| Summary of Significant Accounting Policies | 2. Summary of Significant Accounting Policies Basis of Presentation The accompanying condensed consolidated
financial statements as of and for the three and nine months ended September 30, 2024 and 2023 have been prepared in accordance with
accounting principles generally accepted in the United States (“GAAP”) and pursuant to applicable rules and regulations
of the Securities and Exchange Commission (“SEC”). These financial statements should be read in conjunction with the
audited consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the
fiscal year ended December 31, 2023, which was filed with the SEC on March 7, 2024. The accompanying unaudited condensed consolidated
financial statements have been prepared on a consistent basis with the audited consolidated financial statements for the fiscal years
ended December 31, 2023, and 2022, and include all adjustments, consisting of only normal recurring adjustments, necessary to fairly state
the information set forth herein. There have been no changes to the Company’s significant accounting policies described in its Annual
Report on Form 10-K for the fiscal year ended December 31, 2023 that have had a material impact on the consolidated financial statements
and the related notes. The results reported for the interim period presented
are not necessarily indicative of results that may be expected for any subsequent quarter or for the full year ending December 31, 2024.
These unaudited condensed consolidated financial statements include all adjustments and accruals that are necessary for a fair statement
of all interim periods reported herein. Principles of Consolidation The condensed consolidated financial statements
include the accounts of Cyngn Inc. and its wholly owned subsidiaries, including the dissolved subsidiary Cyngn Philippines, Inc. The Company
investigated economic viability in the Philippines and determined it cost more to operate the subsidiary than any profit it could generate.
Consequently, the subsidiary was shut-down, which had minimal impact on our condensed consolidated financial statements. Intercompany
accounts and transactions have been eliminated upon consolidation. Foreign Currency Translation The functional and reporting currency for Cyngn
is the U.S. dollar. Monetary assets and liabilities denominated in currencies other than U.S. dollar are translated into the U.S. dollar
at period end rates, income and expenses are translated at the weighted average exchange rates for the period and equity is translated
at the historical exchange rates. Foreign currency translation adjustments and transactional gains and losses are immaterial to the condensed
consolidated financial statements. Use of Estimates The preparation of condensed consolidated financial
statements in conformity with GAAP requires management to make certain estimates and assumptions. These estimates and assumptions affect
the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the balance sheet date, as well
as reported amounts of revenue and expenses during the reporting period. The Company’s significant estimates and judgments include
but are not limited to internal-use software and developed software to be sold, leased or marketed, warrants and share-based compensation.
Management bases its estimates on historical experience and on various other assumptions believed to be reasonable, the results of which
form the basis for making judgments about the carrying values of assets and liabilities. Actual results could differ from those estimates. Concentration of Credit Risk Financial instruments that potentially subject
the Company to concentrations of credit risk consist of cash, which is placed with high-credit-quality financial institutions and at times
exceeds federally insured limits. Cash maintained with domestic financial institutions
generally exceed the Federal Deposit Insurance Corporation insurable limit. To date, the Company has not experienced any losses on its
deposits of cash. Cyngn invests in U.S. Treasury securities and carries these at amortized cost and recognizes gains and losses when realized. Concentration of Supplier Risk The Company generally utilizes suppliers for outside
development and engineering support. The Company does not believe that there is any significant supplier concentration risk as of September
30, 2024 and December 31, 2023. Cash and Short-term Investments The Company considers its bank accounts and all
highly liquid investments that are both readily convertible to cash with minimal risk of changes in value due to changes in interest rates,
to be cash. As of September 30, 2024 and December 31, 2023, the Company had $2.0 million and $3.6 million of cash, respectively. The Company considers short-term investments
to include marketable U.S. government securities that it intends to hold until maturity and redeem within one year. The Company
treated its U.S. government treasury bill placements as held-to-maturity securities in accordance with the Financial Accounting
Standards Board’s (“FASB”) Accounting Standards Codification Topic (“ASC”) 320, “Investments
– Debt and Equity Securities”, and recorded these securities at amortized cost on the accompanying condensed
consolidated balance sheet as of September 30, 2024 and December 31, 2023. Accounts Receivable Accounts receivables are recorded at the invoiced
amount and do not bear interest. The Company provides for probable uncollectible amounts based upon its assessment of the current status
of the individual receivables and after using reasonable collection efforts. The allowance for credit losses was zero as of September
30, 2024 and December 31, 2023. In addition , the Company utilizes current and historical collection
