10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
For the fiscal year endedDecember 31, 2023
OR
Commission File Number 001-39897
SARCOS TECHNOLOGY AND ROBOTICS CORPORATION
(Exact name of registrant as specified in its charter)
650 South 500 West, Suite 150
Salt Lake City, Utah, 84101
(Address of principal executive offices)
(888) 927-7296
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class TradingSymbol(s) Name of each exchange on which registered
Common Stock, $0.0001 par value per share STRC The Nasdaq Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ NO ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ NO ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer ☒ Smaller reporting company ☒
Emerging growth company ☒
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES ☐ NO ☒
As of June 30, 2023, the last day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant, based on the closing price of the shares of common stock on the Nasdaq Global Market, was approximately $41.5million.
As of February 14, 2024, the registrant had 25.9 million shares of Common Stock, $0.0001 par value per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive Proxy Statement to be filed with the Securities and Exchange Commission in connection with the registrant’s 2024 Annual Meeting of Stockholders, which will be filed subsequent to the date hereof, are incorporated by reference into Part III of this Form 10-K. Such Proxy Statement will be filed with the Securities and Exchange Commission not later than 120 days following the end of the registrant’s fiscal year ended December 31, 2023. Except with respect to information specifically incorporated by reference, the Proxy Statement is not deemed to be filed as part of this Annual Report on Form 10-K.
Table of Contents
Page
PART I
Item 1. Business 5
Item 1A. Risk Factors 15
Item 1B. Unresolved Staff Comments 46
Item 1C. Cybersecurity 46
Item 2. Properties 46
Item 3. Legal Proceedings 46
Item 4. Mine Safety Disclosures 46
PART II
Item 6. [Reserved] 47
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 57
Item 8. Financial Statements and Supplementary Data 58
Item 9A. Controls and Procedures 85
Item 9B. Other Information 85
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections. 85
PART III
Item 10. Directors, Executive Officers and Corporate Governance 86
Item 11. Executive Compensation 86
Item 14. Principal Accounting Fees and Services 87
PART IV
Item 15. Exhibits, Financial Statement Schedules 88
i
Summary Risk Factors
Our business is subject to numerous risks and uncertainties, including those highlighted in Part I Item 1A Risk Factors of this Report. The following is a summary of the principal risks we face:
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We are an early-stage company with a history of losses, and expect to incur significant losses for the foreseeable future.
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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 regarding the current and future allocation of resources and have suspended the development and commercialization of our hardware products. These decisions may prove to be wrong and may adversely affect our business.
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Our operating and financial projections rely on management assumptions and analyses. If these assumptions or analyses prove to be incorrect, as they often have in the past, our actual operating results may be materially different from our expected or forecasted results.
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We have yet to achieve positive operating cash flow, and our ability to generate positive cash flow is uncertain.
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We have no previous history or experience with commercializing software products and may not be able to do so efficiently or effectively. We were unsuccessful in our efforts to commercialize the hardware technologies that we and our predecessor companies developed over the past several decades.
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Commercialization of our AI/ML Software Platform may be delayed beyond our current expectations and therefore initial availability to customers and receipt of anticipated revenue could be delayed.
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Our anticipated revenues are expected to be primarily derived from the development and licensing of our AI/ML Software Platform for the foreseeable future.
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Our AI/ML Software Platform is still under development and any issues in the development and use of our platform may result in reputational harm or liability.
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With our AI/ML Software Platform still under development, the timing and magnitude of revenues from customers is uncertain. If we cannot commercialize our AI/ML Software Platform on our expected schedule, if the platform does not offer our potential customers the features, functionality and return on investment that they expect, and/or if potential customers are not willing to pay for our software products at the license rates that we currently expect, our ability to generate material revenues will be materially impaired.
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If we are not able to generate material revenues from our AI/ML Software Platform before we exhaust our financial resources, we may need to cease business operations.
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We may fail to attract or retain customers at sufficient rates or at all.
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We do not have any history with our licensing sales model.
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Important assumptions about market demand, pricing, adoption rates and sales cycles for our AI/ML Software Platform may be inaccurate.
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Our AI/ML Software Platform requires certain limited hardware components, and we are dependent on our suppliers, some of which are currently single, sole or limited source suppliers. Any inability of these suppliers to deliver necessary components of our products at prices, volumes, performance, timing and specifications acceptable to us, could have a material adverse effect on our business, prospects, financial condition and operating results.
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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.
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We may not be able to complete or enhance our AI/ML Software Platform through our research and development efforts.
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Real or perceived design flaws, errors, defects, glitches, bugs or malfunctions in our AI/ML Software Platform, failure of our AI/ML Software Platform to perform as expected, connectivity issues or user errors can result in lower than expected return on investment for customers, personal injury or property damage and significant security or safety concerns, each of which could materially and adversely affect our results of operations, financial condition or reputation.
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We may use “open source” software, which could negatively affect our ability to offer our AI/ML Software Platform and subject us to possible litigation.
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We believe our business and prospects depend significantly on our ability to build an effective brand. We may not succeed in establishing, maintaining and strengthening an effective brand, and our brand and reputation could be harmed by negative publicity regarding us or our AI/ML Software Platform. We believe that our inability to successfully commercialize our hardware products, and our resulting financial performance, has damaged our brand, and we are planning to re-brand the company and our products, which could be costly and may not be well received by our existing and potential customers.
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Our management team has broad discretion in making strategic decisions to execute our growth plans, and our management’s decisions have not always led to the desired result and current and future decisions may not be successful in achieving our business objectives or may have unintended consequences that negatively impact our growth prospects.
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If we fail to effectively manage our business, we may not be able to design, develop, market and commercialize our software product successfully.
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We may be unable to adequately control the costs associated with our operations.
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We expect to incur substantial research and development costs and devote significant resources to developing and commercializing our AI/ML Software Platform, and we may never reach profitability and/or achieve significant or any revenues.
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Our business plans require a significant amount of capital. Our future capital needs may require us to sell additional equity or debt securities that may dilute our stockholders or introduce covenants that may restrict our operations or our ability to pay dividends. If we require additional capital and are not able to secure new funding, we may not be able to continue our business operations.
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Our recent initiatives to improve our cost structure, including significant workforce reductions, may not result in the anticipated savings, could result in total costs and expenses that are greater than expected and could disrupt our business.
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Our financial results may vary significantly from period to period due to fluctuations in our operating costs, revenues (including from development contracts), product demand and other factors.
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We are highly dependent on the services of our senior management and other key employees and, if we are unable to attract, integrate and retain a sufficient number of qualified employees, our ability to design and commercialize our AI/ML Software Platform, operate our business and compete could be harmed.
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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.
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We have been and may in the future be subject to risks associated with strategic relationships or transactions and may not identify or form desired strategic relationships in the future.
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We may become subject to new or changing governmental regulations relating to the development, marketing, licensing, distribution or use of our AI/ML Software Platform or to the providing of customer service, and a failure to comply with such regulations could lead to delays in launching our platform and/or withdrawal of our platform from the market, delay our projected revenues, increase costs and/or make our business unviable if we are unable to modify our software products to comply.
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Our Common Stock is likely to be delisted from The Nasdaq Global Market which may impair the liquidity of our Common Stock.
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PART I
Special Note Regarding Forward-Looking Statements
Certain statements in this Report constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements relate to expectations for future financial performance, business strategies or expectations for our business. Specifically, forward-looking statements may include statements relating to:
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our ability to successfully pivot our business pursuant to our recently announced strategy to focus on the development of our full-stack, closed-loop autonomy software platform (“AI/ML Software Platform”);
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our ability to develop and sell our AI/ML Software Platform and the capabilities and functionality of our AI/ML Software Platform;
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nature and size of the markets that we are targeting;
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our software product roadmap, including expected timing of new product releases and target markets;
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our ability to respond to rapid technological changes;
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competition from existing or future businesses and technologies;
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our ability to manage our growth and expenses;
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our ability to comply with laws and regulations applicable to our business;
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our ability to attract and retain qualified personnel with the necessary experience, including employees who are instrumental to our new business strategy;
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our projected financial and operating information and estimates of market size and opportunities;
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our future financial performance;
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the impacts of our reductions in force on our cash usage and savings, cost structure and restructuring costs;
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the impact of the COVID-19 pandemic and global economic and geopolitical conditions and international conflicts on our business and the business of our customers;
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changes in the markets for our software product;
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expansion plans and opportunities;
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future capital requirements and sources and uses of cash;
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our ability to defend and the outcome of any known and unknown litigation and regulatory proceedings;
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our ability to maintain, protect and enhance our intellectual property;
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our ability to maintain and protect our brand;
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our ongoing de minimis hardware development efforts; and
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other statements preceded by, followed by or that include the words “may,” “can,” “should,” “will,” “estimate,” “plan,” “project,” “forecast,” “intend,” “expect,” “anticipate,” “believe,” “seek,” “aim,” “target” or similar expressions.
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These forward-looking statements are based on information available as of the date of this Report and our management’s current expectations, forecasts and assumptions, and involve a number of judgments, risks and uncertainties. Accordingly, forward-looking statements should not be relied upon as representing our views as of any subsequent date, and, in any event, you should not place undue reliance on these forward-looking statements. We do not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date they were made, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.
These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include those factors described in Part I Item 1A Risk Factors of this Report. Should one or more of these risks or uncertainties materialize, or should any of the assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. Our Risk Factors are not guarantees that no such conditions exist as of the date of this Report and should not be interpreted as an affirmative statement that such risks or conditions have not materialized, in whole or in part.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.
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Item 1. Business.
The following discussion should be read in conjunction with the information about us contained elsewhere in this Report, including the information set forth in our consolidated financial statements and the related notes. Some of the information contained in this section or set forth elsewhere in this Report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. You should read Part I Item 1A Risk Factors and the section titled “Special Note Regarding Forward-Looking Statements” for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and throughout this Report. 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. 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. 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. 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. 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. 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. 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. 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. 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.
