdaq that it is possible for us to cure the deficiency.
If we do not regain compliance by April 22, 2024, we may be eligible for an additional 180 calendar day compliance period if we elect (and meet the listing standards) to transfer to The Nasdaq Capital Market to take advantage of the additional compliance period offered on that market, unless it does not appear to Nasdaq that it is possible for us to cure the deficiency.
If some investors find our Common Stock or Public Warrants less attractive as a result of these exemptions and reduced disclosure as an emerging growth company, there may be a less active trading market for and/or more price volatility with respect to our Common Stock or Public Warrants. Item 1B. Unresolved Staff Comments. None.
If some investors find our Common Stock or Public Warrants less attractive as a result of these exemptions and reduced disclosure as an emerging growth company, there may be a less active trading market for and/or more price volatility with respect to our Common Stock or Public Warrants. 45 Item 1B. Unresolv ed Staff Comments. None.
In addition, unauthorized parties may attempt to copy or reverse engineer certain aspects of our products that we consider proprietary or our proprietary information may otherwise become known or may be independently developed by our competitors or other third parties.
In addition, unauthorized parties may attempt to copy or reverse engineer certain aspects of our software or other technologies that we consider proprietary or our proprietary information may otherwise become known or may be independently developed by our competitors or other third parties.
In these circumstances, we may not be able to sell our products at competitive prices or at all, and our business, prospects, financial condition and operating results could be harmed. 53 Intellectual property discovered through government funded programs may be subject to federal regulations such as “march-in” rights, certain reporting requirements and a preference for U.S.-based companies.
In these circumstances, we may not be able to sell our software products at competitive prices or at all, and our business, prospects, financial condition and operating results would be harmed. 39 Intellectual property discovered through government funded programs may be subject to federal regulations such as “march-in” rights, certain reporting requirements and a preference for U.S.-based companies.
An inability to generate positive cash flow for the near term may adversely affect our ability to raise capital for our business on reasonable terms, diminish supplier or customer willingness to enter into transactions with us and have other adverse effects that may decrease our long-term viability.
An inability to generate positive cash flow for the near term may adversely affect our ability to raise capital for our business on reasonable terms, pursue our business objectives, diminish customer willingness to enter into transactions with us and have other adverse effects that may decrease our long-term viability.
We are subject to reporting and other requirements of the Exchange Act, the Sarbanes-Oxley Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act, as well as rules adopted by the SEC and Nasdaq. Our management and other personnel will be devoting a substantial amount of time to these compliance initiatives.
We are subject to reporting and other requirements of the Exchange Act, the Sarbanes-Oxley Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act, as well as rules adopted by the SEC and Nasdaq. Our management and other personnel devote a substantial amount of time to these compliance initiatives.
Any change in export, import or economic sanctions laws and regulations, shift in the enforcement or scope of existing laws and regulations or change in the countries, governments, persons or technologies targeted by such laws and regulations could also result in decreased use of our robotic systems and solutions, as well as our decreased ability to export or market our robotic systems and solutions to potential customers.
Any change in export, import or economic sanctions laws and regulations, shift in the enforcement or scope of existing laws and regulations or change in the countries, governments, persons or technologies targeted by such laws and regulations could also result in decreased use of our software platform systems, as well as our decreased ability to export or market our software to potential customers.
On January 23, 2023, we received written notice from the Listing Qualifications Department of Nasdaq notifying us that, based on the closing bid price of our Common Stock for the previous 30 consecutive business days, we no longer comply with the minimum bid price requirement for continued listing on The Nasdaq Global Market.
On October 24, 2023, we received written notice from the Listing Qualifications Department of Nasdaq notifying us that, based on the closing bid price of our Common Stock for the previous 30 consecutive business days, we no longer comply with the minimum bid price requirement for continued listing on The Nasdaq Global Market.
We expect that the requirements of the Exchange Act, the Sarbanes-Oxley Act and the rules and regulations of Nasdaq will continue to increase our legal, accounting and financial compliance costs, make some activities more difficult, time-consuming and costly, and place significant strain on personnel, systems and resources.
We expect that the requirements of the Exchange Act, the Sarbanes-Oxley Act and the rules and regulations of Nasdaq will continue to result in significant legal, accounting and financial compliance costs, make some activities more difficult, time-consuming and costly, and place significant strain on personnel, systems and resources.
Our management has broad discretion in making strategic decisions to execute our growth plans and may devote time and company resources to new or expanded solution offerings, potential acquisitions, prospective customers or other initiatives that do not necessarily improve our operating results or contribute to our growth.
Our management has broad discretion in making strategic decisions to execute our growth plans and may devote time and company resources to new or expanded product offerings, potential acquisitions or strategic alliances, prospective customers 23 or other initiatives that do not necessarily improve our operating results or contribute to our growth.
To regain compliance, the closing bid price of our Common Stock must be at least $1.00 per share for a minimum of 10 consecutive business days by July 22, 2023, and we must otherwise satisfy The Nasdaq Global Market’s requirements for listing.
To regain compliance, the closing bid price of our Common Stock must be at least $1.00 per share for a minimum of 10 consecutive business days by April 22, 2024, and we must otherwise satisfy The Nasdaq Global Market’s requirements for listing.
Our ability to successfully position our brands could also be adversely affected by perceptions about the quality of our competitors’ products.
Our ability to successfully position our brand could also be adversely affected by perceptions about the quality of our competitors’ products.
We are or may be subject to risks associated with strategic alliances or acquisitions and may not be able to identify adequate strategic relationship opportunities, or form strategic relationships, in the future. We may seek to enter into strategic alliances, joint ventures, minority equity investments, acquisitions, collaborations and in-license arrangements.
We have been or may in the future be subject to risks associated with strategic relationships or transactions and may not be able to identify adequate strategic relationship opportunities, or form strategic relationships, in the future. We may seek to enter into strategic alliances, joint ventures, minority equity investments, acquisitions, collaborations and in-license arrangements.
If we fail to adequately communicate to customers product improvements throughout the development process, or if customer feedback is not adequately reflected in our product improvements, customers may not be persuaded of the value of our products.
If we fail to adequately communicate to customers product improvements throughout the development process, or if customer feedback is not adequately reflected in our product improvements, customers may not be persuaded of the value of our software platform.
As a result of these factors, we believe that quarter-to-quarter comparisons of our financial results, especially in the short term, are not necessarily meaningful and that these comparisons cannot be relied upon as indicators of future performance.
As a result of these factors, we believe that quarter-to-quarter comparisons of our operating results, especially in the near term, are not necessarily meaningful and that these comparisons cannot be relied upon as indicators of future performance.