data as well as assesses current economic conditions in order to determine expected trade credit losses on a prospective basis. No credit
losses were recorded as of September 30, 2024 and December 31, 2023. Fair Value Measurements The accounting guidance under ASC Topic 820, “Fair
Value Measurement”, defines fair value, establishes a consistent framework for measuring fair value, and expands disclosure for
each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. Fair value is defined as an
exit price representing the amount that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly
transaction between market participants. As such, fair value is considered a market-based measurement that should be determined based
on assumptions that market participants would use in pricing an asset or liability. The Company uses the following fair value hierarchy
prescribed by U.S. GAAP, which prioritizes the inputs used to measure fair value as follows: Level 1 Level 2 Level 3 Assets and liabilities are considered to be fair valued on a recurring
basis if fair value is measured regularly. However, if the fair value measurement of an instrument does not necessarily result in a change
in the amount recorded on the condensed consolidated balance sheets, assets and liabilities are considered to be fair valued on a nonrecurring
basis. This typically occurs when accounting guidance requires assets and liabilities to be recorded at the lower of cost or fair value,
or on certain nonfinancial assets and liabilities. Nonfinancial assets and liabilities that are measured at fair value on a nonrecurring
basis include certain long-lived assets, intangible assets, and share-based compensation measured at fair value upon initial recognition. The carrying amounts of the Company’s cash
and accounts payable are reasonable estimates of their fair values due to their short-term nature. The fair values of the Company’s
share-based compensation and underwriter warrants were based on observable inputs and assumptions used in Black-Scholes valuation models
derived from independent external valuations. Property and Equipment Property and equipment is stated at cost less
accumulated depreciation. Construction work in progress includes production costs and costs of materials used in the development of the
Company’s autonomous driving software. Assets are held as construction work in progress until placed into service, at which date
depreciation commences over the estimated useful lives of the respective assets. Depreciation is recorded on a straight-line basis over
each asset’s estimated useful life. Repair and maintenance costs are expensed as incurred. Property and Equipment Useful life Internal-use software 3 to 5 years Computer and equipment 5 years Furniture and fixtures 7 years Leasehold improvements Shorter of 3 years or Vehicles 5 years Leases The Company accounts for leases in accordance
with ASC Topic 842 (“ASC 842”), “Leases”. All contracts are evaluated to determine whether or not they represent
a lease. A lease conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Leases
are classified as finance or operating in accordance with the guidance in ASC 842. The Company does not hold any finance leases. The Company
recognized a right-of-use asset and lease liability in the condensed consolidated balance sheets under ASC 842 on the office space lease
that was amended and renewed until May 2025. Lease expense will be recognized on a straight-line basis over the remaining term of the
lease. Operating leases are recognized on the balance sheet as right-of-use assets, and operating lease liabilities. Costs to Develop Software The Company incurs costs related to internally
developed software. Based on the nature of the software, the Company capitalizes software costs under the following guidance. Internal-Use Software costs The Company determined when to capitalize its
internal-use software after planning and design efforts are successfully completed. Management has implicitly authorized funding and the
software is expected to be completed and used as intended. The Company determines the amount of internal software costs to be capitalized
based on the amount of time spent by the developers on projects in the application stage of development. There is judgment involved in
estimating time allocated to a particular project in the application stage. Costs associated with building or significantly enhancing
the internally built software platform for internal use are capitalized, while costs associated with planning new developments and maintaining
the internally built software platforms are expensed as incurred. Capitalized costs include certain payroll and stock compensation costs,
as well as subscription server and consulting costs. Internal-use software is classified as property
and equipment and is amortized on a straight-line basis over their estimated useful life of three to five years. There is judgment involved
in the determination of the useful life. Amortization of the software asset will begin when the software is substantially complete and
ready for its intended use. No amortization has begun for the internal use software, as the projects are still in the application development
phase. Management evaluates the useful lives of these assets on a quarterly basis and tests for impairment whenever events or changes
in circumstances occur that could impact the recoverability of these assets. No impairment charges were associated with the Company’s
internal-use software for the three and nine months ended September 30, 2024 and 2023. Costs to Develop Software to be Sold, Leased
or Otherwise Marketed The Company accounts for research costs of computer
software to be sold, leased or otherwise marketed as expense until technological feasibility has been established for the product.