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). 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. 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. 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. 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. 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
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reprogramming efforts. 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. 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). 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. 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. 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. We understand from early customer engagement that reprogramming a single robotic arm can take weeks to months in some cases. Reprogramming thousands of robotic arms on a full assembly line to build a different product or accommodate a new component is therefore costly and can put the line out of commission for a significant period of time, reducing or delaying production and sales. Further, many industrial or manufacturing robotic systems deployed today are not designed to perform tasks in dynamic or unstructured environments. As a result, a change or disruption in the environment, such as the insertion of an obstacle or the imprecise placement of parts, can result in the system shutting down until human assistance resolves the situation, resulting in additional costs and lost production.
Recent efforts to use AI technologies to address issues such as changing and dynamic environments typically depend on access to enormous databases with large language models (LLMs) residing in the cloud and using enormous amounts of real-world robotic data sets collected over time. In these cases, training occurs by connecting to these databases, doing extensive searching to try to find case-applicable data and models and then attempting to use the new data to recommend a viable solution. This process requires persistent cloud connectivity, driving increased costs, and is time-consuming, significantly reducing the benefits of these AI technologies.
Our Solution
We are designing our AI/ML Software Platform to enable industrial and manufacturing robots, such as robotic arms to:
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be programmed and reprogrammed quickly with training capable of occurring experientially through teleoperation in as little as a few examples taking only a few minutes;
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observe and assess their environment with our perception functionality that enables robots to distinguish between components essential to their tasks, obstacles to be avoided and irrelevant externalities without the need to connect to LLMs and extensive cloud-based databases;
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learn to recognize and manipulate different objects to accomplish planned tasks quickly and precisely, even in dynamic or unstructured environments, requiring far less training data than traditional AI models;
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quickly reason and determine how to accomplish the desired task in a stable, safe, and controlled manner in the face of obstacles or other unexpected environmental changes;
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make real-time, AI-enabled decisions on the edge without the need to maintain connectivity to the cloud, eliminating the cost and latency associated with cloud-based AI computing; and
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work with most industrial robots being sold today.
To accomplish this, we are incorporating our proprietary full stack, closed-loop autonomy technology into our AI/ML Software Platform that operates on the edge, enabling robotic systems to observe, learn, reason and act in real-time without the need to connect to the cloud to try to find an applicable LLM. Unlike LLMs, which are generally used to predict an outcome and make
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a recommendation, our AI methods are designed to enable a robot to make real-time decisions and act while using much less data and taking much less time. In many instances, we believe our solution will be significantly more data-efficient as compared to deep learning-based methods due to its ability to make decisions with just hundreds of parameters rather than billions.
We aim to address current challenges in automation by developing a software platform that:
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enables humans to intuitively re-train a robot to perform a different task quickly thereby reducing costly delays resulting from the need to reprogram assembly lines;
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enables robots to be capable of dynamic reasoning such that the robot can work around a physical obstacle or dynamically adjust its orientation to achieve the task, thereby reducing the need to reprogram robots and incur costly delays; and
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operates “on the edge” without the expense or delay of having to connect to the cloud to exhibit human-like reasoning in real time.
The AI/ML Software Platform’s ability to operate “on the edge” is a key differentiator because, without the need to use large amounts of cloud-based computing, our AI/ML Software Platform can efficiently operate autonomously in dynamic environments while reacting to new circumstances without the need to access new data sets or be reprogrammed or retrained. In addition, our AI/ML Software Platform is being designed to fuse multi-sensor data inputs together to improve system situational awareness, increasing its flexibility and adaptability. We expect other important future capabilities to include solving for system stability and automated end-effector orientation to match the target object, enhanced computational efficiencies achieved through the use of our domain-specific language models and the use of dynamic model inference methods to generalize with only a few demonstrations.
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. 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.
The AI/ML Software Platform
Artificial Intelligence & Machine Learning
We are designing our AI/ML Software Platform to enable robots to be capable of human-like reasoning in their ability to learn multiple tasks and efficiently manage disruptions or obstacles. Once initial training/programming occurs, our closed-loop autonomy is expected to enable the robot to adapt to changes in its environment without human intervention or reprogramming. After minimal initial training, robots using our AI/ML Software Platform are expected to operate in a closed-loop to continuously observe, learn, reason and act so that they can adapt and continue to complete the desired tasks in the face of a changing environment.
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We are designing our AI/ML Software Platform to enable robots to:
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Observe: Using a variety of sensors (e.g., vision, LiDAR, radar and acoustic) to perceive a dynamic and unstructured environment with situational awareness.
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Learn: Typically learn a task in approximately one to five human-controlled demonstrations via a variety of methods including, remote manipulation, virtual reality manipulation or natural language instruction. We believe our dynamic reasoning model will require much less training data than traditional models. Using this learning data, the AI/ML Software Platform is expected to create a mathematical model of the data and store it in the platform as a task. The model is then updated over time as more data is obtained. Over time, each robot will create its own library of tasks (a “Task Library”). By operating “on the edge” and not accessing external large data sets, the learning process can happen faster and cheaper and without the need for a connection to the cloud.
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Reason: Reason using probabilistic ML techniques, in a similar manner to human logic, when an unexpected or unknown event occurs. The robot would rely on its Task Library as a starting point and then infer to adjust to circumstances in real time.
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Act: Applies human-like logic and adapts its task model in real-time to translate observations into a control message that adjusts the behavior in a safe and controlled manner to complete the task. For example, in our testing lab an arm robot has continued the task of sorting items by color even after an obstacle was placed in its way. As a result, we expect there will be no need to shut-down production to teach a new task after a disruption in the environment.
We anticipate that our AI/ML Software Platform will enable each robot to have a Task Library such that each robot can perform multiple tasks in a variety of situations and switch between them quickly with no reprogramming and minimal, if any, retraining.
Hardware and Management Platform
We envision that our AI/ML Software Platform will be provided to customers along with the following baseline edge computing and training hardware components: a controller component that houses the closed-loop autonomy software framework that interfaces with the robot baseline system; a sensor package for situational awareness; and a human/machine interface system for training and teleoperation. The training and teleoperation interface system is expected to include a motion capture device and hand controller that is available as a standalone package.
Along with our AI/ML Software Platform we are developing a cloud-based customer portal to facilitate software purchases, updates, and online customer support. This customer portal is expected to also include the data analytics, operational tools, and the functionality to monitor, configure, and train the AI/ML Software Platform.
Market Opportunity
We believe the market for AI/ML software for industrial robotics has been experiencing and is expected to continue to experience significant growth, which we believe is driven by a need for more efficient and flexible manufacturing processes.
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Companies such as ABB, Fanuc, Yaskawa, KUKA, and Universal Robots are prominent in providing both robotic hardware and AI-based software solutions to a wide range of industries to promote automation. We believe our AI/ML Software Platform augments their existing capabilities and will be complementary to their products offerings.
Collaborative robots, or cobots, which can work alongside humans, are also an area of opportunity for our AI/ML Software Platform. We expect our AI/ML Software Platform to enhance cobots’ ability to adapt to dynamic or unstructured environments. Further, we believe our AI/ML Software Platform has applicability to the unmanned aerial vehicle (UAV), remotely operated vehicle (ROV) and unmanned ground vehicle (UGV) markets to enable autonomous navigation and functionality especially as it relates to the defense sector. We have a contract with Air Force Research Laboratory (AFRL) that provides funding to explore this potential. Should this be a viable opportunity, we may consider selling our AI/ML Software Platform into the UAV, ROV and UGV markets.
We believe that our initial customer base will be comprised of innovators and early adopters in the industrial manufacturing, warehousing and logistics, defense, infrastructure maintenance and repair, energy and aerospace and aviation industries. 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. 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. If these assumptions or analyses prove to be incorrect, as they often have in the past, our actual operating results may be materially different from our expected or forecasted results.”
Commercialization & Growth Strategy
Our Anticipated Sales Model
At launch, we anticipate offering our AI/ML Software Platform in at least two different packages: (a) the AI/ML Software Platform with teleoperation devices including a full set of software and hardware needed to facilitate autonomy training and deployment, which is recommended for all first-time customers; and (b) the AI/ML Software Platform without teleoperation devices, which is recommended for customers who have already purchased the AI/ML Software Platform and wish to expand their capabilities across multiple robotic systems.
Continued Development of our AI/ML Software Platform
Our research and development efforts are primarily focused on the further improvement of our AI/ML Software Platform, although some de minimis hardware-related research and development efforts continue. We plan to pursue continuous improvement of our AI/ML Software Platform and to develop additional functionalities, for example certain specific Task Libraries. 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. 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 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.
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. 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. 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. We anticipate that these relationships will play an important role in helping us select the markets, use-cases and product capabilities we are currently pursuing.
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Competitive Strengths
30+ Years of Robotics Experience
As a pioneer in the robotic systems industry, we benefit from lessons learned over 30-plus years and significant investment in research and development. Through our development efforts, including our software development efforts, we have developed a significant amount of advanced technology that we are leveraging to develop our AI/ML Software Platform. Our extensive robotics history gives us valuable perspective on how to use software to tackle the challenges associated with training and managing industrial robots in complex and dynamic environments.
We 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 agnosticAI/ML Software Platform to bring the benefits of our software to a much broader base of robots.
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. 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. Our team is led by Benjamin Wolff, our Chief Executive Officer, who has many years of executive-level, operational and corporate board experience. Our engineering efforts are led by Denis Garagić, our Chief Technology Officer, with over twenty-five years of experience in AI and ML. Members of our board of directors have extensive experience across a wide array of disciplines.