In addition, changes to our robotic systems and solutions, or changes in applicable export control, import or economic sanctions laws and regulations may create delays in the introduction and sale of our robotic systems and solutions, constrain collaboration with suppliers or other business partners or, in some cases, prevent the export or import of our robotic systems and solutions to certain countries, governments or persons altogether.
In addition, changes to our software, or changes in applicable export control, import or economic sanctions laws and regulations may create delays in the introduction and sale of our software platform, constrain collaboration with suppliers or other business partners or, in some cases, prevent the export or import of our software to certain countries, governments or persons altogether.
The IT and infrastructure used in our business may be vulnerable to cyberattacks or security breaches or incidents, and third parties may be able to access data, including personal data and other sensitive and proprietary data of us and our customers, collaborators and partners, our employees’ personal data or other sensitive and proprietary data accessible through those systems, or such data otherwise may be subject to unauthorized use, disclosure, unavailability, modification or other processing.
The IT and infrastructure used in our business may be vulnerable to cyber attacks or security breaches or incidents, and third parties may be able to access data, including personal data and other sensitive 34 and proprietary data of ours and our customers, collaborators and partners, our employees’ personal data or other sensitive and proprietary data accessible through those systems, or such data otherwise may be subject to unauthorized use, disclosure, unavailability, modification or other processing.
We might not be able to obtain any funding, and might not have sufficient resources to conduct our business as projected, both of which could mean that we would be forced to curtail or discontinue our operations.
We might not be able to obtain any funding, and might not have sufficient resources to conduct our business as projected or at all, either of which could mean that we would be forced to curtail or discontinue our operations.
Even after achieving positive operating cash flows, we may need to raise significant amounts of additional capital to fund our business thereafter, including to finance ongoing research and development costs, manufacturing, any significant unplanned or accelerated expenses and new strategic alliances or acquisitions.
Even if we generate positive operating cash flows, we may need to raise significant amounts of additional capital to fund our business thereafter, including to finance ongoing research and development costs, any significant unplanned or accelerated expenses and new strategic alliances or acquisitions.
If we are unable to obtain or maintain adequate protection for our intellectual property, or if any protection is reduced or eliminated, competitors may be able to use our technologies, resulting in harm to our competitive position and our business. We may not be able to protect our intellectual property rights in all countries.
If we are unable to obtain or maintain adequate protection for our intellectual property, or if any protection is reduced or eliminated, competitors may be able to use our technologies, resulting in harm to our competitive position and our business. We may not be able to effectively protect our intellectual property rights in our target markets or at all.
In addition, we may not be aware of manufacturing defects until injury to person or property has occurred. Such adverse events could lead to recalls or safety alerts relating to our products (either voluntary or required by governmental authorities), and could result, in certain cases, in the removal of our products from the market.
In addition, we may not be aware of design Defects until injury to person or property has occurred. Such adverse events could lead to safety alerts relating to our software platform (either voluntary or required by governmental authorities), and could result, in certain cases, in the removal of our software platform from the market.
We are at risk for interruptions, outages and breaches of our: (a) operational systems, including business, financial, accounting, product development, data processing or production processes, owned by us or our third-party vendors or suppliers; (b) facility security systems, owned by us or our third-party vendors or suppliers; (c) transmission control modules or other in-product technology, owned by us or our third-party vendors or suppliers; (d) the integrated software in our systems; and (e) customer data that we process or our third-party vendors or suppliers process on our behalf.
We are at risk for interruptions, outages and breaches of (a) operational systems, including business, financial, accounting, product development, data processing or production processes, owned by us or our third-party vendors or suppliers; (b) facility security systems, owned by us or our third-party vendors or suppliers; (c) in-product technology, owned by us or our third-party vendors; (d) our software, including third-party software we license; and (e) customer data that we process or our third-party vendors process on our behalf.
We have expanded our employee base and we will need to hire additional employees to support our operations as a public company, which will increase our operating costs in future periods. Moreover, these rules and regulations have substantially increased our legal and financial compliance costs and make some activities more time-consuming and costly.
We may need to hire additional employees to support our operations as a public company, which will increase our operating costs in future periods. Moreover, these rules and regulations have substantially increased our legal and financial compliance costs and make some activities more time-consuming and costly. These increased costs have increased our net loss.
In addition, the laws of some foreign countries, especially developing countries, such as China, do not protect intellectual property rights to the same extent as federal and state laws in the United States.
In addition, the laws of some of our target markets, especially developing countries, such as China, do not protect intellectual property rights to the same extent as federal and state laws in the United States.
If one or more of the targeted markets experience a shift in customer demand, whether due to new solutions that better address customer needs or otherwise, our products may not compete as effectively, if at all, and they may not be fully developed into commercial products.
If one or more of the targeted markets experience a shift in customer demand, whether due to new solutions that better address customer needs or otherwise, our software platform may not compete as effectively, if at all, and it may not be fully developed into a commercial software product.
In addition, the risk of state-supported and geopolitical-related cybersecurity attacks is believed to be heightened in connection with the war in Ukraine and any related political or economic responses and counter-responses.
In addition, the risk of state-supported and geopolitical-related cybersecurity attacks is believed to be heightened in connection with international conflicts and any related political or economic responses and counter-responses.
Our products and technology are subject to compliance with any applicable export control, import and economic sanctions laws and regulations, including the U.S. Export Administration Regulations, U.S. International Traffic in Arms Regulations, U.S. Customs regulations and various economic and trade sanctions regulations administered by the U.S. Treasury Department’s Office of Foreign Assets Control.
Our AI/ML Software Platform and technology are subject to compliance with applicable export control, import and economic sanctions laws and regulations, including the U.S. Export Administration Regulations, U.S. International Traffic in Arms Regulations, U.S. Customs regulations and various economic and trade sanctions regulations administered by the U.S. Treasury Department’s Office of Foreign Assets Control.
If we do not develop and maintain strong brands, our business, prospects, financial condition and operating results will be materially and adversely impacted. In addition, if safety incidents occur or are perceived to have occurred, whether or not such incidents are our fault, we could be subject to adverse publicity or resistance by employees of our customers or labor unions.
If we do not develop and maintain a strong brand, our business, prospects, financial condition and operating results will be materially and adversely impacted. In addition, if safety incidents occur or are perceived to have occurred, whether or not such incidents are our fault, we could be subject to adverse publicity or resistance by our customers.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeItem 2. Properties. Our primary corporate and manufacturing facility is located in Salt Lake City, Utah consisting of approximately 61,000 square feet of leased space. The lease expires in May 2033 and has two options to extend the lease for three-year periods.
