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Item 8. Financial Statements and Supplementary Data

2023-03-16 compared with 2022-03-29 · 385 added, 334 removed, 546 unchanged (57% of the section changed)

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Consolidated Balance Sheets

Consolidated Statements of Operations and Comprehensive Loss

Consolidated Statements of Operations

Consolidated Statements of Comprehensive Loss

Consolidated Statements of Cash Flows

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Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of Sarcos Corp.

and Subsidiaries

To the Stockholders and the Board of Directors of Sarcos Technology and Robotics Corporation

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Sarcos Technology and Robotics Corp.

(the Company) as of December 31, 2021 and 2020, the related consolidated statements of operations and comprehensive loss, stockholders' equity and cash flows for each of the two years in the period ended December 31, 2021, and the related notes (collectively referred to as the “consolidated financial statements”).

We have audited the accompanying consolidated balance sheets of Sarcos Technology and Robotics Corporation (the Company) as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive loss, stockholders' equity, and cash flows for each of the two years in the period ended December 31, 2022, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2022 in conformity with U.S.

generally accepted accounting principles.

Adoption of New Accounting Standard

As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for leases as a result of the adoption of Accounting Standards Update (ASU) No.

2016-02, Leases (Topic 842), using the modified retrospective transition method effective January 1, 2022.

Basis for Opinion

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December 31, 2021

(Notes 1 & 5)

Current assets:

Cash and cash equivalents

Marketable securities

Accounts receivable

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Property and equipment, net

Intangible assets, net

Operating lease assets

Other non-current assets

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Accrued liabilities

Notes payable, current

Current operating lease liabilities

Total current liabilities

Notes payable, net of current

Warrant liabilities

Operating lease liabilities

Other non-current liabilities

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Stockholders’

Common stock, $ 0.0001 par value, 990,000,000 and 133,312,415 shares authorized as of December 31, 2021, and December 31, 2020;

Common stock, $ 0.0001 par value, 990,000,000 shares authorized as of December 31, 2022, and December 31, 2021;

154,252,704 and 137,722,658 shares issued and outstanding as of December 31, 2022, and December 31, 2021, respectively

Additional paid-in capital

Accumulated other comprehensive loss

Accumulated deficit

Total Sarcos Technology and Robotics Corporation stockholders’

Noncontrolling interests

Total stockholders’

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SARCOS TECHNOLOGY AND ROBOTICS CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

CONSOLIDATED STATEMENTS OF OPERATIONS

( in thousands, except share and per share data )

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Operating expenses:

Cost of revenue

Cost of revenue (exclusive of items shown separately below)

Research and development

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Sales and marketing

Intangible amortization expense

Goodwill impairment

Total operating expenses

Loss from operations

Interest (expense) income, net

Loss on warrant liability

Interest income (expense), net

Gain (loss) on warrant liability

Gain on forgiveness of notes payable

Other income, net

Loss before provision for income taxes

Provision for income taxes

Net loss and comprehensive loss

Net loss attributable to common stockholders

Net loss per share attributable to common stockholders:

Loss before income tax benefit (expense)

Income tax benefit (expense)

Net loss per share

Basic and diluted

Weighted-average shares used in computing net loss per share

attributable to common stockholders

Basic and diluted

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SARCOS TECHNOLOGY AND ROBOTICS CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

( in thousands )

Year Ended December 31,

Other comprehensive loss:

Change in unrealized loss on available-for-sale investments

Total other comprehensive loss

Comprehensive loss

See accompanying notes to the consolidated financial statements.

SARCOS TECHNOLOGY AND ROBOTICS CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

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Stock-based compensation

Depreciation of property and equipment

Amortization of intangible assets

Change in fair value of warrant liability

Gain on forgiveness of notes payable

Amortization of investment discount

Goodwill impairment

Changes in operating assets and liabilities

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Accrued liabilities

Deferred revenue

Deferred rent

Other non-current liabilities

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Purchases of property and equipment

Acquisition of a business, net of cash acquired

Purchases of marketable securities

Maturities of marketable securities

Net cash used in investing activities

Cash flows from financing activities:

Proceeds from issuance of common stock and warrants

Proceeds from notes payable

Proceeds from exercise of stock options

Acquisition of common stock for tax withholding obligations

Shares repurchased for payment of tax withholdings

Purchase of non-controlling interest

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Payments for transaction costs