Competition
We believe we are redefining automation to bring human-like reasoning, intelligence and autonomy to robotics through a unique application of AI and ML that has the potential to significantly accelerate growth for our commercial and defense customers. Our AI/ML Software Platform will compete with companies that have developed or are developing both directly and indirectly competing solutions and capabilities. While there are many automation-centric companies who are active, especially in early-adopter segments such as warehouse and logistics, and select manufacturing or assembly verticals, we believe our primary competitors are those who are focused on addressing key challenges in robotic deployments via autonomy or automation-enhancing software capabilities. In the broader automation landscape, we will compete (both directly and indirectly) with companies such as Bright Machines, C3.ai, Dexterity, Gray Matter Robotics, Intrinsic, Mujin, Olis Robotics, Rapid Robotics, and Ready Robotics. We believe that our competitors are seeking to solve the same or similar industry challenges as we are, but that most are focused on a particular aspect of the functionality of our AI Software Platform rather than a fully competitive solution.
While we view industrial robotics manufacturers, large system integrators, and consulting companies such as Fanuc, Kuka, ABB, Yasakawa, Honeywell, Reply, and Rockwell Automation, as potential target customers and/or channel partners for our software platform, we also recognize that these companies could also emerge as formidable competitors through their own internal development efforts or future technology partnerships with and acquisitions of our direct competitors. They may bring their robust customer relationships, channels and significant financial resources to help accelerate the market viability of one of our direct or indirect competitors.
Many of our competitors and potential competitors have products that are commercially available and/or in development. 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. These or other competitors may develop new technologies or products that provide superior results to customers or are less expensive
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than our products. Our technologies and products could be rendered obsolete by such developments. 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. 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. 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. 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.
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. Department of Defense, in particular the Air Force Research Laboratory, has contributed to the development of our AI/ML Software Platform. We do not yet have any customers for our AI/ML Software Platform. We anticipate initial commercial customers for our AI/ML Software Platform will be in industries such as industrial manufacturing, warehousing and logistics, defense, infrastructure maintenance and repair, energy and aerospace and aviation, among others.
Intellectual Property
Our ability to create, obtain and maintain intellectual property is important to our business. 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 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 are in the process of attempting to secure patent protection for aspects of our AI/ML Software Platform but none of these patent applications have yet been granted. Due to the fact that our extensive patent portfolio is expensive to maintain, we are in the process of culling patents and applications from our portfolio that we do not believe are essential or likely to add value to our ongoing business operations. 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. 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.
Sales and Marketing
Our AI/ML Software Platform is currently under development. While we continue to focus on the further development and commercialization of our AI/ML Software Platform, our sales efforts are underway to engage with potential customers. We intend to leverage many of our relationships built through our previous hardware efforts to sell our AI/ML Software Platform. We anticipate our potential customers to be in 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 intend to invest in our sales and marketing efforts in support of the commercialization of our AI/ML Software Platform.
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. We believe working with these partners will accelerate our brand awareness and path
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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. We may also offer add-on functionality for an additional license fee. We may charge an upfront fee for the teleoperation devices needed to facilitate autonomy training and deployment or embed the cost into the license fee. We expect to continue discussions with potential customers to ultimately determine the appropriate model. 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 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. In some cases, we have sole source (where the component is only available from a single vendor, often as a result of customization for our use) or single source (where we purchase from a single vendor but there are alternative sources of the component) suppliers. We seek to minimize our dependence on sole or single source suppliers in order to reduce risk in our supply chain, including the risk of losing a sole or single source supplier due to bankruptcy, discontinuing production of the particular component or some other reason. For additional information related to supply chain issues, see “Risk Factors—Our AI/ML Software Platform requires certain limited hardware components, and we are dependent on our suppliers, some of which are currently single, sole or limited source suppliers, and any inability of these suppliers to deliver necessary components of our products at the prices, volumes, performance, timing and specifications acceptable to us, could have a material adverse effect on our business, prospects, financial condition and operating results.”
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, and complementary state requirements (including the Utah Occupational Safety and Health Division’s Utah State Plan) that protect and regulate employee health and safety.
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 must also comply with export restrictions and other laws affecting trade and investments imposed by other countries to the extent applicable. We maintain export compliance controls and procedures as part of our broader compliance program, but, as with any compliance program, there are risks that these controls might not prevent every instance of non-compliance, in which case we could be exposed to legal liability. 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. 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.
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. Such rules require, among other things, specific consumer disclosures with respect to RF emissions and proper installation and operation of the device components and any modular transmitters in our products.
Further, as a U.S. government contractor, we are subject to various government procurement and other laws, regulations, and contract requirements, including provisions and clauses of the Federal Acquisition Regulation (FAR), the Defense Federal Acquisition Regulation Supplement (DFARS), and other agency-specific regulations. These U.S. government contracting
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requirements further implicate a broad variety of subjects in addition to the areas described above, including security, data management and disclosure, cybersecurity, cost and pricing activity and finance.
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 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.
Human Capital
We conducted two reductions in force (each a “RIF” and together the “RIFs”) in the past 12 months, one in July 2023 (the “July RIF”), affecting approximately 24% of our workforce at the time, and another in November 2023 (the “November RIF”), affecting approximately 70% of our workforce at the time, ultimately resulting from our decision to shift our product development and commercialization strategy to focus on our AI/ML Software Platform.
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. To date, we have not experienced any organized work stoppages and consider our relationship with our employees to be good. None of our employees are subject to a collective bargaining agreement or represented by a labor union.
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. 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.
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. During this period, Raytheon Sarcos was focused primarily on developing cutting-edge technologies for use by U.S. governmental agencies. In December 2014, the assets of Raytheon Sarcos were acquired by a consortium led by the former Raytheon Sarcos President and our current Chief Innovation Officer, Dr. 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. (“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.
On November 14, 2023, we announced a pivot in business strategy to prioritize the development of our commercial AI/ML Software Platform and suspend further commercialization efforts on hardware products, although some de minimis hardware-related research and development efforts continue. After continued analysis of our products and programs and careful consideration of our available cash and other resources, as well as third party dependencies, customer decision timing, and the cost and time to develop and achieve a significant and steady revenue stream from our hardware products, we concluded that focusing on our AI/ML Software Platform and suspending our hardware commercialization efforts gave us the best risk-adjusted opportunity to meet our previously announced goal of pursuing significant near-term revenue tied to acute customer needs and reduce our capital requirements and related risks in line with available resources. We believe that the expected capabilities described above, combined with a large potential addressable market, create an opportunity to build a robust
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software business that has the potential to scale at a substantially faster rate than our hardware solutions. This pivot in strategy builds on our prior announcement, on July 12, 2023, that we had refined our strategy to focus on products that we believed had the most potential for near-term revenue growth and strategic opportunities, which at the time included our Guardian Sea Class system, certain aviation solutions (baggage handling and exterior aircraft maintenance), a solar (solar field panel installation) solution and our commercial AI/ML Software Platform.
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. We make available free of charge through the www.sarcos.com website our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably practicable after we electronically file such material with, or furnish such material to, the SEC. 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.
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Item 1A. Risk Factors.
You should carefully consider the following risk factors, in addition to the other information contained in this Report, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited consolidated financial statements and related notes. If any of the events described in the following risk factors and the risks described elsewhere in this Report occurs, our business, operating results and financial condition could be materially harmed. This Report also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of factors that are described below and elsewhere in this Report or other risks that we currently deem immaterial or that may be unknown to us. 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.
Risks Related to Our Business and Industry
We are an early stage company with a history of losses, and expect to incur significant losses for the foreseeable future.
We incurred a net loss of $115.6 million for the year ended December 31, 2023 and a net loss of $157.1 million for the year ended December 31, 2022. We believe that we will continue to incur operating and net losses for the foreseeable future. However, our shift in product development and commercialization strategy to focus on our AI/ML Software Platform has affected the timing of expected revenue and has made forecasting our quarterly and annual results more challenging. Even if we are able to successfully develop our AI/ML Software Platform and attract customers for commercial sales, we may not become profitable. Our potential profitability is dependent upon the successful development, commercial introduction and adoption on a large scale of our AI/ML Software Platform and our ability to lower costs, none of which may occur.
We expect that we will continue to incur losses in future periods as we:
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continue to design, develop and begin to commercialize our AI/ML Software Platform;
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continue to utilize and develop potential new relationships with third-party partners for software design and development;
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conduct our sales and marketing activities and develop our sales and customer service capabilities;
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develop and expand our AI/ML Software Platform's technology infrastructure and cybersecurity measures, policies and controls; and
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maintain our general and administrative functions and systems to support our operations and to operate as a publicly-traded company.
Because we will incur costs and expenses from these efforts before we receive incremental revenue with respect thereto and because we are still developing our AI/ML Software Platform, we expect that our losses in future periods will continue to be significant until we start to achieve significant software licensing revenue. In addition, we may find that these efforts are more expensive than we currently anticipate or that these efforts may result in less than expected or no additional revenue, which would further increase our losses.
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.
We have limited financial and human resources and as a result, we have in the past and may in the future forgo or delay pursuit of opportunities with product candidates that might have had greater commercial potential or a greater likelihood of success. For example, on November 14, 2023, we announced a pivot in strategy to suspend our efforts to bring our hardware products to market and instead focus the vast majority of our resources and efforts on the development of our commercial AI/ML Software Platform and a related significant reduction in force. After continued analysis of our business and careful consideration of our hardware product’s development costs and market opportunity, and of our available resources, we concluded that focusing on our AI/ML Software Platform meets our previously announced goal of pursuing significant near-term revenue tied to acute customer needs and reduces our capital requirements and related risks in line with available resources. However, this strategy may not prove to be effective. Moreover, we may be unable to monetize assets relating to discontinued products or further reduce expenses.
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We expect the development of our AI/ML Software Platform will be a complex, evolving, and long-term initiative that will involve the development of new and emerging technologies, continued investment, including in privacy, safety and security efforts, and potential collaborations with other companies, developers, partners and other participants. Our AI/ML Software Platform may not develop in accordance with our expectations and its market acceptance is uncertain. We regularly evaluate our product roadmaps and make significant changes as our understanding of the technological challenges and market landscape and our product ideas and designs evolve. In addition, we have no experience with commercializing a software platform, which may enable other companies to compete more effectively than us, and we may not be successful. We also may be unsuccessful in our research and product development efforts.