Biggest changeItem 2. Properties. Our primary facility is located in Salt Lake City, Utah consisting of approximately 61,000 square feet of leased space. The lease expires in May 2033 and has two options to extend the lease for three-year periods. Should we need additional space, we believe we will be able to obtain additional space on commercially reasonable terms.
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In addition to our location in Salt Lake City, Utah, we have facilities in Pittsburgh, Pennsylvania consisting of approximately 52,000 square feet of leased space. Should we need additional space, we believe we will be able to obtain additional space on commercially reasonable terms.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeRegardless of outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors. Item 4. Mine Safety Disclosures. Not applicable. 60 PART II
Biggest changeRegardless of outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors. Item 4. Mine Safety Disclosures. Not applicable. 46 PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeAny future determination to declare dividends will be made at the discretion of our board of directors and will depend on our financial condition, operating results, capital requirements, general business conditions and other factors that our board of directors may deem relevant. Recent Sales of Unregistered Securities None. Item 6. [Reserved.] 61
Biggest changeAny future determination to declare dividends will be made at the discretion of our board of directors and will depend on our financial condition, operating results, capital requirements, general business conditions and other factors that our board of directors may deem relevant. Recent Sales of Unregistered Securities None. Purchases of Equity Securities by the Issuer and Affiliated Purchasers None.
Holders As of March 1, 2023, there were 275 stockholders of record of our Common Stock and 31 holders of record of our warrants. Dividend Policy We currently intend to retain all available funds and any future earnings to fund the growth and development of our business. We have never declared or paid any cash dividends on our capital stock.
Holders As of February 14, 2024, there were 429 stockholders of record of our Common Stock and 29 holders of record of our warrants. Dividend Policy We currently intend to retain all available funds and any future earnings to fund the growth and development of our business. We have never declared or paid any cash dividends on our capital stock.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeOther Income (Loss) The following table presents other income (loss) for the twelve months ended December 31, 2022 and 2021: Year Ended December 31, 2022 vs. 2021 Change (In thousands) 2022 2021 Change % Change Other income (loss) Interest income (expense), net $ 1,831 $ (34 ) $ 1,865 (5,485 )% Gain (loss) on warrant liability 13,442 (4,927 ) 18,369 (373 )% Gain on forgiveness of notes payable — 4,394 (4,394 ) (100 )% Other income, net 743 51 692 1,357 % Total other income (loss) $ 16,016 $ (516 ) $ 16,532 (3,204 )% Other income was $16.0 million for the twelve months ended December 31, 2022, as compared to other loss of $0.5 million for the twelve months ended December 31, 2021, as a result of the increase in unrealized mark-to-market gain on our outstanding private placement warrants and increased interest income, partially offset by the gain on forgiveness of notes payable recorded in the prior year period in connection with the forgiveness of our PPP loans.
Biggest changeOther Income (Loss) The following table presents other income (loss) for the years ended December 31, 2023 and 2022: Year Ended December 31, 2023 vs. 2022 Change (In thousands) 2023 2022 Change % Change Other income Interest income, net $ 3,294 $ 1,831 $ 1,463 80 % Gain on warrant liability 162 13,442 (13,280 ) (99 )% Other income, net 1,914 743 1,171 158 % Total other income $ 5,370 $ 16,016 $ (10,646 ) (66 )% Other income decreased by $10.6 million for the year ended December 31, 2023 as compared to the prior year period as a result of decreased unrealized mark-to-market gains on our outstanding private placement warrants, partially offset by increased interest income from our investments in marketable securities and increased other income related to employee retention credit refunds received during the current year.
Based on the nature of the Company’s research and development contracts, the work to be performed is often complex and may involve new processes, procedures, and tasks which 71 creates uncertainty in estimating contract costs. All estimates impacting revenue recognition, including estimates of total expected costs, or Estimates at Completion, are reviewed on a periodic basis, at least quarterly.
Based on the nature of the Company’s research and development contracts, the work to be performed is often complex and may involve new processes, procedures, and tasks which creates uncertainty in estimating contract costs. All estimates impacting revenue recognition, including estimates of total expected costs, or Estimates at Completion, are reviewed on a periodic basis, at least quarterly.
At the time product revenue is recognized, an accrual is established for estimated warranty expenses based on historical experience as well as anticipated product performance. Operating Expenses Cost of Revenue Our cost of revenue consists of direct and overhead expenses related to either the sale of our products or our product development contract revenue.
At the time product revenue is recognized, an accrual is established for estimated warranty expenses based on historical experience as well as anticipated product performance. 50 Operating Expenses Cost of Revenue Our cost of revenue consists of direct and overhead expenses related to either the sale of our products or our product development contract revenue.
In addition, general and administrative expenses include insurance, 65 public company compliance related costs, including outside legal and accounting expenses, other professional fees, facilities and IT expense not allocated to other operating expense categories, and related overhead expense.
In addition, general and administrative expenses include insurance, public company compliance related costs, including outside legal and accounting expenses, other professional fees, facilities and IT expense not allocated to other operating expense categories, and related overhead expense.
During the fourth quarter of 2022, due to the sustained decreases in our publicly quoted share price and market capitalization, we performed a quantitative goodwill impairment test.
During the fourth quarter of 2022, due to the sustained decreases in our publicly quoted share price and market 51 capitalization, we performed a quantitative goodwill impairment test.
Any delays in the successful completion of the commercialization of our products will negatively impact our ability to generate revenue, our profitability and our overall operating performance. In addition, we may enter into arrangements to acquire or invest in complementary businesses, services and technologies, which may require acquisition capital as well as operational capital for these acquisitions or arrangements.
Any delays in the successful commercialization of our software product will negatively impact our ability to generate revenue, our profitability and our overall operating performance. In addition, we may enter into arrangements to acquire or invest in complementary businesses, services and technologies, which may require acquisition capital as well as operational capital for these acquisitions or arrangements.
All long-lived assets are maintained in, and all losses are attributable to, the United States of America. See Note 14, Segment Information, in the accompanying consolidated financial statements for more information about our operating segment. 64 Components of Results of Operations Revenue, net We derive our revenue from two sources.
All long-lived assets are maintained in, and all losses are attributable to, the United States of America. See Note 13, Segment Information, in the accompanying consolidated financial statements for more information about our operating segment. Components of Results of Operations Revenue, net We historically derived our revenue from two sources.