Net cash provided by financing activities

Net increase in cash, cash equivalents

Net cash (used in) provided by financing activities

Net (decrease) increase in cash, cash equivalents

Cash, cash equivalents at beginning of period

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Cash paid for income taxes

Supplemental disclosure of non-cash financing and investing activities:

Issuance of common stock warrants

Supplemental disclosure of non-cash activities:

Common stock and assumed equity awards in connection with a business acquisition

Purchases of property and equipment included in accounts payable at period-end

Purchase of property and equipment under capital leases

Vesting of founder shares subject to repurchase

Leasehold improvements paid by lessor

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Convertible Preferred Stock

Comprehensive

Noncontrolling

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Balance, December 31, 2020, as adjusted

Vesting of founder shares subject to repurchase

Issuance of common stock, net of issuance cost

Issuance of common stock warrants

Stock-based compensation

Exercise of stock options

Balance at December 31, 2020

Purchase of non-controlling interest

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Balance at December 31, 2021

Stock-based compensation

Common stock issued upon vesting of restricted stock awards and restricted stock units

Shares repurchased for payment of tax withholdings and other

Exercise of stock options

Common stock and assumed equity awards in connection with a business acquisition

Other comprehensive loss

Balance at December 31, 2022

See accompanying notes to the consolidated financial statements.

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Sarcos Technology and Robotics Corporation (the “Company”

or “Sarcos”) formerly known as Rotor Acquisition Corp.

(“Rotor”), designs and produces highly-dexterous mobile robotic systems for use in dynamic environments.

or “Sarcos”), designs and produces highly-dexterous mobile robotic systems and solutions for use in dynamic environments.

Basis of Presentation and Consolidation

The accompanying consolidated financial statements have been prepared in accordance with U.S.

generally accepted accounting principles (“GAAP”).

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries.

All intercompany accounts and transactions have been eliminated in consolidation.

Certain prior year amounts have been reclassified to conform to current year presentation.

The Company’s fiscal year begins on January 1 and ends on December 31.

Business Combination

On September 24, 2021 (the “Closing Date”), the Company consummated a business combination (the “Business Combination”) pursuant to the terms of the Agreement and Plan of Merger, dated as of April 5, 2021, by and among Rotor Acquisition Corp.

On September 24, 2021 (the “Closing Date”), the Company consummated the business combination (the “Business Combination”) pursuant to the terms of the Agreement and Plan of Merger, dated as of April 5, 2021, by and among Rotor Acquisition Corp.

(“Rotor”), Rotor Merger Sub Corp., a Delaware corporation, and a direct, wholly-owned subsidiary of Rotor (“Merger Sub”), and Sarcos Corp., a Utah corporation (“Old Sarcos”) and Amendment No.

1 to the Agreement and Plan of Merger, dated as of August 28, 2021 (the “Amendment”

and the Original Merger Agreement, as amended, the “Merger Agreement”), by and among the Company, Merger Sub and Old Sarcos.

Pursuant to the terms of the Merger Agreement, the Business Combination between the Company and Old Sarcos was effected through the merger of Merger Sub with and into Old Sarcos, with Old Sarcos continuing as the surviving corporation (the “Merger”) and a wholly-owned subsidiary of the Company.

On the Closing Date, Rotor changed its name to Sarcos Technology and Robotics Corporation.

and the Original Merger Agreement, as amended, the “Merger Agreement”), by and among Rotor, Merger Sub and Old Sarcos.

Pursuant to the terms of the Merger Agreement, the Business Combination between Rotor and Old Sarcos was effected through the merger of Merger Sub with and into Old Sarcos, with Old Sarcos continuing as the surviving corporation (the “Merger”) and a wholly-owned subsidiary of Rotor.

On the Closing Date, the Rotor changed its name from Rotor Acquisition Corp.

to Sarcos Technology and Robotics Corporation.

Immediately prior to the effective time of the Merger (the “Effective Time”), all issued and outstanding warrants to purchase shares of Class A common stock of Old Sarcos were net exercised and all issued and outstanding shares of preferred stock of Old Sarcos were converted into common stock of Old Sarcos (collectively, the “Old Sarcos Common Stock”).