Once technological feasibility is established, certain payroll and stock compensation, occupancy, and professional service costs that
are incurred to develop functionality for the Company’s software and internally built software platforms, as well as certain upgrades
and enhancements that are expected to result in enhanced functionality are capitalized. Judgment is required in determining when technological
feasibility of a product is established. Management has determined that technological feasibility is established when a working model
is complete. After technological feasibility is established, judgement is required to determine the amount of payroll and
stock-based compensation costs to be capitalized on the remaining development efforts. These costs will continue to be capitalized until
such time as when the product or enhancement is available for general release to customers. Computer software to be sold, leased or otherwise
marketed is classified as an intangible asset. Capitalized software development costs are amortized using the greater of (a) the amount
computed using the ratio that current gross revenue for a product bear to the total of current and anticipated future gross revenue for
that product or (b) the straight-line method, beginning upon commercial release of the product, and continuing over the remaining estimated
economic life of the product, not to exceed three years to five years and recorded as cost of revenue. Amortization will begin when the
product or enhancement is available for general release to customers. No amortization has begun for externally sold software, as the software
enhancement is still in development. Management evaluates the useful lives of these assets on a quarterly basis and tests for impairment
whenever events or changes in circumstances occur that could impact the recoverability of these assets. No impairment charges were associated
with the Company’s sold, leased or otherwise marketed software for the three and nine months ended September 30, 2024 and 2023. Long-Lived Assets and Finite Lived Intangibles The Company has finite-lived intangible assets
consisting of patents and trademarks. These assets are amortized on a straight-line basis over their estimated remaining economic lives.
The patents and trademarks are amortized over 15 years. On April 1, 2022, the Company entered into an
agreement for exclusive rights to certain hardware and software products and the rights to subsequently sell the software products and
accompanying services. The Company paid a purchase price of $100,000 for these rights. The Company evaluated if substantially all of the
assets acquired are concentrated in a single identifiable asset or group of similar identifiable assets to determine if the transaction
should be accounted for as an asset acquisition. Since the only substantive assets acquired pertained to rights to intellectual property,
the entire purchase price was allocated to intellectual property and accounted for as intangible assets with a useful life of 15 years.
In accordance with ASC 805-50, “Business Combination”, the agreement was treated as an asset acquisition rather than a business
combination. For the year ended December 31, 2023 the Company determined the existence of an impairment associated with the Company’s
intangible asset “Rights to intellectual property” and accordingly recorded an impairment charge of $30,000. As of September
30, 2024, right to intellectual property is zero. The Company reviews its long-lived assets and
finite-lived intangibles for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable.