In accordance with Accounting Standards Codification 606, for fixed price contracts, we will recognize losses at the contract level in earnings in the period in which they are incurred. Product Revenue Product revenue relates to sales of our products, and certain miscellaneous parts, accessories and repair services. We provide a limited one-year warranty on product sales.
In accordance with Accounting Standards Codification 606, for fixed price contracts, we will recognize losses at the contract level in earnings in the period in which they are incurred. Product Revenue Product revenue has related to sales of our products, and certain miscellaneous parts, accessories and repair services. We have generally provided a limited one-year warranty on hardware product sales.
The amount and timing of our future funding requirements will depend on many factors, including the pace and results of our product development efforts, our ability to manufacture, sell and deliver commercial products and thereby recognize associated revenue, capital requirements to build commercial products prior to receiving payments sufficient to cover our costs and our ability to lower product costs as volumes increase.
The amount and timing of our future funding requirements will depend on many factors, including the pace and results of our product development efforts, our ability to sell our software products and thereby recognize associated revenue, capital and human capital requirements to develop a commercial version of our software platform prior to receiving payments sufficient to cover our costs and our ability to lower product costs as volumes increase.
Product Development Contract Revenue Cost-type contracts – Research, development and/or testing service contracts, including cost-plus-fixed-fee and time and material contracts, relate primarily to the development of our robotics systems and related technology. Cost-type contracts are generally entered into with the U.S. government.
We have not yet recognized any such licensing revenue. Product Development Contract Revenue Cost-type contracts – Research, development and/or testing service contracts, including cost-plus-fixed-fee and time and material contracts, relate primarily to the development of our robotics systems, software and related technology. Cost-type contracts are generally entered into with the U.S. government.
Among other things, these and similar factors can affect our supply chain, our ability to hire qualified personnel, our labor and materials costs, the prices we charge for our products and the budgets of our customers and their expected return-on-investment from the purchase of or subscription for our products.
Among other things, these and similar factors can affect our ability to hire or retain qualified personnel, our labor and materials costs, the prices we charge for our software platform and the budgets of our customers and their expected return-on-investment from the purchase of a license for our software platform.
Goodwill Impairment We fully impaired our goodwill and recorded a non-cash goodwill impairment of $70.2 million for the twelve months ended December 31, 2022 compared to no impairment for the twelve months ended December 31, 2021. The non-cash goodwill impairment was primarily driven by the sustained decrease in the Company’s publicly quoted share price and market capitalization.
Goodwill Impairment During the year ended December 31, 2022, we fully impaired our goodwill and recorded a non-cash goodwill impairment of $70.2 million. The non-cash goodwill impairment was primarily driven by the sustained decrease in our publicly quoted share price and market capitalization.
The increase in cash used in investing activities is due to the purchase of marketable securities during the twelve months ended December 31, 2022 of $77.9 million, net of maturities, and $29.7 million of net cash used as part of the purchase consideration for the RE2 acquisition.
The increase in cash provided by investing activities is predominantly due to $65.5 million of maturities of marketable securities, net of purchases, during the twelve months ended December 31, 2023, as compared to the $77.9 million of purchase of marketable securities, net of maturities, and $29.7 million of net cash that was included as part of the purchase consideration for the RE2 acquisition during the twelve months ended December 31, 2022.
Our critical accounting policies and estimates include those related to: Revenue Recognition We recognize revenue from the sale of our robotic systems and from contractual arrangements to perform product development contract services that are fully funded by our customers.
Our critical accounting policies and estimates include those related to: Revenue Recognition We have historically recognized revenue from our products and from contractual arrangements to perform product development contract services that are fully funded by our customers.
First, we enter into research and development agreements primarily relating to the commercialization of our products. Second, we sell our products and related parts and repair services. Product development contract revenue consists of revenue arising from different types of contractual arrangements, including cost-type contracts and fixed-price contracts. Product revenue primarily consists of sales of the Company’s products.
First, we enter into research and development agreements primarily relating to the commercialization of our products. We expect to continue to derive revenue from research and development agreements in future periods. Product development contract revenue consists of revenue arising from different types of contractual arrangements, including cost-type contracts and fixed-price contracts.
This increase was driven by an increase in professional service fees due to the engagement of a third-party vendor utilized in data management of our products and services, and increased headcount expenses, including increased stock-based compensation expense and increased expenses related to additional headcount due in part to our RE2 acquisition.
This increase was driven by an increase in professional service fees related to third-party platform expense utilized in data management of our products and services, increased promotional and event expense during the current year period, and increased expenses related to additional headcount due in part to our RE2 acquisition.
The increase to net cash used in operating activities was primarily attributable to a $75.6 million increase to net loss, an $18.4 million increase to gains on warrant liability revaluation and a $7.5 million decrease in stock-based compensation, partially offset by goodwill impairment of $70.2 million and $6.0 million of other non-cash expenses.
The increase to net cash used in operating activities was primarily attributable to a net decrease of $50.2 million in non-cash expenses driven mainly by decreases in goodwill impairment and stock-based compensation, offset partially by a $41.5 million decrease to net loss, a decrease to gains on warrant liability revaluation and an increase in asset write-down expenses.
Intangible Amortization Expense Amortization of intangible assets primarily consists of amortization of identified finite-lived trade name and trademarks, developed technology, and customer relationship assets that were allocated a portion of the purchase price from the acquisition of RE2.
Intangible Amortization Expense Amortization of intangible assets primarily consists of amortization of identified finite-lived trade name and trademarks, developed technology, and customer relationship assets that were allocated a portion of the purchase price from the acquisition of RE2. These costs are amortized on a straight-line basis over their expected useful lives.
During the fourth quarter of 2022 we also tested our intangible assets with definite lives for impairment and found no impairment. 72 Recent Accounting Pronouncements See Note 1, Basis of Presentation and Summary of Significant Accounting Policies, to consolidated financial statements included elsewhere in this Annual Report on Form 10-K for recently adopted accounting pronouncements and recently issued accounting pronouncements not yet adopted as of the date of this Annual Report on Form 10-K.
Recent Accounting Pronouncements See Note 1, Basis of Presentation and Summary of Significant Accounting Policies, to consolidated financial statements included elsewhere in this Annual Report on Form 10-K for recently adopted accounting pronouncements and recently issued accounting pronouncements not yet adopted as of the date of this Annual Report on Form 10-K.
This may make it difficult or impossible to compare our financial results with the financial results of another public company that is either not an emerging growth company or is an emerging growth company that has chosen not to take advantage of the extended transition period exemptions because of the potential differences in accounting standards used.