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each outstanding share of Old Sarcos Common Stock, after giving effect to the conversion described above, was cancelled and converted into and became (i) the right to receive approximately 5.129222424 shares (the “Exchange Ratio”) of Common Stock of the Company, par value $ 0.0001 per share (the “Common Stock”), rounded down to the nearest whole share plus (ii) the contingent right to receive a portion of additional shares of Common Stock upon achievement of certain milestones (the “Contingent Merger Consideration”), as described below;

All outstanding options, restricted stock units (“RSUs”) and restricted stock awards (“RSAs”) of Old Sarcos, whether vested or unvested, were assumed by the Company and converted into options, RSUs and RSAs of the Company;

In addition, each holder of Old Sarcos capital stock (including any Old Sarcos RSAs) was entitled to a right to Contingent Merger Consideration at the Closing Date in the form of earn-outs, up to an aggregate of 28,125,000 shares of Common Stock.

the outstanding options, restricted stock units (“RSUs”) and restricted stock award (“RSA”) of Old Sarcos, whether vested or unvested, were assumed by the Company and converted into options, RSUs and RSA of the Company;

In addition, each holder of Old Sarcos capital stock (including the Old Sarcos RSA) was entitled to a right to Contingent Merger Consideration at the Closing Date in the form of earn-outs, up to an aggregate of 28,125,000 shares of Common Stock.

On the Closing Date, certain investors (the “PIPE Investors”) purchased from the Company an aggregate of 22,000,000 shares (the “PIPE Shares”) of Common Stock at a price of $ 10.00 per share, for an aggregate purchase price of $ 220.0 million (the “PIPE Financing”), in a private placement pursuant to separate subscription agreements (each, a “Subscription Agreement”) entered into effective as of April 5, 2021.

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and “STRCW”, respectively.

Basis of Presentation and Consolidation

The accompanying consolidated financial statements have been prepared in accordance with U.S.

generally accepted accounting principles (“GAAP”).

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries.

All intercompany accounts and transactions have been eliminated in consolidation.

Certain prior year amounts have been reclassified to conform to current year presentation.

The Company’s fiscal year begins on January 1 and ends on December 31.

COVID-19 Pandemic

In March 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic.

Modifications continue to be made to the Company’s normal operations because of the COVID-19 pandemic and the Company continues to monitor its operations and government recommendations.

Travel restrictions and capacity limits at customer locations imposed in response to the COVID-19 pandemic continue to cause delays in the assessment and deployment of the Company’s products.

Although it is widely expected that the impact of the pandemic will subside over time, the Company cannot predict the future extent or duration of the impact that the COVID-19 pandemic will have on its financial condition and operations.

The impact of the COVID-19 pandemic on the Company’s financial performance will depend on future developments, including the duration and spread of the outbreak and related governmental advisories and restrictions.

If the financial markets and/or the overall economy continue to be impacted for an extended period, the Company’s operations and financial results may be adversely affected.

On April 25, 2022, the Company acquired RE2, Inc., (“RE2”) a Pittsburgh, PA based developer of autonomous and teleoperated mobile robotic systems.

The results presented herein include the activity of RE2 from the acquisition date through December 31, 2022 .

The Company's results do not include RE2’s financial information prior to the acquisition.

For further detail see Note 4.

Use of Estimates

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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 most significant estimates and judgments involve contract revenue recognized based on estimates of total contract costs and cost to complete uncompleted contracts, estimates of potential losses on uncompleted contracts, impairment evaluation of contract assets and property and equipment, useful lives of property and equipment, valuation allowance for net deferred income taxes and valuation of the Company’

The Company’s most significant estimates and judgments involve contract revenue recognized based on estimates of total contract costs and cost to complete uncompleted contracts, estimates of potential losses on uncompleted contracts, impairment evaluation of contract assets, goodwill and other long lived assets, assumptions used for leases, valuation allowance for net deferred income taxes and valuation of the Company’

s stock-based compensation and warrants.

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Liquidity and Capital Resources

Cash and cash equivalents were $ 217.1 million as of December 31, 2021, compared to $ 33.7 million as of December 31, 2020.

Cash, cash equivalents and marketable securities were $ 114.5 million as of December 31, 2022, compared to $ 217.1 million as of December 31, 2021.

The Company has historically incurred losses and negative cash flows from operations.

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These financial statements have been prepared in accordance with GAAP and this basis assumes the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business.

The Company’s main sources of liquidity are cash generated by equity offerings and debt.