The events and circumstances the Company monitors and considers include significant decreases in the market price of similar assets, significant
adverse changes to the extent and manner in which the asset is used, an adverse change in legal factors or business climate, an accumulation
of costs that exceed the estimated cost to acquire or develop a similar asset, and continuing losses that exceed forecasted costs. The
Company assesses the recoverability of these assets by comparing the carrying amount of such assets or asset group to the future undiscounted
cash flow it expects the assets or asset group to generate. The Company recognizes an impairment loss if the sum of the expected long-term
undiscounted cash flows that the long-lived asset is expected to generate is less than the carrying amount of the long-lived asset being
evaluated. An impairment charge would then be recognized equal to the amount by which the carrying amount exceeds the fair value of the
asset. For the period ended September 30, 2023, there were no impairment charges. For the three and nine months ended September 30, 2024,
the Company determined the existence of an impairment associated with the Company’s intangible asset “Patents” and accordingly
recorded an impairment charge of $0 and $118,831, respectively. (See Note 6. Intangible Assets). Income Taxes The Company accounts for income taxes using the
asset and liability method, under which deferred tax assets and liabilities are recognized for the expected future tax consequences attributable
to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. A valuation allowance is provided when it is more
likely than not that some portion or all of a deferred tax asset will not be realized. Due to the Company’s lack of earnings history,
the net deferred tax assets have been fully offset by a valuation allowance as of September 30, 2024 and December 31, 2023 (see Note 11.
Income Taxes). There are no uncertain tax positions that would
require recognition in the condensed consolidated financial statements. If the Company were to incur an income tax liability in the future,
interest on any income tax liability would be reported as interest expense and penalties on any income tax would be reported as income
taxes. Management’s conclusions regarding uncertain tax positions may be subject to review and adjustment at a later date based
upon ongoing analysis of or changes in tax laws, regulations and interpretations thereof as well as other factors. Common Stock Warrants The Company issued to its lead underwriter in
the Company’s IPO warrants to purchase up to 1,400 (1) (1) The Company also applied the guidance in ASC 340-10-S99-1,
“Other Assets and Deferred Costs”, that states specific incremental costs directly attributable to a proposed or actual offering
of equity securities may properly be deferred and charged against the gross proceeds of the offering. The Company treated the valuation
of the warrants as directly attributable to the issuance of an equity contract and, accordingly, classified the warrants as additional
paid-in capital. Stock-based Compensation The Company recognizes the cost of share-based
awards granted to employees and directors based on the estimated grant-date fair value of the awards. Cost is recognized on a straight-line
basis over the service period, which is generally the vesting period of the award. The Company recognizes stock-based compensation cost
and reverses previously recognized costs for unvested awards in the period forfeitures occur, if any. The Company determines the fair
value of stock options using the Black-Scholes option pricing model, which is impacted by the fair value of common stock, expected price
volatility of common stock, expected term, risk-free interest rates, and expected dividend yield (see Note 9. Stock-based Compensation
Expense ) Net Loss Per Share Attributable to Common Stockholders The Company computes loss per share attributable
to common shareholders by dividing net loss attributable to common shareholders by the weighted-average number of common shares outstanding.
Diluted net loss per share reflects the potential dilution that could occur if securities or other contracts to issue shares were exercised
into shares. In calculating diluted net loss per share, the numerator is adjusted for the change in the fair value of the shares (only
if dilutive) and the denominator is increased to include the number of potentially dilutive common shares assumed to be outstanding (see
Note 8. Net Loss per Share Attributable to Common Stockholders). (1) All information has been retroactively adjusted to reflect the 1-for-100 reverse stock split effected on July 3, 2024. See Note 7, Capital Structure Research and Development Expense Research and development expense consists primarily
of outsourced engineering services, internal engineering and development expenses, materials, labor and stock-based compensation of Company
personnel involved in the development of the Company’s products and services, and allocated lease costs based on the approximate
square footage area used in research and development activities. Research and development costs are expensed as incurred. Selling, General, and Administrative Expense Selling, general, and administrative expense consist
primarily of personnel costs, facilities expenses, depreciation and amortization, travel, and advertising costs. Advertising costs are
expensed as incurred in accordance with ASC 720-35, “Other Expense – Advertising Costs”, other than trade show expenses
which are deferred until occurrence of the future event. Commitments The Company recognizes a liability with regard
to loss contingencies when it believes it is probable a liability has occurred and the amount can be reasonably estimated. If some amount
within a range of loss appears at the time to be a better estimate than any other amount within the range, the Company accrues that amount.