As we develop and commercialize our AI/ML Software Platform, we may become subject to a variety of existing or new laws and regulations in the United States and international jurisdictions, including in the areas of privacy, security, safety, competition and consumer protection, which may delay or impede the development of our AI/ML Software Platform, increase our operating costs, require significant management time and attention or otherwise harm our business. As a result of these or other factors, our product strategy may not be successful in the foreseeable future, or at all, which could adversely affect our business, reputation, or financial results.
Our operating and financial projections rely on management assumptions and analyses. If these assumptions or analyses prove to be incorrect, as they often have in the past, our actual operating results may be materially different from our expected or forecasted results.
We are a development stage company, with no experience commercializing software products. Our projected financial and operating information reflect estimates of future performance and are based on multiple business, financial, technical and operational assumptions, including product strategy, timely hiring or retention of needed personnel, timing of commercial launch of our AI/ML Software Platform, the level of demand for our software platform, the size of our target markets, the performance of our software platform, the utilization of the platform, product pricing and the nature and length of the sales cycle. However, given our limited commercial experience, many of these assumptions may prove to be incorrect. Projections and other statements about future expectations are forward-looking statements that are inherently subject to significant risks, uncertainties and contingencies, many of which are beyond our control (in addition to the information contained in these Risk Factors, see “Special Note Regarding Forward-Looking Statements” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”).
We have yet to achieve positive operating cash flow, and our ability to generate positive cash flow is uncertain.
We had negative cash flow from operating activities of $76.6 million and $65.4 million for the years ended December 31, 2023 and 2022, respectively. We expect to continue to have negative cash flow from operating and investing activities for the foreseeable future as we expect to incur research and development, sales and marketing, and general and administrative expenses and make capital expenditures in our efforts to commercialize our AI/ML Software Platform, increase sales and engage in continuous development work. We may not achieve positive cash flow in the near future or at all. Our business also will at times require significant amounts of working capital to support the growth of additional products. 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 have no previous history or experience with commercializing software products and may not be able to do so efficiently or effectively or at all. We were unsuccessful in our efforts to commercialize the hardware technologies that we and our predecessor companies developed over the past several decades.
We have no previous history or experience commercializing AI/ML software products or platforms and may not be able to do so efficiently or effectively or at all. Further, we have historically also been unsuccessful in our efforts to commercialize our hardware products. Moreover, commercialization may be delayed due to the challenges discussed under “Commercialization of our AI/ML Software Platform may be delayed beyond our current expectations and therefore initial availability to customers and receipt of anticipated revenue could be delayed.” A key element of our long-term business strategy involves sales, marketing, training, and customer service operations, including hiring personnel with the necessary experience. Managing and maintaining these operations is expensive and time consuming, and an inability to leverage such an organization effectively or at all could inhibit potential sales and the penetration and adoption of our AI/ML Software Platform into new markets. In addition, certain decisions we make regarding priorities and staffing in these areas in our efforts to responsibly manage our financial resources could have unintended negative effects on our revenue, such as by weakening the sales and marketing infrastructures or lowering the quality of customer service.
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Commercialization of our AI/ML Software Platform may be delayed beyond our current expectations and therefore initial availability to customers and receipt of anticipated revenue could be delayed.
We are focusing our efforts on the development and commercialization of our AI/ML Software Platform. If product testing, production or customer use demonstrate that our AI/ML Software Platform does not deliver the performance, reliability, functionality and/or safety that we or our potential customers expect, commercial release and availability to customers may be delayed as we work to address the deficiencies. As a result of such delays, we may receive revenue later than expected or not at all if our potential customers decide to seek alternative solutions to our product, adversely affecting our results of operations and financial condition
Moreover, our current estimates for completion of our AI/ML Software Platform development efforts and the commencement of sales to potential customers are dependent in part on our ability to hire and retain qualified employees. 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. Geopolitical events and macro-economic conditions, such as the continuing effects of the COVID-19 pandemic, the current conflicts between Russia and Ukraine and between Israel and Hamas, inflation and high interest rates, and responses thereto are also contributing to price increases. Over the past year we have experienced, and we continue to experience, these challenges, which have negatively impacted our product development schedules and progress. We expect these challenges to continue and, if they do and if we are unable to effectively mitigate their impact, it is likely that we will be unable to meet our currently expected timelines.
Our anticipated revenues are expected to be primarily derived from the development and licensing of our AI/ML Software Platform for the foreseeable future.
If we are successful in commercializing our AI/ML Software Platform, our revenue will be concentrated in this product for the foreseeable future. We will need to continue to develop our platform and establish and grow our customer base to diversify our revenue and customers. To the extent our AI/ML Software Platform does not meet customer expectations, or cannot be completed or released on its projected timelines and in line with cost targets, our future revenue and operating results will be adversely affected.
Our AI/ML Software Platform is still under development and any issues in the development and use of our platform may result in reputational harm or liability.
We are in the process of developing our AI/ML Software Platform, any issues in the development of our platform may result in reputational harm or liability. As with many innovations, AI presents risks, challenges, and unintended consequences that could affect its adoption, and therefore our business. AI algorithms and training methodologies may be flawed. Ineffective or inadequate AI development or deployment practices by us or others could result in incidents that impair the acceptance of AI solutions or cause harm to individuals or society. These deficiencies and other failures of AI systems could subject us to competitive harm, regulatory action, legal liability, and brand or reputational harm. If we enable or offer AI solutions that are controversial because of their impact on human rights, privacy, employment, or other social, economic, or political issues, we may experience competitive, brand, or reputational harm or legal and/or regulatory action. Further, incorporating AI gives rise to litigation risk and risk of non-compliance and unknown cost of compliance, as AI is an emerging technology for which the legal and regulatory landscape is not fully developed. See "Issues in the development and use of AI, combined with an uncertain regulatory environment, may result in reputational harm, liability or other adverse consequences to our business operations."
With our AI/ML Software Platform still under development, customer trials and discussions may not result in purchases.
Our AI/ML Software Platform is still under development. At present, we have revenue generating contracts with U.S. government customers for the development and testing of AI/ML software, but no commercial customers. Our AI/ML Software Platform contains advanced software and control technologies that we have developed over many years. The design of our software product is significantly influenced by feedback from potential customers and reflects the needs they express. Even if we are able to successfully incorporate that feedback into our software platform, customers who initially expressed an interest in our software product during the design phase may not ever purchase the software. If we cannot commercialize our AI/ML Software Platform on our expected schedule, if the AI/ML Software Platform does not offer our potential customers the features, functionality and return on investment that they expect, and/or if potential customers are not willing to pay for our software products at the rates that we currently expect, our ability to generate material revenues will be materially impaired.
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We have limited knowledge of the customer testing that will be required for customers to adopt our software platform. As a result, customer testing may take longer than anticipated by us, and we may not be able to provide such testing to the satisfaction of prospective customers, which could result in longer sales cycles and fewer purchases than anticipated. We may not be able to adapt our platform to reflect customer feedback successfully or at all. If customers who initially express an interest in our software platform and influenced its design ultimately do not license our AI/ML Software platform, or if they adopt a competitors’ technology, our business, prospects, financial condition and operating results would be adversely affected.
In addition, to build and maintain our business, we must maintain confidence among customers and potential customers in our AI/ML Software Platform, long-term financial viability and business prospects. Maintaining such confidence may be particularly complicated by certain factors including those that are largely outside of our control, such as our limited commercial software experience, customer unfamiliarity with our software, any delays in development to meet demand, product performance, competition and uncertainty regarding the future of AI and robotics. If we do not generate sufficient license revenue for our software platform, our business, prospects, financial condition and operating results would be materially and adversely affected. Further, if investors, analysts, rating agencies and other third parties are not confident in our AI/ML Software Platform, our ability to commercialize the platform, our financial viability, or our business prospects, we may not be able to raise any needed funding which would materially and adversely affect our financial condition and prospects.
If our target markets and the robotics industry do not continue to develop as we anticipate or if potential customers do not adopt our AI/ML Software Platform, our sales will not grow as quickly as expected, or at all, and our business, operating results and financial condition would be harmed.
The market for our AI/ML Software Platform and applications similar to the ones we are developing is relatively new and evolving. We are developing our AI/ML Software Platform to respond to an increasingly global and complex business environment with rigorous regulatory standards. If organizations do not allocate their budgets as we expect or if we do not succeed in convincing potential customers to license our AI/ML Software Platform, our sales might not grow as quickly as anticipated, or at all. Economic uncertainty or future deterioration in general economic conditions might also cause our customers to cut or delay their spending, and such cuts might disproportionately affect businesses like ours to the extent customers view our AI/ML Software Platform as too costly or as discretionary. Moreover, market acceptance of our AI/ML Software Platform is critical to our continued success. Even if the market grows as expected, if potential customers do not adopt our AI/ML Software Platform, our business, operating results, financial condition and growth prospects will be materially and adversely affected. If we are not able to generate material revenues from our AI/ML Software Platform before we exhaust our financial resources, we may need to cease business operations.
If we are unable to successfully introduce and implement enhancements, new features or modifications to our AI/ML Software Platform, our business would be harmed.
If we are unable to successfully introduce and implement new applications, enhancements or features, or fail to develop new applications that achieve market acceptance or that keep pace with rapid technological developments, our business, operating results, financial condition and growth prospects would be adversely affected. The success of enhancements and new applications depend on several factors, including timely completion, introduction and market acceptance.
We must continue to meet changing expectations and requirements of our customers. Any failure of our platform to operate effectively with future software, such as third-party robotic operating systems, and technologies or to evolve and scale to address the changing needs of our customers could reduce the demand for our platform or result in customer dissatisfaction. Further, uncertainties about the timing and nature of new software or technologies, or modifications to our platform or existing software or technologies, could increase our research and development expenses. If we are not successful in developing modifications and enhancements to our platform or if we fail to introduce new applications to market in a timely fashion, our AI/ML Software Platform might become less marketable, less competitive or obsolete, our revenue growth might be significantly impaired and our business, operating results and financial condition could be harmed.