This may make it difficult or impossible to compare our financial results with the financial results of another public company that is either not an emerging growth company or is an emerging growth company that has chosen not to take advantage of the extended transition period exemptions because of the potential differences in accounting standards used. 56 Critical Accounting Policies and Estimates Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with GAAP.
If customer demand does not develop as expected or we do not accurately forecast pricing, adoption rates and sales cycles for our products, our business, results of operations and financial condition will be adversely affected. Manufacturing of Our Products To the extent we obtain commercial orders for our products, we will need to manufacture and deliver them to our customers.
If customer demand does not develop as expected or we do not accurately forecast pricing, adoption rates and sales cycles for our AI/ML Software Platform, our business, results of operations and financial condition will be adversely affected.
The income tax benefit recorded during the twelve months ended December 31, 2022 is due to the removal of a portion of our previously recorded valuation allowance on our net deferred tax assets associated with net deferred tax liabilities recorded as part of the acquisition of RE2, resulting in an income tax benefit recognized during the period.
The income tax benefit recorded during the year ended December 31, 2022 was due to the removal of a portion of our previously recorded valuation allowance on our net deferred tax assets associated with net deferred tax liabilities recorded as part of the acquisition of RE2, resulting in an income tax benefit recognized during the prior year period. 54 Backlog and Total Estimated Contract Value Our backlog, as of December 31, 2023, was $8.1 million, $6.5 million of which was funded and $1.6 million of which was unfunded.
Income Tax Benefit (Expense) Income tax benefit increased to $3.9 million for the twelve months ended December 31, 2022, compared to $0.0 million in income tax expense for the twelve months ended December 31, 2021.
Income Tax Benefit (Expense) Income tax benefit decreased to $7,000 for the year ended December 31, 2023, compared to $3.9 million in income tax benefit for the year ended December 31, 2022.
However, our financial performance is significantly dependent on our ability to maintain this leading position and further dependent on the investments we make in research and development.
We believe our financial performance is significantly dependent on our ability to successfully commercialize our advanced AI/ML technologies and further dependent on the investments we make in research and development.
Our research and development expenses may fluctuate as a percentage of our revenue from period to period due to the timing and extent of these expenses. General and Administrative Our general and administrative expenses consist primarily of employee-related costs for our finance, legal, people success and other administrative teams, as well as certain executives.
General and Administrative Our general and administrative expenses consist primarily of employee-related costs for our finance, legal, people success and other administrative teams, as well as certain executives.
Income Tax Benefit (Expense ) Income taxes consist of taxes currently due plus deferred income taxes related primarily to differences between the tax bases and financial reporting bases of assets and liabilities.
Other Income, net Other income, net consists primarily of other miscellaneous non-operating items such as proceeds from the CARES Act employee retention credit. Income Tax Benefit (Expense ) Income taxes consist of taxes currently due plus deferred income taxes related primarily to differences between the tax bases and financial reporting bases of assets and liabilities.
The increase in intangible amortization expense is due to the recognition of amortization expenses for the identified intangible assets recorded as part of the RE2 acquisition.
Intangible Amortization Expense Intangible amortization expenses increased by $0.6 million, from $2.2 million for the year ended December 31, 2022, to $2.8 million for the year ended December 31, 2023. The increase in intangible amortization expense is due to the recognition of amortization expenses on identified intangible assets recorded as part of the RE2 acquisition.
Geopolitical and Macro-economic Environment Geopolitical and macro-economic factors, such as inflation, rising interest rates, oil prices, unemployment rates, the war in Ukraine, volatility in the stock market and political or social unrest, can have significant impacts on economic activity, which in turn could affect demand for our products or our ability to cost-effectively develop, sell and manufacture our products.
If we fail to do this, our market position and revenue may be adversely affected, and our investments in these technologies will not be recovered. 49 Geopolitical and Macro-economic Environment Geopolitical and macro-economic factors, such as inflation, interest rates, oil prices, unemployment rates, international conflicts, such as the wars between Israel and Hamas and between Russia and Ukraine, volatility in the stock market and political or social unrest, can have significant impacts on economic activity, which in turn could affect demand for our AI/ML Software Platform or our ability to cost-effectively develop and sell our software platform.
Comparison of the Year Ended December 31, 2022, and 2021 Revenue, net The following table presents our revenue for the twelve months ended December 31, 2022 and 2021: Year Ended December 31, 2022 vs. 2021 Change (In thousands) 2022 2021 Change % Change Product Development Contract Revenue $ 14,239 $ 3,584 $ 10,655 297 % Product Revenue 330 1,491 (1,161 ) (78 )% Revenue, net $ 14,569 $ 5,075 $ 9,494 187 % Revenue increased by $9.5 million, or 187%, from $5.1 million in the twelve months ended December 31, 2021, to $14.6 million in the twelve months ended December 31, 2022, as explained below.
Comparison of the Years Ended December 31, 2023 and 2022 Revenue, net The following table presents our revenue for the years ended December 31, 2023 and 2022: Year Ended December 31, 2023 vs. 2022 Change (In thousands) 2023 2022 Change % Change Product Development Contract Revenue $ 5,256 $ 14,239 $ (8,983 ) (63 )% Product Revenue 890 330 560 170 % Revenue, net $ 6,146 $ 14,569 $ (8,423 ) (58 )% Revenue decreased by $8.4 million, or 58%, from $14.6 million in the year ended December 31, 2022, to $6.1 million in the year ended December 31, 2023, as explained below.
Gain (Loss) Warrant Liability Gain (loss) on warrant liability consists of the change in fair value of the private placement warrants we assumed as part of the Business Combination.
Portions of our cash resided in money market investments and in U.S. Treasury securities at various points during the year. Gain (Loss) Warrant Liability Gain (loss) on warrant liability consists of the change in fair value of the private placement warrants we assumed as part of the Business Combination.
Financing of Operations Prior to commercialization, we must complete the development, testing and manufacturing requirements of our products. As a result, we will spend a material portion of our cash on hand to develop our products and fund operations for the foreseeable future.
Financing of Operations Prior to commercialization, we must complete the development and testing of our AI/ML Software Platform. As a result, we will use our cash on hand to develop our software platform and fund operations as we seek to commercialize and achieve revenue from the sale of the product.
It is important that we continually identify and respond to rapidly evolving customer requirements, develop and introduce innovative new products, enhance and service existing products and generate active market demand for our robotic systems. If we fail to do this, our market position and revenue may be adversely affected, and our investments into these technologies will not be recovered.