When no amount within the range is a better estimate than any other amount the Company accrues the minimum amount in the range. There
have been no such liabilities recorded by the Company as of September 30, 2024 and December 31, 2023. Segment Reporting The Company’s chief operating decision maker,
its Chief Executive Officer, manages operations and business as one operating segment for the purposes of allocating resources, makes
operating decisions and evaluates financial performance. Revenue Recognition Under ASC 606, “Revenue from Contracts with Customers”,
the Company determines revenue recognition through the following steps:
● Identifying the contract, or contracts, with the customer;
● Identifying the performance obligations in the contract;
● Determining the transaction price;
● Allocating the transaction price to performance obligations in the contract; and
● Recognizing revenue when, or as, the Company satisfies performance obligations by transferring the promised goods or services. Nature of Products and Services and Revenue
Recognition from (a) subscription of our Enterprise Autonomy Service (“EAS”), (b) nonrecurring engineering services
under fixed fee arrangements (“NRE services”), (c) product sales of hardware to customers and distributors, and (d)
other. are recognized as follows: Subscription Subscription revenue primarily consists of the
sale of SaaS offerings. Through the SaaS offerings and related support services, customers are granted access to a hosted software application
over the contract period, generally ranging from one year to five years, without a contractual right to possession of the software. SaaS and related support services: Revenues from
the sale of hosted software applications and related support services are generally recognized ratably over the contractual period that
the services are delivered, beginning on the date the service is made available to customers. Revenue is recognized ratably because the
customer simultaneously receives and consumes the benefits of the services throughout the contract period. Contracts are generally fixed
price the Company’s standard payment terms vary by customer and the products or services offered. Revenue is measured based on considerations specified
in a contract with a customer. Customer contracts for software subscriptions are generally represented by a sales contract or purchase
order with contract durations typically ranging from three to five years. For the three months ended September 30, 2024
and 2023, subscription revenue was $6,892 and $7,370, respectively, and for the nine months ended September 30, 2024 and 2023 was $11,162
and $9,870, respectively. Non-Recurring Engineering (“NRE”) The Company enters into Non-Recurring Engineering
(“NRE”) contracts that are principally comprised of engineering services related to customer-specific configuration of the
DriveMod. Generally, with respect to these NRE contracts, i) the determination of the contract price is based on labor and hardware costs
estimated to achieve the required milestones specified in the contract; ii) payment under these arrangements are comprised of upfront
payments due upon execution of the agreements as well as payments due upon the achievement of milestones specified in each arrangement;
and iii) contain mutual termination clauses without penalty. The Company recognizes revenue from NRE contracts that are fully funded by
customers and the sale of its products when promised goods or engineering services are transferred to customers. Each of the Company’s
NRE arrangements are comprised of multi-phase deliverables recognized at a point in time upon completion and acceptance from the customer
of each phase of the arrangement. The Company recognizes revenue in an amount that reflects the consideration to which the Company expects
to be entitled in exchange for those goods or services. For the three months ended September 30, 2024
and 2023, NRE revenue was $0, and for the nine months ended September 30, 2024 and 2023 was $0 and $1,420,000, respectively. Hardware Hardware Revenue generally consists of sale or
lease of industrial vehicles modified with a proprietary autonomous hardware kit, known as a DriveMod Kit. Revenue is recognized at a
point in time when title and risks and rewards of ownership have transferred to the customer. For customers that lease the hardware, revenue
is recognized over time as the customer simultaneously receives and consumes the benefits provided by the hardware. Customer contracts
for product sales of hardware are generally represented by a sales contract or purchase order. For the three months ended September 30, 2024
and 2023, hardware revenue was $7,622 and $10,755, respectively, and for the nine months ended September 30, 2024 and 2023 was $15,450
and $10,755, respectively. Other: Other revenues generally consist of fees associated
with the sale of distinct professional services, either in support of deploying hardware and subscription support. Professional service
offerings are typically sold as part of an arrangement for products or services included within subscription revenue. Professional services
associated with subscription revenue generally relate to standard implementation, configuration, installation or training services applied