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We may fail to attract or retain customers at sufficient rates or at all.
We have no previous history or experience commercializing software products and may not be able to do so efficiently or effectively or at all. To create and grow our customer base, we must license our software to new customers, which we may not be able to do in sufficient numbers or at all. Even if we are able to attract customers, these customers may not maintain a high level of commitment to our software platform. In addition, we will incur marketing, sales or other expenses, including referral fees, to attract new customers, which will offset revenue from such customers. For these and other reasons, we could fail to achieve revenue growth, which would adversely affect our results of operations, prospects and financial condition.
We expect our AI/ML Software Platform to be used with robots operating in a wide variety of environments and for a broad range of complex uses. Our success depends on our ability, and the ability of our customers, to implement our AI/ML Software Platform successfully in these environments. Customer retention will also be largely dependent on the quality and effectiveness of our customer service operations, which may be handled internally by our personnel and also by third-party service providers. We expect that we will need to often assist our customers in implementing our AI/ML Software Platform. If we or our customers are unable to implement our AI/ML Software Platform successfully, or are unable to do so in a timely manner, inadequate performance might result and customer perceptions of our platform and company might be impaired, our reputation and brand might suffer, we may face legal claims, customers might choose not to renew or expand the use of our platform and we might lose opportunities for additional sales.
We do not have any history with our licensing sales model.
We have no experience with licensing software as a business model. The success of our strategy to build recurring revenue streams through software licenses depends on our ability to successfully market our software platform and the benefits of our product to customers and to successfully develop a network of ongoing customers that maintain or renew their licenses, pay for upgrades, license additional functionality, or expand the use of the software within their robotic systems. The likelihood of our success must be considered in light of these risks, and our license model may not prove successful.
In addition, our competitors may offer different pricing models that may be more attractive to potential customers. We may be required to adjust our sales model in response to these changes, which could adversely affect our financial performance.
Important assumptions about market demand, pricing, adoption rates and sales cycles for our future software products may be inaccurate.
Our decision to pivot our business strategy to focus on the development of our commercial AI/ML Software Platform was based in part on our estimates of the potential addressable market, pricing, adoption rates and sales cycles for our platform. However, 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.
Given the evolving nature of the markets in which we operate, it is difficult to predict customer demand or adoption rates for our software platform or the future growth of the markets we target. 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. If customer demand does not develop as expected, or if we do not accurately forecast pricing, adoption rates and sales cycles for our software platform, our business, results of operations and financial condition will be adversely affected, perhaps materially.
The benefits of our AI/ML Software Platform to customers and projected return on investment have not been substantiated through customer use.
Our commercial AI/ML Software Platform is under development and has not been commercially used by customers. Our software platform may not perform consistent with customers’ expectations or consistent with other products which may be or may become available. Any failure of our software platform to perform as expected could harm our reputation and result in adverse publicity, lost revenue, license cancellation, harm to our brand, delays in availability, product liability claims and significant warranty and other expenses and could have a material adverse impact on our business, prospects, financial condition and operating results.
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We currently intend to target many customers that are large businesses with substantial negotiating power, exacting product standards and potentially competitive internal solutions. If we are unable to sell our software product to these customers, our prospects and results of operations will be adversely affected.
We expect that many of our potential customers will be large businesses with substantial negotiating power relative to us and, in some instances, may have internal solutions that are competitive to our platform. These large businesses also have significant development resources, which may allow them to acquire or develop independently, or in partnership with others, competitive technologies. Meeting the technical requirements and securing binding commitments from any of these businesses will require a substantial investment of our time and resources. We may be unable to secure customers from these or other businesses or we may be unable to generate meaningful revenue from these key potential customers. If our software platform is not selected by these large businesses or if these businesses develop or acquire competitive technology, it may have a material adverse effect on our business, prospects, financial condition and operating results.
A portion of our current revenue is currently and will continue to be generated by contracts with government entities, which make us subject to a number of uncertainties, challenges and risks.
Contracts with government entities are subject to a number of risks. Such relationships can be highly competitive, expensive and time-consuming, often requiring significant upfront time and expense without any assurance that these efforts will generate revenue. In the event that we are successful in being awarded a government contract, such award may be subject to appeals, disputes or litigation, including bid protests by unsuccessful bidders. Government demand and payment for our solutions may be impacted by public sector budgetary cycles and funding authorizations, with funding reductions or delays adversely affecting public sector demand for our solutions. Government entities may have statutory, contractual or other legal rights to terminate our contracts for convenience or default. Also, see “We are subject to laws, regulations and contractual provisions as a government contractor or subcontractor, which may pose increased risk of potential liability and expenses related thereto, which could have a material adverse effect on our business, operating results and financial condition”.
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.
The AI/ML and robotics industries are subject to rapid technological change, and we expect competition to increase in the future. Our research and development efforts may be unable to keep up with changes in technology or its alternatives and, as a result, our competitiveness may suffer. Developments in alternative technologies or solutions may materially and adversely affect our competitiveness in ways we do not currently anticipate. While we plan to upgrade and adapt our software platform as we or others develop new technology, any failure by us to develop new or enhanced technologies or processes, or successfully react to changes or advances in existing technologies, could delay our development and introduction of new and enhanced products, which could result in the loss of competitiveness, decreased revenue and a loss of market share to competitors. We believe our AI/ML Software Platform will compete (both directly and indirectly) with companies such as Bright Machines, C3.ai, Dexterity, Gray Matter Robotics, Intrinsic, Mujin, Olis Robotics, Rapid Robotics, and Ready Robotics. We believe that our competitors are seeking to solve the same or similar industry challenges as we are, but that most are focused on a particular aspect of the functionality of our AI Software Platform rather than a fully competitive solution.
While we view industrial robotics manufacturers, large system integrators such as Fanuc, KUKA, ABB, Yasakawa, Honeywell, Reply, and Rockwell Automation, as potential target customers and/or channel partners for our software platform, we also recognize that these companies could also emerge as formidable competitors through their own internal development efforts or future technology partnerships with and acquisitions of our direct competitors. They may bring their robust customer relationships, channels and significant financial resources to help accelerate the market viability of one of our direct or indirect competitors.
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. Further, our products may not be competitive with other alternatives.
Our competitor base may change or expand as we continue to develop and commercialize our software platform in the future. Competitors may develop products that utilize advanced technology similar to ours (such as computer vision, AI and ML) in a more effective way, or new technologies or products that provide superior results to customers or are less expensive than our software platform. Our technologies and software platform could be rendered obsolete by such developments.
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Our competitors may respond more quickly to new or emerging technologies, undertake more extensive marketing campaigns, have greater financial, marketing, manufacturing and other resources than we do, or may be more successful in attracting potential customers, employees and strategic partners. In addition, potential customers could have long-standing or contractual relationships with competitors. Potential customers may be reluctant to adopt our software product, particularly if they compete with or have the potential to compete with, or diminish the need/utilization of software product or technologies provided by any of our competitors with whom they may have an existing relationship. If we are not able to compete effectively, our business, prospects, financial condition and operating results will be adversely affected.
In addition, because we operate in new and evolving markets, the actions of our competitors could adversely affect our business. Adverse events such as product defects or legal claims with respect to competing or similar products could cause reputational harm to the AI/ML software or robotics markets as a whole and, accordingly, our business.
We may not be able to complete or enhance our product offerings through our research and development efforts.
In order to produce a commercial version of our AI/ML Software Platform, we need to complete our development efforts. Even after introduction of a commercial version of our platform, we will also likely need to continue to advance and evolve the product in response to the evolving demands of our customers in the various industries we expect to serve. Our software is in the early stages of development and commercialization. We will incur significant additional product development efforts and expenses, and we may not be successful in commercializing or marketing our software platform at all or within our currently expected timelines or available resources.
In addition, notwithstanding our market research efforts, our AI/ML Software Platform may not be accepted by customers. The success of the AI/ML Software Platform will depend on numerous factors, including our ability to:
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attract, recruit and retain qualified personnel, including engineers;
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identify and design the preferred product features for our target customers and markets;
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develop and introduce the platform in a timely manner with the needed functionality;
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adequately protect our intellectual property and avoid infringing upon the intellectual property rights of third parties; and
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demonstrate the flexibility, productivity, capabilities and efficiency benefits of our software product.
We expect to manage our product development efforts for our AI/ML Software Platform through the development of a pre-commercial product for testing and evaluation. We also make iterative improvements throughout the development process. 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. If we fail to generate demand by developing a software platform that incorporates features desired by customers, we may fail to generate revenue sufficient to achieve or maintain profitability. We have in the past experienced with respect to our hardware products and may in the future experience delays in various phases of product development, including during research and development, limited release testing, and marketing and customer education efforts. Further, delays in product development would postpone demonstrations and customer testing, which are important opportunities for customer engagement, and cause us to miss expected timelines. Such delays could cause customers to delay or forgo purchases of our software platform, or to purchase competitors’ products. 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. If we are unable to successfully manage our product development and communications with customers, customers may choose to not adopt or purchase our software platform, which would adversely affect our business, prospects, financial condition and operating results.
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Risks Related to Our Operations & Growth
Real or perceived design flaws, errors, defects, glitches, bugs or malfunctions (collectively, “Defects”) in our AI/ML Software Platform, failure of oursoftware platform to perform as expected, connectivity issues or user errors can result in lower than expected return on investment for customers, damage to property, personal injury and significant safety concerns, each of which could materially and adversely affect our results of operations, financial condition or reputation.