The Company’s main sources of liquidity have been cash generated by equity offerings.

The Company’s primary use of cash is for operations and administrative activities including employee-related expenses, and general, operating and overhead expenses.

Future capital requirements will depend on many factors, including the Company’s customer growth rate, customer retention, timing and extent of development efforts, the expansion of sales and marketing activities, the introduction of new and enhanced product offerings and market acceptance of the Company’s products.

On September 24, 2021, the Company completed the Business Combination and raised net cash proceeds of $ 228.8 million , net of transaction costs.

Future capital requirements will depend on many factors, including the Company’s timing and extent of development efforts, the expansion of sales and marketing activities, customer growth rate, customer retention, the introduction of new and enhanced product offerings and market acceptance of the Company’s products.

The Company believes it has sufficient financial resources for at least the next 12 months from the date of this Report.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash, cash equivalents, accounts receivable and unbilled receivables.

Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash, cash equivalents, marketable securities, accounts receivable and unbilled receivables.

The Company’s cash is placed with high-credit-quality financial institutions and issuers, and at times exceed federally insured limits.

The Company has not experienced any losses relating to its cash equivalents.

The Company’s accounts receivable and unbilled receivables are derived from customers located in the United States.

The Company performs periodic credit evaluations of its customers.

The Company does not require collateral.

The Company's cash equivalents and marketable securities are money market funds or U.S.

Treasury bills with maturity dates within one year.

The Company has not realized any losses relating to its cash, cash equivalents or marketable securities.

Accounts receivable

As of December 31, 2021, one of our customers accounted for more than 10% of the Company’s accounts receivable, which in total represented 81 % of the accounts receivable as of the end of the year .

As of December 31, 2020 , five customers each accounted for more than 10% of the Company’s accounts receivable, which in total represented 97 % of the accounts receivable as of the end of the year.

Five and three customers accounted for more than 10% of the Company’s revenue for each of the years ended December 31, 2021 and 2020 , respectively.

As of December 31, 2022 , three of our customers accounted for more than 10% of the Company’s accounts receivable, which in total represented 81 % of the accounts receivable as of December 31, 2022.

As of December 31, 2021 , one customer accounted for more than 10% of the Company’s accounts receivable, which in total represented 81 % of the accounts receivable as of December 31, 2021.

Three a nd five customers accounted for more than 10% of the Company’s revenue for each of the years ended December 31, 2022 and 2021 , respectively.

These concentrations accounted for 74 % and 87 % of revenue for the years ended December 31, 2022 and 2021 , respectively.

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Expenditures for maintenance and repairs are expensed when incurred and betterments that extend the useful lives of property and equipment are capitalized.

When assets are retired or disposed, the asset’s original cost and related accumulated depreciation are eliminated, and any gain or loss is reflected in the statements of operations.

Impairment of Property and Equipment

The Company evaluates on an annual basis its property and equipment for indicators of possible impairment when events or changes in circumstances indicate the carrying amount of an asset may not be recoverable.

When assets are retired or disposed, the asset’s original cost and related accumulated depreciation are eliminated, and any gain or loss is reflected in the statement of operations.

Effective January 1, 2022, the Company adopted Accounting Standard Update 2016-02 (ASU 2016-02), Lease (Topic 842), which superseded previous guidance related to accounting for leases.

In accordance with ASC 842, the Company, at the inception of the contract, determines whether a contract is or contains a lease.

For leases with terms greater than 12 months, the Company records the related operating or finance right of use asset and lease liability at the present value of lease payments over the lease term.

The Company is generally not able to readily determine the implicit rate in the lease and therefore uses the determined incremental borrowing rate at lease commencement to determine the present value of lease payments.

The incremental borrowing rate represents an estimate of the market interest rate the Company would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of a lease.

Renewal options are not included in the measurement of the right of use assets and lease liabilities unless the Company is reasonably certain to exercise the optional renewal periods.

Some of the Company's leases contain rent escalations over the lease term.

The Company recognizes expense for operating leases on a straight-line basis over the lease term.

The Company’s lease agreements contain variable lease payments for common area maintenance, utility, insurance, and tax.

The Company has elected the practical expedient to combine lease and non-lease components for all asset categories.

Therefore, the lease payments used to measure the lease liability for these leases

include fixed minimum rentals along with fixed non-lease component charges.