It is important that we continually identify and respond to rapidly evolving customer requirements and competitive threats, develop and introduce innovative products, enhance our products and generate active market demand for our products.
Timelines may be delayed, including due to challenges in recruiting skilled employees, difficulties in securing components and materials, development delays, difficulties relating to manufacturing of the units and other factors discussed under Part I Item 1A Risk Factors “ Risks Related to Our Business and Industry. ” Such challenges may result in further delay of the anticipated commercial launch of one or more of our products, which would adversely affect our financial condition and operating results.
Whether we are successful depends on many factors, including those discussed under Part I Item 1A Risk Factors “ Risks Related to Our Business. ” Such risks may result in delay of the anticipated commercial launch of our software platform, which would adversely affect our financial condition and operating results.
Research and Development Research and development expenses are mainly comprised of costs from the continuing development and refinement of our existing robotic systems and the continuing research and development costs associated with our future products. These expenses include labor and related benefit expenses, materials and supplies used in our laboratories, patent expenses and related overhead expenses.
Research and Development Research and development expenses are mainly comprised of costs from the continuing development and refinement of robotic systems, which are now suspended, and our AI/ML Software Platform and the continuing research and development costs associated with future products.
Based on the results of the quantitative goodwill impairment assessment we concluded that the carrying value of the single reporting unit exceeded its fair value and that our goodwill was fully impaired as of December 31, 2022. We recorded a $70.2 million non-cash goodwill impairment charge during the twelve months ended December 31, 2022.
Based on the results of the quantitative goodwill impairment assessment we concluded that the carrying value of our goodwill exceeded its fair value and that our goodwill was fully impaired as of December 31, 2022. Other Income (Loss) Interest Income, net Interest income consists primarily of interest received or earned on our cash and marketable securities balances.
In addition, although we believe we have sufficient capital to fund our business for at least the next 12 months, we may seek additional financing during that time to bolster our cash reserves and ensure our ability to continue to pursue our business objectives.
However, we may need to seek additional financing during that time to bolster our cash reserves and increase our ability to continue to pursue our business objectives.
If additional funds are required to support our working capital requirements, for acquisitions or for other purposes, we may seek to raise funds through additional debt or equity financings or from other sources. We currently expect to obtain outside financing to help cover production costs for product orders.
If we are unable to raise additional capital when desired or needed, our business, results of operations and financial condition would be materially and adversely affected. If additional funds are required to support our working capital requirements, for acquisitions or for other purposes, we may seek to raise funds through additional debt or equity financings or from other sources.
The increase was driven primarily by an increase in labor and overhead expense as a result of increased headcount (due in part to the RE2 acquisition) and third-party service provider costs as we focused on the development and commercialization of our Guardian XT, Guardian XM, Guardian Sea Class and Guardian XO products.
The increase was driven primarily by an increase in labor and overhead expense as a result of increased headcount (due in part to the RE2 acquisition) and the shift of labor from cost of revenue to research and development due to the timing of new product development contracts being signed and the focus on new product development and commercialization efforts.
Additionally, net cash used in operating activities related to changes in operating assets and liabilities decreased by $2.0 million, driven mainly by decreases prepaid expenses, partially offset by decreases in accrued liabilities and other non-current liabilities and increases in inventory and billed and unbilled receivables.
Additionally, net cash used in operating activities related to changes in operating assets and liabilities increased by $2.5 million, driven mainly by increased inventory purchases, offset partially by decreases in unbilled receivables. Net Cash Provided by (Used in) Investing Activities Our net cash provided by investing activities during the twelve months ended December 31, 2023 increased by $173.7 million.
Key Factors Affecting Operating Results We believe that our performance and future success depend on several factors that present significant opportunities for us but also pose risks and challenges, including those discussed below and in Part I Item 1A Risk Factors of this Annual Report on Form 10-K.
For additional information around the risks associated with our strategy decision-making see Part I Item 1A Risk Factors “ Due to our limited resources and access to capital, and our failure to properly estimate the time and expense required to commercialize our hardware-centric industrial robotics solutions, we must make decisions on the allocation of resources and have discontinued development and commercialization of certain products; these decisions may prove to be wrong and may adversely affect our business.” 48 Key Factors Affecting Operating Results We believe that our performance and future success depend on several factors that present significant opportunities for us but also pose risks and challenges, including those discussed below and in Part I Item 1A Risk Factors of this Annual Report on Form 10-K.
Additional financing may not be available at all or, if available, may not be available on terms favorable to us or that we find acceptable. As of December 31, 2022, our total minimum lease payments are $17.2 million, of which $1.5 million are due in the next 12 months.
If we require additional capital and are not able to secure new funding, we may not be able to continue our business operations.” As of December 31, 2023, our total minimum lease payments are $15.6 million, of which $2.0 million are due in the next 12 months.
Cash Flows The following table summarizes our cash flow data for the periods presented: Year Ended December 31, 2022 vs. 2021 Change (In thousands) 2022 2021 Change % Change Net cash provided by (used in): Net cash used in operating activities $ (65,391 ) $ (42,103 ) $ (23,288 ) 55 % Net cash used in investing activities (109,045 ) (4,688 ) (104,357 ) 2,226 % Net cash (used in) provided by financing activities (7,519 ) 230,241 (237,760 ) (103 )% Net (decrease) increase in cash and cash equivalents $ (181,955 ) $ 183,450 $ (365,405 ) (199 )% Net Cash Used in Operating Activities Cash flows used in operating activities during the twelve months ended December 31, 2022, increased by $23.3 million to $65.4 million from $42.1 million during the same period in 2021.
For detail regarding our lease obligations refer to Note 4 Leases to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K. 55 Cash Flows The following table summarizes our cash flow data for the periods presented: Year Ended December 31, 2023 vs. 2022 Change (In thousands) 2023 2022 Change % Change Net cash provided by (used in): Net cash used in operating activities $ (76,620 ) $ (65,391 ) $ (11,229 ) 17 % Net cash provided by (used in) investing activities 64,682 (109,045 ) 173,727 (159 )% Net cash used in financing activities (82 ) (7,519 ) 7,437 (99 )% Net decrease in cash, cash equivalents $ (12,020 ) $ (181,955 ) $ 169,935 (93 )% Net Cash Used in Operating Activities Cash flows used in operating activities during the twelve months ended December 31, 2023, increased by $11.2 million to $76.6 million from $65.4 million during the same period in 2022.