The design, development and marketing of our AI/ML Software Platform involve certain inherent risks. Real or perceived Defects, connectivity issues, unanticipated use of our software platform, user errors or inadequate disclosure of risks relating to the use of our software platform, among others, can lead to injury, property damage or other adverse events. We plan to conduct extensive testing of our software platform, in some instances in collaboration with our customers, to ensure that any such issues can be identified and addressed in advance of commercial launch. However, we may not be able to identify all such issues or, if identified, efforts to address them may not be effective in all cases, and our product testing may not be adequate. We plan to conduct investigations, where applicable, to identify the cause or causes of incidents and, when appropriate, implement changes to testing protocols or to the systems and solutions to prevent such incidents from reoccurring. However, any implemented improvements may not fully prevent similar or other incidents in the future. Moreover, because of the size and weight of the third-party systems that may in the future use our AI/ML Software Platform, and the nature and variability of the environments in which we expect this software to be used, adverse events relating to the use of our software platform could include significant injuries or even death. To the extent that Defects or connectivity issues are discovered during or after the development of the platform, we may experience delays in the development and/or sale of the platform while the issues are resolved. If the issues cannot be adequately resolved, production of the platform may not occur and/or resume.
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. Defects could also result in negative publicity, damage to our reputation or, in the event of regulatory developments, delays in new product approvals.
Complex software may frequently experience errors, especially when first introduced. Our software may experience errors or performance problems in the future. A failure of any part of our AI/ML Software Platform could result in property damage, serious injury or even death. We plan to implement bug fixes and upgrades as part of our regular system maintenance, which may lead to system downtime. Even if we are able to implement the bug fixes and upgrades in a timely manner, customers and operators also may fail to install updates and fixes to the software for several reasons, including poor connectivity or inattention. Any such occurrence could cause delay in market acceptance of our software platform, damage to our reputation, increased service and warranty costs, product liability claims and loss of revenue.
We anticipate that in the ordinary course of business we may be subject to product liability claims alleging defects in the design of our software platform. 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.
Even if our AI/ML Software Platform performs properly and is used as intended, if personal injuries occur while operating third-party products that use our AI/ML software, we could be exposed to liability and our results of operations, financial condition and reputation may be adversely affected.
Third-party systems that may in the future use our AI/ML Software Platform contain complex technology and must be used as designed and intended in order to operate safely and effectively. Customers may not use the platform as designed and intended. In addition, we cannot predict all the ways in which the use or misuse of our platform can lead to injury or damage to property, and our training resources and safety systems may not be successful at preventing all incidents. If personal injury or damage to property were to occur while operating our platform in a manner consistent with our training and instructions or otherwise, we could be exposed to liability and our results of operations, financial condition and reputation may be adversely affected.
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We may use “open source” software, which could negatively affect our ability to offer our AI/ML Software Platform and subject us to possible litigation.
Our AI/ML Software Platform may use “open source” software provided by third parties. Open source software is generally freely accessible, usable and modifiable, and is made available to the general public on an “as-is” basis under the terms of a non-negotiable license. Use and distribution of open source software may entail greater risks than use of third-party commercial software or internally developed software. Open source licensors generally do not provide warranties or other contractual protections regarding infringement claims or other claims relating to violation of intellectual property rights or the quality of the software. In addition, certain open source licenses, like the GNU Affero General Public License, may require us to offer for no cost the components of our platform that incorporate the open source software, to make available source code for modifications or derivative works we create by incorporating or using the open source software or to license our modifications or derivative works under the terms of the particular open source license. If we are required under the terms of an open source license to release our proprietary source code to the public, competitors could create similar products with lower development effort and time, which ultimately could result in a loss of sales for us.
We may also face claims alleging noncompliance with open source license terms or infringement, misappropriation or other violation of open source technology. These claims could result in litigation or require us to purchase a costly license, devote additional research and development resources to re-engineer our platform, discontinue the sale of our software product if re-engineering could not be accomplished on a timely or cost-effective basis, or make generally available our proprietary code in source code form, any of which would have a negative effect on our business and operating results, including being enjoined from the offering of the components of our platform that contained the open source software. We could also be subject to lawsuits by parties claiming ownership of what we believe to be open source software. Litigation could be costly for us to defend, have a negative effect on our operating results and financial condition and require us to devote additional research and development resources to re-engineer our platform.
Although we monitor use of open source software and try to ensure that none is used in a manner that would subject our platform to unintended conditions, few courts have interpreted open source licenses, and there is a risk that these licenses could be construed in a way that could impose unanticipated conditions or restrictions on our ability to commercialize our AI/ML Software Platform. We cannot guarantee that we will incorporate open source software in our platform in a manner that will not subject us to liability, or in a manner that is consistent with our current policies and procedures.
Our business and prospects depend significantly on our ability to build our brand. We may not succeed in establishing, maintaining and strengthening an effective brand, and our brand and reputation could be harmed by negative publicity regarding us or our AI/ML Software Platform.
Our business and prospects are dependent on our ability to develop, maintain and strengthen our brand. If we do not continue to establish, maintain and strengthen our brand, we may lose the opportunity to build a critical mass of customers. We believe that our inability to successfully commercialize our hardware products, and our resulting financial performance, has damaged our brand, and we are planning to re-brand the company and our products, which could be costly and may not be well received by our existing and potential customers. Promoting and positioning our brand will likely depend significantly on our ability to provide high quality software and engage with our customers as intended. To promote our brand, we may be required to change or expand our customer development and branding practices, which could result in substantially increased expenses. 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. 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. Our ability to successfully position our brand could also be adversely affected by perceptions about the quality of our competitors’ products.
Our management team has broad discretion in making strategic decisions to execute our growth plans, and our management’s decisions have not always led to the desired result and current and future decisions may not be successful in achieving our business objectives or may have unintended consequences that negatively impact our growth prospects.
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
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or other initiatives that do not necessarily improve our operating results or contribute to our growth. For example, we recently determined to pivot our business to focus on the development of our commercial AI/ML Software Platform in lieu of hardware products because we believe this strategy meets our previously announced goal of pursuing significant near-term revenue tied to acute customer needs and reduces our capital requirements and related risks in line with available resources. However, this strategy may not prove to be effective. Any failure by management to make strategic decisions that are ultimately accretive to our growth may result in unfavorable returns and uncertainty about our prospects, each of which could cause the price of our Common Stock to decline and have a material adverse effect on our business, prospects, financial condition and results of operations.
If we fail to effectively manage our business, we may not be able to design, develop, market and commercialize our software product successfully.
Any failure to manage our business effectively could materially and adversely affect our prospects, financial condition and operating results. As we work to grow our business, we may need to manage the following activities, among others:
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maintaining effective management, engineering and other teams;
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retaining and recruiting individuals with the appropriate relevant experience;
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hiring and training new personnel;
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commercializing our AI/ML Software Platform;
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forecasting revenue and implementing enterprise resource planning (ERP) systems;
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entering into relationships with one or more third-party service providers or partners, including in relation to the development and commercialization of our AI/ML Software Platform;
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potentially carrying out acquisitions and entering into collaborations, in-licensing arrangements, joint ventures, strategic alliances or partnerships;
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expanding and enhancing internal information technology, safety and security systems;
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establishing or expanding sales and customer service organizations;
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conducting demonstrations and customer trials of our software platform; and
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implementing and enhancing administrative infrastructure, systems, controls and processes.
We have conducted two RIFs in the past year, the July RIF, affecting approximately 24% of our workforce at the time, and the November RIF, affecting approximately 70% of our workforce at the time, as we evaluated our business, organization, prospects and resources and ultimately decided to focus on our AI/ML Software Platform. However, these RIFs, in particular the November RIF, has and will continue to place additional strain on our existing resources, and we could experience systemic operating difficulties in managing our business and implementing controls and other business processes, resource constraints in our product development and commercialization efforts, or other limitations or difficulties that are difficult to predict at this time.
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We may be unable to adequately control the costs associated with our operations.
We will require significant capital to develop and grow our business, including developing our commercial AI/ML Software Platform, establishing or expanding our design, research and development, sales and maintenance and service capabilities and building our brands. We have incurred and expect to continue incurring significant expenses which will impact our profitability, including research and development expenses, sales and marketing expenses as we build our brand and market our software platform and general and administrative expenses. Although the RIFs will significantly reduce expenses, the amount of savings may not be as much as we expect. Some of the factors that may lead to cost increases or reduced cost decreases are outside of our control, such as national or global geopolitical and economic conditions, including inflation and interest rates. In addition, we may incur significant costs upgrading or fixing Defects in our software platform. Our ability to become profitable in the future will not only depend on our ability to complete the design and development of our software platform to meet customer needs and identify and investigate new areas of demand and successfully market our software product, but also on our ability to sell our AI/ML Software Platform at a price needed to achieve sufficient margins and control our cash outlay, including the risks and costs associated with any warranty obligations. If we are unable to efficiently design, develop, market, deploy, distribute and service our software platform in a cost-effective manner, our operating results, financial condition and prospects would be materially and adversely affected.
We expect to incur substantial research and development costs and devote significant resources to developing and commercializing our AI/ML Software Platform, which could significantly reduce our profitability and may never result in revenue.
Our future growth depends on penetrating new markets, adapting our AI/ML Software Platform to new applications and customer requirements and introducing new features and functionality that achieve market acceptance. We expect to incur substantial, and potentially increasing, research, development, sales and marketing costs as part of our efforts to design, develop, enhance, and commercialize our AI/ML Software Platform. Our research and development program may not produce successful results or, be sufficient to adapt to new or changing technologies (such as AI), and our products may not achieve market acceptance, create additional revenue or become profitable.
Our AI/ML Software Platform requires certain limited hardware components, and we are dependent on our suppliers, some of which are currently single, sole or limited source suppliers. Any inability of these suppliers to deliver necessary components of our products at prices, volumes, performance, timing and specifications acceptable to us could have a material adverse effect on our business, prospects, financial condition and operating results.