The Company does not have significant residual value guarantees or restrictive covenants in the lease portfolio.

Impairment of Long-Lived Assets

The Company evaluates its long-lived asset for indicators of possible impairment when events or changes in circumstances indicate the carrying amount of an asset may not be recoverable.

Impairment exists if the carrying amounts of such assets exceed the estimates of future net undiscounted cash flows expected to be generated by such assets.

No impairment loss was recognized during the years ended December 31, 2021 and 2020 .

No impairment loss was recognized related to these assets during the years ended December 31, 2022 and 2021 .

Goodwill is initially recorded when the purchase price paid for a business acquisition exceeds the estimated fair value of the net identified tangible and intangible assets acquired.

All of the Company's goodwill was recognized as part of the RE2 acquisition during 2022.

The Company evaluates goodwill at the reporting unit level for impairment annually, or when an indicator of potential impairment exists.

The Company has one reporting unit.

When testing goodwill for impairment, the Company has the option of first performing a qualitative assessment to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount.

If the Company elects to bypass the qualitative assessment, or if a qualitative assessment indicates it is more likely than not that its carrying value exceeds its fair value, the Company performs a quantitative goodwill impairment test.

Under the quantitative goodwill impairment test, if the reporting unit’s carrying amount exceeds its fair value, the Company will record an impairment charge based on that difference.

To determine reporting unit fair value as part of the quantitative test, the Company uses the income approach.

Under the income approach, the Company projects the future cash flows and discounts these cash flows to reflect their relative risk.

The cash flows used are consistent with those the Company uses in its internal planning, which reflects the Company's long-term business strategy.

In order to further validate the reasonableness of fair value as determined by the income approach described above, a reconciliation to market capitalization is then performed by estimating a reasonable control premium and other market factors.

Future changes in the judgments, assumptions and estimates that are used in the impairment testing for goodwill could result in significantly different estimates of fair value.

Based on the Company's quantitative goodwill impairment test, that it performed during the fourth quarter of 2022, it concluded that the carrying value of its reporting unit exceeded its fair value and that goodwill was fully impaired as of December 31, 2022.

The Company recorded a $ 70.2 million non-cash goodwill impairment charge for the twelve months ended December 31, 2022 .

For details associated with the Company's goodwill impairment testing, see Note 6.

Revenue Recognition

The Company recognizes revenue from the sale of its products and from the delivery of goods and services arising out of its contractual arrangements to provide research and development services that are fully funded by the customer.

The Company recognizes revenue from the sale of its products and from the delivery of goods and services arising out of its contractual arrangements to provide product development contract services that are funded by the customer.

The Company recognizes revenue when promised goods or services are transferred to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services by following a five-step process:

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The Company enters into contracts that can include combinations of products and services, which are either capable of being distinct and accounted for as separate performance obligations or as one performance obligation if the majority of tasks and services form a single project or capability.

However, determining whether products or services are considered distinct performance obligations that should be accounted for separately may require significant judgment.

Determining whether products or services are considered distinct performance obligations that should be accounted for separately may require significant judgment.

3) Determine the transaction price:

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However, to the extent that the Company identifies variable consideration, the Company will estimate the variable consideration at the onset of the arrangement as long as it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved.

The Company’s current contracts do not include any significant financing components because the timing of the transfer of the underlying products and services under contract are at the customers’

The Company’s current contracts do not include any significant financing components because the timing of the transfer of the underlying products and services under contract are at the customer's discretion.

Additionally, the Company does not adjust the promised amount of consideration for the effects of a significant financing component if the Company expects, at contract inception, that the period between when the Company transfers a promised good or service to a customer and when the customer pays for that good or service will be one year or less.

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The standalone selling price represents the amount we would sell the good(s) or service(s) to a customer on a standalone basis.

For the government contracts, the Company uses expected cost plus a margin as standalone selling price.

Because our contract pricing with the government customer is based on expected cost plus margin the standalone selling price of the good(s) or service(s) in our contracts with the government customer are typically equal to the selling price stated in the contract.

For government contracts, the Company uses expected cost plus a margin as the standalone selling price.

Because our contract pricing with government customers is generally based on expected cost plus margin, the standalone selling price of the good(s) or service(s) in our contracts with government customers are typically equal to the selling price stated in the contract.

When we sell standard good(s) or service(s) with observable standalone sale transactions, the observable standalone sales transactions are used to determine the standalone selling price.