The decrease was a result of reduced sales of our legacy products to focus on the commercialization of our core product portfolio. 67 Operating Expenses The following table presents our operating expenses for the twelve months ended December 31, 2022 and 2021: Year Ended December 31, 2022 vs. 2021 Change (In thousands) 2022 2021 Change % Change Operating expenses: Cost of revenue $ 11,614 $ 3,867 $ 7,747 200 % Research and development 34,144 17,516 16,628 95 % General and administrative 63,480 58,059 5,421 9 % Sales and marketing 9,949 6,624 3,325 50 % Intangible amortization expense 2,184 — 2,184 *NM Goodwill impairment 70,236 — 70,236 *NM Total operating expenses $ 191,607 $ 86,066 $ 105,541 123 % *NM - Not Meaningful Cost of Revenue Cost of revenue increased by $7.7 million, or 200%, from $3.9 million for the twelve months ended December 31, 2021, to $11.6 million for the twelve months ended December 31, 2022.
Operating Expenses The following table presents our operating expenses for the years ended December 31, 2023 and 2022: Year Ended December 31, 2023 vs. 2022 Change (In thousands) 2023 2022 Change % Change Operating expenses: Cost of revenue $ 5,041 $ 11,614 $ (6,573 ) (57 )% Research and development 39,012 34,144 4,868 14 % General and administrative 31,454 63,480 (32,026 ) (50 )% Sales and marketing 10,828 9,949 879 9 % Intangible amortization expense 2,821 2,184 637 29 % Asset write-down and restructuring 37,946 — 37,946 *NM Goodwill impairment — 70,236 (70,236 ) (100 )% Total operating expenses $ 127,102 $ 191,607 $ (64,505 ) (34 )% *NM - Not Meaningful Cost of Revenue Cost of revenue decreased by $6.6 million, or 57%, from $11.6 million for the year ended December 31, 2022, to $5.0 million for the year ended December 31, 2023.
As of December 31, 2022, we had $114.5 million in cash, cash equivalents and marketable securities.
Liquidity and Capital Resources We currently use cash to fund operations and capital expenditures and meet working capital requirements. As of December 31, 2023, we had $39.1 million in cash, cash equivalents and marketable securities.
However, because our robotic systems represent a new product category in markets that currently rely generally on conventional, manual systems, the market demand for our products is unproven, and important assumptions about the characteristics of targeted markets, pricing and sales cycles may be inaccurate.
Customer Demand Although demand for AI/ML platforms and applications has grown in recent years, the market for these platforms and applications continues to evolve. The market demand for our software platform is unproven, and important assumptions about the characteristics of targeted markets, pricing and sales cycles may be inaccurate.
General and Administrative General and administrative expenses increased by $5.4 million, or 9%, from $58.1 million for the twelve months ended December 31, 2021, to $63.5 million for the twelve months ended December 31, 2022.
General and Administrative General and administrative expenses decreased by $32.0 million, or 50%, from $63.5 million for the year ended December 31, 2022, to $31.5 million for the year ended December 31, 2023. General and administrative expense decreased primarily due to reduced stock-based compensation expense of $28.4 million due to certain awards vesting in the prior year.
For additional information around the risks associated with contract manufacturing see Part I Item 1A Risk Factors “ Our expected transition to an outsourced manufacturing business model may not be successful, which could harm our ability to deliver products and recognize revenue. ” Continued Investment and Innovation We are a pioneer in the robotic systems industry and benefit from lessons learned over 30 years and significant investment in research and development in our proprietary technologies and our extensive patent portfolio.
Continued Investment and Innovation We are a pioneer in the robotic systems industry and benefit from lessons learned over 30-plus years and significant investment in research and development in our proprietary technologies.
We believe that our cash, cash equivalents and marketable securities on hand will be sufficient to support operations, working capital and capital expenditure requirements for at least the next 12 months from the date of this report; however, we may need to secure additional financing prior to achieving positive operating cash flows, which we do not expect to occur until 2025 at the earliest. 69 The amount and timing of our future funding requirements will depend on many factors, including the pace and results of our product development efforts, our ability to manufacture and deliver commercial products and thereby recognize associated revenue, capital requirements to build commercial products prior to receiving payments sufficient to cover our costs and our ability to lower product costs as volumes increase.
The amount and timing of our future funding requirements will depend on many factors, including the pace and results of our product development efforts, our ability to develop and deliver our commercial AI/ML Software Platform and thereby recognize associated revenue and capital requirements to develop our commercial AI/ML Software Platform prior to receiving payments sufficient to cover our costs.
Product Development Contract Revenue Revenue derived from product development contracts increased by $10.7 million, or 297%, from $3.6 million for the twelve months ended December 31, 2021 to $14.2 million for the twelve months ended December 31, 2022.
Product Development Contract Revenue Revenue derived from product development contracts decreased by $9.0 million, or 63%, from $14.2 million for the year ended December 31, 2022 to $5.3 million for the year ended December 31, 2023. The decrease was primarily due to the completion of certain product development contracts during 2023 that have not yet been replaced with new contracts.
Research and Development Research and development expenses increased by $16.6 million, or 95%, from $17.5 million for the twelve months ended December 31, 2021, to $34.1 million for the twelve months ended December 31, 2022.
Cost of revenue decreased mainly due to decreased labor and material expense charged to product development contracts during the year ended December 31, 2023. Research and Development Research and development expenses increased by $4.9 million, or 14%, from $34.1 million for the year ended December 31, 2022, to $39.0 million for the year ended December 31, 2023.
We expect future revenue from product development contracts to increase on a year over year basis due to the inclusion of RE2 product development contract revenue for the full year and as we bring on additional development contracts that support our commercialization efforts.
We expect future revenue from product development contracts to fluctuate due to the timing of additional development contracts signed and the completion of existing contracts.
We currently expect to obtain outside financing to help cover production costs for product orders. In addition, although we believe we have sufficient capital to fund our business for at least the next 12 months, we expect to seek additional financing during that time to bolster our cash reserves and ensure our ability to continue to pursue our business objectives.
However, we may need to seek additional financing during that time to bolster our cash reserves and increase our ability to continue to pursue our business objectives.
See also Part I Special Note Regarding Forward-Looking Statements in this Annual Report. Overview We are a technology leader in the design, development and manufacture of advanced robotic systems and solutions that redefine human possibilities. Our mission is to increase worker productivity and longevity and prevent injuries through robotics.
See also Part I Special Note Regarding Forward-Looking Statements in this Annual Report. Overview Our mission is to deliver software to our customers that enhances the utility and functionality of third-party stationary and mobile robotic systems by enabling these systems to quickly observe, learn, reason and act in structured and unstructured environments.