We plan to maintain a limited set of suppliers for the minimal hardware components that will be offered with our AI/ML Software Platform. We expect most of our suppliers to be based in the United States. In some cases, we have sole source (where the component is only available from a single vendor, often as a result of customization for our use) or single source (where we purchase from a single vendor but there are alternative sources of the component) suppliers. We seek to minimize our dependence on sole or single source suppliers in order to reduce risk in our supply chain, including the risk of losing a sole or single source supplier due to bankruptcy, discontinuing production of the particular component or some other reason. However, some of the components used in our products may have to be purchased by us from a single source and some may only be available from a sole source. If our third-party suppliers are unable to supply key components and materials in the required volumes, at the needed times or at acceptable prices, our sales, revenue and profitability will likely be adversely affected and we may not be able to meet our obligations to customers. Our third-party suppliers may also not be able to meet the specifications and performance characteristics required by us, which would impact our ability to achieve our product specifications and performance characteristics as well. Additionally, our third-party suppliers may be unable to obtain required certifications or provide warranties for their products that are necessary for our solutions. If we are unable to obtain components and materials used in our products from our suppliers, our business would be adversely affected.
We have less negotiating leverage with suppliers than larger and more established companies and may not be able to obtain favorable pricing and other terms. For example, agreements with suppliers may include terms that are unfavorable to us, such as requirements that we order components and manufacture systems and solutions in excess of our demand due to minimum order quantity requirements or minimum price thresholds. While we believe that we may be able to establish alternate supply relationships and can obtain or engineer replacement components for our single source components, we may be unable to do so in time to support our production needs, or at all, or at prices or quality levels that are favorable to us. Further, we may not be able to develop satisfactory alternatives to sole-sourced components. Any inability to find satisfactory alternatives to our single- and sole-sourced component suppliers, whether due to bankruptcy of the supplier, a decision to discontinue manufacturing the component or for any other reason, could affect our costs and component availability and have a material adverse effect on our business, prospects, financial condition and operating results.
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Furthermore, fluctuations or shortages in raw materials or components and other economic conditions may cause us to experience significant increases in freight charges and material costs. Substantial increases in the prices for our materials would increase our operating costs and could reduce our margins if the increased costs cannot be recouped through increased sales prices.
We face risks related to wars, natural disasters, health epidemics and other calamities, and supply chain disruption, which could significantly disrupt our operations.
Our facilities or operations, or any potential third-party suppliers, partners, or service providers could be adversely affected by events outside of our or their control, such as natural disasters, wars, health epidemics, such as the COVID-19 pandemic, and other calamities and force majeure events. Our backup system does not capture data on a real-time basis and we may be unable to recover certain data in the event of a server failure. Our backup system may not be adequate to protect us from the effects of fire, floods, typhoons, earthquakes, power loss, telecommunications failures, break-ins, war, riots, terrorist attacks or similar events. Any of the foregoing events may give rise to interruptions, breakdowns, system failures, technology platform failures or internet failures, which could cause the loss or corruption of data or the malfunction of software or hardware, which could significantly disrupt our operations. Additionally, depending upon any ongoing effects of the COVID-19 pandemic or any other potential health pandemics, epidemics or outbreaks that may emerge, our potential customers and partners may suspend or delay their engagement with us or take other actions or experience their own negative impacts, any of which could result in a material adverse effect on our financial condition and ability to meet current timelines. The COVID-19 pandemic adversely affected our ability to recruit skilled employees to join our team, conduct research and development activities and engage with development customers, and it or other similar events could do so again and may impede our product development timelines.
Events impacting our supply chain could be caused by factors beyond the control of our suppliers or us, including labor actions, increased demand, problems in production or distribution and/or disruptions in third-party logistics, information technology or transportation systems. Some of our key suppliers are relatively small companies that could be especially susceptible to these risks. In addition, global events in recent years have resulted in widespread global supply chain disruptions to vendors including critical supply chain shortages, labor shortages, significant material cost inflation and extended lead times for items that are required for our operations. Any such interruptions to our supply chain could increase our costs and could limit the availability of products critical to our operations.
Risks Related to Our Finances
Our business plans require a significant amount of capital. Our future capital needs may require us to sell additional equity or debt securities that may dilute our stockholders or introduce covenants that may restrict our operations or our ability to pay dividends. If we require additional capital and are not able to secure new funding, we may not be able to continue our business operations.
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. Our current business plans may require us to secure additional financing prior to achieving positive operating cash flows, and we do not anticipate achieving positive operating cash flows in the near term. As a result, we intend to continue monitoring our liquidity, financial and business results and outlook and market conditions, and may be opportunistic and raise capital when we consider market conditions are good or a favorable opportunity exists to bolster our cash reserves, reduce our financial risk, help finance research and development costs and pursue business objectives. Any delays in the successful commercialization and sales of our software product will negatively impact our ability to generate revenue, our profitability and our overall operating performance and result in the need to raise additional capital sooner than expected.
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. The fact that we have limited experience commercializing our software product, coupled with our belief that our AI/ML Software Platform represents a significant technology advancement, means we have limited to no historical data on the demand for our software platform. In addition, we expect our expenses to continue to be significant in the foreseeable future as we complete the development and launch of our commercial software platform, and that our level of cash usage will be significantly affected by customer demand for our platform. 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. Even if available, the sale of additional equity or
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equity-linked securities could dilute our stockholders, and the incurrence of indebtedness would result in debt service obligations and could result in operating and financing covenants that would restrict our operations.
Our ability to obtain any necessary financing to carry out our business plan is subject to a number of factors, including general market conditions and investor acceptance of our business model. Current capital market conditions, including the impact of inflation, have increased borrowing rates and can be expected to significantly increase our cost of capital as compared to prior periods should we seek additional funding. Moreover, global capital markets have undergone periods of significant volatility and uncertainty in the past, and there can be no assurance that such financing alternatives will be available to us on favorable terms or at all, should we determine it necessary or advisable to seek additional capital.
These factors may make the timing, amount, terms and conditions of such financing unattractive or unavailable to us. If we are unable to raise sufficient funds if and when needed, we will have to significantly reduce our spending, delay or cancel our planned activities or substantially change our corporate structure or potentially cease operations and liquidate. 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.
If we cannot raise additional funds when we need or want them, our operations, prospects and financial condition would be materially and adversely affected.
Our recent initiatives to improve our cost structure, including significant workforce reductions, may not result in the anticipated savings, could result in total costs and expenses that are greater than expected and could disrupt our business.
We have conducted two RIFs in the past year, one in July 2023, affecting approximately 24% of our workforce at the time, and another in November 2023, affecting approximately 70% of our workforce at the time. These efforts are expected to result in significant annualized cost savings. However, we may incur additional expenses not currently contemplated due to events associated with the RIFs or otherwise. The annualized cost savings are estimates and subject to a number of assumptions, and actual results may differ materially. We may not realize, in full or in part, the anticipated benefits and savings from the RIFs due to unforeseen difficulties, delays or unexpected costs. If we are unable to realize the expected operational efficiencies and cost savings from the RIFs, our operating results and financial condition would be adversely affected. In addition, we may need to undertake additional workforce reductions or restructuring activities in the future. Furthermore, our initiatives to improve our cost structure, including the RIFs, may be disruptive to our operations. For example, our workforce reductions have resulted in and may continue to result in some attrition beyond planned staff reductions, and may lead to the loss of institutional knowledge and expertise, increased difficulties in our day-to-day operations, pressure on our controls and processes and reduced employee morale. We may need to seek contractor support due to unwanted attrition at unplanned additional expense or harm our productivity. In addition, we may be unsuccessful in distributing the duties and obligations of departed employees that are necessary to our operations among our remaining employees or to contractors, which could result in disruptions to our operations. Our workforce reductions could also harm our ability to attract and retain qualified personnel who are critical to our business, and make it difficult for us to pursue new opportunities and initiatives and require us to hire qualified replacement personnel. Any failure to attract or retain qualified personnel could prevent us from successfully developing or selling our software platform, which would adversely affect our business, financial condition, and results of operations.
Our financial results may vary significantly from period to period due to fluctuations in our operating costs, revenues (including from development contracts), product demand and other factors.
We expect our period-to-period financial results to vary based on our operating costs and product demand, which we anticipate will fluctuate as the pace at which we continue to design, develop and release software products. Additionally, as we commercialize our AI/ML Software Platform and/or achieve revenue from government or development contracts, we expect our revenue from period to period to fluctuate, including as we introduce new products, features or functionality or introduce our AI/ML Software Platform to new markets for the first time, and as product development contract revenue fluctuates. 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. Moreover, our operating results may not meet expectations of equity research analysts, ratings agencies or investors, who may be particularly focused on quarterly financial results. If any of this occurs, the trading price of our securities could fall substantially, either suddenly or over time, and/or experience significant volatility.
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We are highly dependent on the services of our senior management and other key employees and, if we are unable to attract, integrate and retain a sufficient number of qualified employees, our ability to develop and launch our software product, operate our business and compete could be harmed.
Our success depends, in part, on our ability to retain our key personnel. The unexpected loss of or failure to retain one or more of our senior managers or other key employees could delay product development and require outsourcing to third parties, each of which in turn could adversely affect our business. For example, we are highly dependent on the services of our AI/ML Software Platform leadership team, in particular our Chief Technology Officer, Dr. Denis Garagic. Dr. Garagic has a significant influence on our AI/ML Software Platform development efforts and our business plan. If he were to discontinue service due to death, disability or any other reason, we may be significantly disadvantaged and his departure or the departure of other key contributors to our software and technology development efforts could result in delays in product development, or potentially an inability to successfully complete development of our AI/ML Software Platform at all, which would materially and adversely harm our business, results of operations and financial condition. Further, we may have difficulty finding, or be unable to find, qualified successors to any such persons should they depart the Company. If we are unable to successfully complete development of our AI/ML Software Platform in a timely manner, whether due to the departure of any such persons or otherwise, we may not have sufficient time or resources to pursue alternative plans or opportunities and may need to cease operations. We do not maintain key-person insurance for any of our senior management.