to SaaS deployment models. Professional service revenue is recognized over time as the services are performed, as the customer simultaneously
receives and consumes the benefit of these services. Professional service contracts are offered at either a fixed or a variable price
and may be invoiced in advance or arrears of the services being provided. The Company’s standard payment terms vary
by customer and the products or services offered. Contract terms for other revenue arrangements are generally short-term, with stated
contract terms that are less than one year. The Company collects and remits taxes assessed
by different governmental authorities that are both imposed on and concurrent with a revenue-producing transaction between the Company
and the Company’s customers. These taxes may include, but are not limited to, sales, use, value-added, and some excise taxes. The
Company reports the collection of these taxes on a net basis (excluded from revenues). Shipping and handling fees billed to customers
are included in net sales, while costs of shipping and handling are included in cost of revenue. For the three months ended September 30, 2024
and 2023, other revenue was $33,069 and $7,085, respectively. For the nine months ended September 30, 2024 and 2023 other revenue was
$35,150 and $8,336, respectively. Arrangements with Multiple Performance Obligations When a contract involves multiple performance
obligations, the Company accounts for individual products and services separately if the customer can benefit from the product or service
on its own or with other resources that are readily available to the customer and the product or service is separately identifiable from
other promises in the arrangement. The consideration is allocated between separate performance obligations in proportion to their estimated
stand-alone selling price. The transactions to which the Company had to estimate stand-alone selling prices and allocate the arrangement
consideration to multiple performance obligations were immaterial. The Company’s contracts may include standard
warranty or service level provisions that state promised goods and services will perform and operate in all material respects as defined
in the respective agreements. The Company has determined that these represent assurance-type warranties, and the Company has not incurred
any material costs as a result of such commitments. Cost to Obtain and Fulfill a Contract Material Rights: The Company’s contracts with customers may
include renewal or other options at stated prices. Determining whether these options provide the customer with a material right and therefore
need to be accounted for as separate performance obligations requires judgment. The price of each option must be assessed to determine
whether it is reflective of the stand-alone selling price or is reflective of a discount that the customer only received as a result of
its prior purchase (a material right). Other Policies, Judgments and Practical Expedients Contract balances. Remaining performance obligations. Significant financing component. Contract modifications. Principal vs. Agent Considerations Judgment is required in determining whether we
are the principal or agent in transactions with dealers, OEMs and end-users. We evaluate the presentation of revenue on a gross or net
basis based on whether we control the service provided to the end-user and are the principal (i.e., “gross”), or we arrange
for other parties to provide the service to the end-user and are an agent (i.e., “net”). This determination also impacts the
presentation of incentives provided to dealers and OEMs and discounts and promotions offered to end-users to the extent they are not customers. In dealer transactions where our role is to provide
the hardware to the dealer, we do not control and are not primarily responsible for the good or service provided by the dealer to end-users.
In these transactions, hardware revenue is recorded on a net basis. In dealer and OEM transactions where our role
is to provide the software subscription to the end-user, we are primarily responsible for the services and present the respective subscription
revenue on a gross basis. Payments to dealers in exchange for their services are recorded as cost of revenue. Judgments and estimates. Concentration of Credit Risk The following table sets forth the percentages
of total revenue for customers that represents 10% or more of the respective amounts for the three months ended September 30, 2024 and
2023, respectively.
2024 2023
Customer A 60.6 % *
Customer B 28.9 % 29.8 %
Customer C * 23 %
Customer D 10.5 % 47.3 % * Below 10% The following table sets forth the percentages
of total revenue for customers that represents 10% or more of the respective amounts for the nine months ended September 30, 2024 and
2023, respectively.
2024 2023
Customer A 46.7 % 60 %
Customer B 23.4 % *
Customer C * *
Customer D 26.7 % *
Customer E * 38 %
* Below 10% There was $29,042 from these customers in accounts
receivable at September 30, 2024 and $1,300 from these customers in accounts receivable at December 31, 2023. Cost of Revenue Cost of revenue consists primarily of direct labor
and related fringe benefits for internal engineering resources costs incurred for the completion of the contracts and hardware costs. |