Removed
Our robotic systems are designed to augment and increase human productivity, rather than replace humans, by combining human intelligence, instinct and judgment with the strength, endurance and precision of machines. Our core systems consist of the Guardian XM, Guardian XT and Guardian Sea Class teleoperated/semi-autonomous systems and the Guardian XO exoskeleton.
Added
Our AI/ML Software Platform is being designed with artificial intelligence (AI) and machine learning (ML) techniques to enable robotic systems to perceive their environment and quickly adapt to changing circumstances by generalizing (i.e., learning) from their past experience using dynamic real-time operations “on the edge” (i.e., on the robotic system) without extensive programming and with minimal robot training.
Removed
We adapt these core systems for specific use-cases based on the capabilities and characteristics of each system to create solutions. We may also combine aspects of multiple systems or create a specific system for a particular solution.
Added
We believe this “human-like” ability to learn and adapt will be a key differentiator in helping our customers maintain optimal productivity in dynamic or unstructured environments, where new situations and unexpected challenges are more likely to cause delays and costly downtime.
Removed
Based on feedback from our development customers and potential commercial customers, we have decided to offer our systems and solutions primarily through a sales business model where the customer purchases a system or solution for a one-time, upfront amount.
Added
Our value proposition is further enhanced relative to other competitive solutions because robotic systems using our AI/ML Software Platform are not required to be continuously connected to the cloud for our software to function, thereby reducing the performance issues associated with poor connectivity and latency typically associated with processing in the cloud.
Removed
We also plan to offer software upgrades and additional capabilities and to offer for sale add-on hardware components (such as additional interchangeable end-effectors).
Added
Our approach also reduces the expense typically associated with transmitting large amounts of data to and from the cloud. As a pioneer in the robotic systems industry, we benefit from both experiences and lessons gained from our 30-plus years, as well as significant investment in our internal research and development efforts.
Removed
Business Combination On September 24, 2021 (the “Closing Date”), we consummated a business combination (the “Business Combination”) pursuant to the terms of the Agreement and Plan of Merger, dated as of April 5, 2021, by and among Rotor Acquisition Corp.
Added
Software has been an integral part of our development efforts over the years. Our vision for our AI/ML Software Platform began in 2017 as a foundational technology to enhance training for the autonomous operation of our own internally developed hardware solutions and progressed to our first CYTAR (Cybernetic Training for Autonomous Robots) government project in 2019.
Removed
(“Rotor”), Rotor Merger Sub Corp., a Delaware corporation, and a direct, wholly-owned subsidiary of Rotor (“Merger Sub”), and Sarcos Corp., a Utah corporation (“Old Sarcos”) and Amendment No. 1 to the Agreement and Plan of Merger, dated as of August 28, 2021 (the “Amendment” and the Original Merger Agreement, as amended, the “Merger Agreement”), by and among Rotor, Merger Sub and Old Sarcos.
Added
Significant design and development work began in 2020 when our Chief Technology Officer, Dr. Denis Garagic, joined our team. We have since continued to develop our AI/ML software both for the U.S. Department of Defense and in connection with our development of commercial robotic systems.
Removed
Pursuant to the terms of the Merger Agreement, the Business Combination between Rotor and Old Sarcos was effected through the merger of Merger Sub with and into Old Sarcos, with Old Sarcos continuing as the surviving corporation (the “Merger”) and a wholly-owned subsidiary of the Company. On the Closing Date, Rotor changed its name to Sarcos Technology and Robotics Corporation.
Added
As previously disclosed, in November 2023, we decided to suspend our hardware product development efforts to focus on commercializing our AI/ML Software Platform, although some de minimis hardware-related research and development efforts continue.
Removed
The Business Combination was accounted for as a reverse capitalization, with no goodwill or other intangible assets recorded, in accordance with U.S. GAAP. Under this method of accounting, Rotor is treated as the “acquired” company for financial reporting purposes.
Added
By de-coupling our AI/ML Software Platform from our own hardware systems and applying it to a wide range of third-party robotics systems, from industrial robots and cobots to mobile systems potentially including drones, autonomous mobile robots (AMR), autonomous underwater vehicles (AUV) and remotely operated vehicles (ROV), we believe we can reach a much broader market more quickly and better utilize our remaining cash resources.
Removed
Accordingly, for accounting purposes, the financial statements of the combined entity represent a continuation of the financial statements of Old Sarcos with the Business Combination being treated as the equivalent of Old Sarcos issuing stock for the net assets of Rotor, accompanied by a recapitalization.
Added
We are designing our AI/ML Software Platform to be hardware agnostic in order to be compatible with most industrial robots being sold today and to support specific types of commercially available robots with additional development and the necessary application programming interface (API).
Removed
The net assets of Old Sarcos and Rotor are stated at historical cost, with no goodwill or other intangible assets recorded. Financial statement information, including results of operations prior to the Business Combination are those of Old Sarcos.
Added
The AI/ML Software Platform is expected to enable robotic systems to perform tasks that involve variations in the environment and the objects being manipulated by the robot.
Removed
Response to COVID-19 On January 30, 2020, the World Health Organization declared the COVID-19 outbreak a “Public Health Emergency of International Concern” and on March 11, 2020, declared it to be a pandemic.
Added
Specifically, we expect our AI/ML Software Platform to incorporate internal and external environmental inputs that allow robots to comprehend their environment, determine reasonable behavior given these inputs and to act in real time to achieve the expected task. Each newly learned task will then be incorporated and used to perform future tasks.
Removed
Actions taken around the world to help mitigate the spread of COVID-19 include restrictions on travel, quarantines in certain areas and forced closures for certain types of public places and businesses.
Added
We believe this closed-loop autonomy approach is the key to how our software can expedite robot training, expand the tasks that a robot can perform, reduce costly workflow stoppages, mitigate downtimes and reduce human labor requirements.
Removed
COVID-19 and actions taken to mitigate its spread have had and may continue to have an adverse impact on the economies and financial markets of many countries, including the geographies in which Sarcos operates. We took several actions in response to the COVID-19 pandemic that resulted in significant disruptions to how we operate our business.
Added
As a result of our refined strategy we are optimizing our organization in pursuit of this AI/ML Software Platform opportunity and are reducing costs, including our recent RIFs, shifting all operations to the Salt Lake City, Utah location and winding down substantially all of our operations in Pittsburgh, Pennsylvania.
Removed
Our customers and partners adopted similar policies. These actions and policies of ours and our customers and partners are evolving as laws, regulations and recommendations evolve.

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