We have experienced and may continue to experience changes in our senior management team. For example, Benjamin G. Wolff recently rejoined the Company’s executive team as President and Chief Executive Officer effective February 23, 2024 replacing Laura J. Peterson, who has been our President & Chief Executive Officer since May 2023. In connection with this change in management, we anticipate that there will be changes to the Company’s operations and also possibly to some of our key strategies and tactical initiatives over time. If we do not successfully implement and adapt to these changes they may not lead to the desired improvement in our business and results of operation. This in turn, could have a material adverse effect on our business. Our future performance will depend, in part, on the successful transition of our workforce to our new operating and organizational structure following our recent RIFs. Our inability to successfully manage these transitions, could be viewed negatively by our customers, employees, investors and other third-party partners, and could have an adverse impact on our business and results of operations.
Our success also depends, in part, on our ability to identify, hire, attract, train and develop other highly qualified personnel as needed, specifically AI/ML software engineers. 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. Integrating new employees can also cause disruptions to processes, projects, culture, priorities and the Company as a whole. We face intense competition for experienced and highly skilled employees, specifically AI/ML software engineers, from numerous other companies, including other software and technology companies, many of whom have greater financial and other resources than we do, and our ability to hire, attract and retain them depends on our ability to provide competitive compensation. We may not be able to attract, assimilate, develop or retain qualified personnel in the future, and our failure to do so could adversely affect our business, including the execution of our strategy. Further, in connection with our recent RIFs, we have re-organized our operations, which has resulted in some employees having different reporting relationships, team members or responsibilities, which could result in delays or other operational difficulties as employees become accustomed to the new organizational structure. Our recent RIFs may also cause us to experience increased difficulty attracting and retaining highly qualified personnel. We may incur significant costs to attract and retain qualified personnel, including significant expenditures related to salaries and benefits and compensation expenses related to equity awards, and we may lose new employees to competitors or other companies before we realize the benefit of our investment in recruiting and training them. Moreover, new employees may not be or become as productive as we expect, or may not fit culturally, and long-term employees may not embrace new leaders, priorities, methods, processes or other changes and may decide to leave or not perform as well as they did in the past, as we may face challenges in adequately or appropriately integrating them into our workforce and culture.
Our headquarters are in Salt Lake City, Utah, which has fewer highly skilled employees in the AI/ML software and robotics fields than some other major metropolitan areas. In addition, as part of the pivot in strategy announced on November 14, 2023 to focus on our AI/ML Software Platform, we determined to close our facility in Pittsburgh, Pennsylvania and may no longer be able to attract highly skilled employees in that location. To attract and retain key personnel, we may need to open offices in other areas of the country, which could increase costs and reduce productivity. Any failure by our management team and our employees to perform as expected may have a material adverse effect on our ability to design and launch our software product or to operate our business and compete, as well as on our business, prospects, financial condition and operating results.
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We incur significant expenses and administrative burdens as a publicly-traded company, which could have a material adverse effect on our business, prospects, financial condition and operating results.
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. 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. 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. For example, it has been more difficult and more expensive for us to obtain director and officer liability insurance and we have incurred substantially higher costs to obtain appropriate coverage than we incurred as a private company. We cannot accurately predict or estimate the amount or timing of all the additional costs we may incur. Being a public company could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as executive officers. Such increased expenses and administrative burdens involved in operating as a public company consume significant financial resources and any increases could have a material adverse effect on our business, financial condition and operating results.
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.
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.
The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. 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. We have been integrating our finance and accounting systems following our acquisition of RE2 to a common enterprise system, and a delay or other issues with the integration could impact our ability or prevent us from timely reporting our operating results, timely filing required reports with the SEC and complying with Section 404 of the Sarbanes-Oxley Act. 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.
We have previously identified material weaknesses in our internal control over financial reporting, and undertook remediation efforts to address the identified deficiencies and concluded that each material weakness was remediated as of December 31, 2021 and June 30, 2022, respectively. Our current controls and any new controls that we develop may be inadequate because of changes in conditions of our business or otherwise. Any failure to develop or maintain effective controls, or any difficulties encountered in their implementation or improvement, could adversely affect our operating results or cause us to fail to meet our reporting obligations and may result in a restatement of our financial statements for prior periods. 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. Ineffective disclosure controls and procedures and internal control over financial reporting could also cause investors to lose confidence in our reported financial and other information.
In order to maintain and improve the effectiveness of our disclosure controls and procedures and internal control over financial reporting, we expect to continue to expend significant resources, including accounting-related costs, and provide significant management oversight. 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 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. In addition, if our financial statements are not filed on a timely basis, we could be subject to sanctions, enforcement actions or investigations by Nasdaq, the SEC or other regulatory authorities or to private litigation.
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As a result, any failure to maintain effective internal control over financial reporting could result in a material adverse effect on our business and the price of our Common Stock.
Our independent registered public accounting firm is not required to formally attest to the effectiveness of our internal control over financial reporting until after we are no longer an emerging growth company. At such time, our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our controls are documented, designed or operating. Any failure to maintain effective disclosure controls and procedures and internal control over financial reporting could have a material and adverse effect on our business, prospects, financial condition and operating results.
Our ability to use net operating loss carryforwards and other tax attributes may be limited in connection with ownership changes.
We have incurred losses during our history and do not expect to become profitable in the near future, and we may never achieve profitability. To the extent that we continue to generate tax losses, unused losses will carry forward to offset future taxable income, if any, until such unused losses expire.
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. States may not conform to the Tax Act or the CARES Act in their entirety, if at all. Suspensions or other restrictions on the use of net operating losses or tax credits, possibly with retroactive effect, may result in our existing net operating losses or tax credits expiring or otherwise being unavailable to offset future income tax liabilities.
In addition, our net operating loss carryforwards are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities. Under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended (the “Code”), these U.S. federal net operating loss carryforwards and other tax attributes may become subject to an annual limitation in the event of certain cumulative changes in the ownership of our company. An “ownership change” pursuant to Section 382 of the Code generally occurs if one or more stockholders or groups of stockholders who own at least 5% of a company’s stock increase their ownership by more than 50 percentage points over their lowest ownership percentage within a rolling three-year period. Our ability to utilize net operating loss carryforwards and other tax attributes to offset future taxable income or tax liabilities may be limited as a result of ownership changes. Similar rules may apply under state tax laws. If we earn taxable income, such limitations could result in increased future income tax liability to us and our future cash flows could be adversely affected. We have recorded a full valuation allowance related to our net operating loss carryforwards and other deferred tax assets due to the uncertainty of the ultimate realization of the future benefits of those assets.
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. There is no guarantee that any of these partnerships or acquisitions would lead to any binding agreements or lasting or successful business relationships with third parties or that any of the other anticipated benefits will be achieved. If any of these relationships are established, they may subject us to a number of risks, including risks associated with sharing proprietary information, non-performance by the third-party and increased expenses in establishing new relationships, any of which could materially and adversely affect our business. We may have limited ability to monitor or control the actions of these third parties and, to the extent any of these strategic partners suffers negative publicity or harm to their reputation from events relating to their business, we may also suffer negative publicity or harm to our reputation by virtue of our association with any such third-party.
We expect that strategic business relationships will be an important factor in the growth and success of our business. However, we may not be able to identify or secure suitable business relationship opportunities in the future or our competitors may capitalize on such opportunities before we do. Moreover, identifying such opportunities could require substantial management time and resources, and negotiating and financing relationships involves significant costs and uncertainties. If we are unable to successfully source and execute on strategic relationship opportunities in the future, our overall growth could be impaired, and our business, prospects, financial condition and operating results could be materially adversely affected.
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When appropriate opportunities arise, we have in the past, and may in the future acquire additional assets, products, technologies or businesses that are complementary to our existing business. From time to time, the sellers of these assets, products and technologies or businesses may retain certain rights to the technology that they sell to us, which in some circumstances could allow the sellers to compete with us. In addition to possible stockholder approval, we may need approvals and licenses from relevant government authorities for acquisitions and to comply with any applicable laws and regulations, which could result in delays and costs, and may disrupt our business strategy if we fail to do so. Furthermore, acquisitions and the subsequent integration of new assets and businesses into our own require significant attention from our management and could result in a diversion of resources from our existing business, which in turn could have an adverse effect on our operations and financial results. Acquired assets or businesses may not generate the financial results we expect. Acquisitions could result in the use of substantial amounts of cash, potentially dilutive issuances of equity securities, the occurrence of significant goodwill impairment charges, amortization expenses for other intangible assets and exposure to potential unknown liabilities of the acquired business. For example, we have previously experienced an impairment of all of the goodwill associated with our acquisition of RE2. Moreover, the costs of identifying and consummating acquisitions may be significant.
Risks Related to Claims, Legal and Regulatory Compliance
Issues in the development and use of AI, combined with an uncertain regulatory environment, may result in reputational harm, liability or other adverse consequences to our business operations.
AI/ML technologies are complex and rapidly evolving, and we face significant competition from other companies as well as an evolving regulatory landscape. The introduction of AI/ML technologies into new or existing products may result in new or enhanced governmental or regulatory scrutiny, litigation, confidentiality or security risks, ethical concerns or other complications that could adversely affect our business, reputation or financial results or limit the functionality of our software platform or our ability to sell our software platform. Governmental bodies have implemented laws and are considering further regulation of AI/ML technologies that could negatively impact our ability to use and develop platforms and products incorporating these technologies. For example, on October 30, 2023 the Biden administration issued an Executive Order to, among other things, establish extensive new standards for AI safety and security. Additionally, the European Union has proposed certain legislation, such as the EU AI Act, that, when adopted, could impose onerous obligations related to the use of AI/ML related systems. Other jurisdictions may decide to adopt similar or more restrictive legislation that may render the use of such technologies challenging. If such legislation, or similar regulations in other jurisdictions, is enacted, compliance with such obligations may be difficult, onerous, and costly, and could adversely affect our business, reputation, financial condition, results of operations, and growth prospects. Further, the intellectual property ownership and license rights, including copyright, surrounding AI/ML technologies has not been fully addressed by U.S. courts or other federal or state laws or regulations, and the use or adoption by our customers of third-party AI/ML technologies into robotic products and services may result in exposure to claims of copyright infringement or other intellectual property misappropriation or infringement.