5) Recognize revenue when or as the Company satisfies a performance obligation :

For each performance obligation identified, we determine at contract inception whether we satisfy the performance obligation over time or at a point in time.

For each performance obligation identified, the Company determines at contract inception whether it satisfies the performance obligation over time or at a point in time.

For performance obligations satisfied over time, revenue is recognized as work progresses when the Company is entitled to the reimbursement of costs plus a reasonable profit for work performed for which the Company has no alternate use.

For these performance obligations, the Company generally recognizes revenue using an input method with revenue amounts being recognized proportionately as costs are incurred relative to the total expected costs to satisfy the performance obligation.

The Company believes that costs incurred as a portion of total estimated costs is an appropriate measure of progress towards

satisfaction of the performance obligation since this measure reasonably depicts the progress of the work effort.

The Company believes that costs incurred as a portion of total estimated costs is an appropriate measure of progress towards satisfaction of the performance obligation since this measure reasonably depicts the progress of the work effort.

Revenue for performance obligations that are not recognized over time are recognized at the point in time when control transfers to the customer (which is generally upon delivery).

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Shipping and handling costs are recorded at the time of product shipment to the customer and are included within revenue.

Revenues from Contracts with Customers

Revenue from Contracts with Customers

The Company derives its revenue from two sources.

First, the Company enters into research and development agreements primarily relating to the commercialization of the Company’s core products.

First, the Company enters into research and development agreements primarily relating to the commercialization of the Company’s products.

Second, the Company sells its products and related parts and repair services.

The research and development services revenue includes revenue arising from different types of contractual arrangements, including cost-type contracts and fixed-price contracts.

Revenue from the sales of the Company’s products primarily includes sales of the Company’s Guardian S remote-controlled visual inspection and surveillance robotic system and its Guardian Heavy-Lift System (“HLS”).

Research and Development Services

Product development contract revenue includes revenue arising from different types of contractual arrangements, including cost-type contracts and fixed-price contracts.

Product revenue primarily includes sales of the Company's products.

Product Development Contract Revenue

Cost-type contracts –

Research, development and/or testing service contracts, including cost-plus-fixed-fee and time and material contracts, relate primarily to the development of technology in the areas of robotics, artificial intelligence and unmanned systems.

Research, development and/or testing service contracts, including cost-plus-fixed-fee and time and material contracts, relate primarily to the development of our robotics systems and related technology.

Cost-type contracts are generally entered into with the U.S.

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Revenue on fixed-price contracts is generally recognized over time as goods and services are provided.

To the extent the Company’s actual costs vary from the fixed fee, we will generate more or less profit or could incur a loss.

To the extent the Company’s actual costs vary from the fixed fee, we will generate more or less

profit or could incur a loss.

The Company will recognize losses at the contract level in earnings in the period in which they are incurred.

Product Revenue

Product revenues relate to sales of the Company’s Guardian S and Guardian HLS products, and certain miscellaneous parts, accessories and repair services.

Product revenue relate to sales of the Company’s commercially available products, and certain miscellaneous parts, accessories and repair services.

The Company provides a limited one-year warranty on product sales.

Product warranties are considered assurance-type warranties and are not considered to be separate performance obligations.

Revenue on product sales is recognized at the point in time when ownership of the goods is transferred, generally at the time of shipment to the customer.

At the time revenue is recognized, an accrual is established for estimated warranty expenses based on historical experience as well as anticipated product performance.

The revenue recognized for Research and Development Services and Product Revenue were as follows:

Product revenue is recognized at the point in time when ownership of the goods is transferred, generally at the time of shipment to the customer.

At the time product revenue is recognized, an accrual is established for estimated warranty expenses based on historical experience as well as anticipated product performance.

The revenue recognized for Product Development Contract Revenue and Product Revenue were as follows:

For the year ended December 31,

(In thousands)

Research and Development Services

Product Development Contract Revenue

Product Revenue

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The timing of revenue recognition, billing, and cash collection results in the recognition of accounts receivable, unbilled receivables, contract assets, and deferred revenue in the Company’s consolidated balance sheets.

Cash funds received in excess of revenues recognized that is contingent upon the satisfaction of performance obligations is accounted for as deferred revenue.

Contract assets include unbilled amounts resulting from contracts in which revenue is recognized over time, revenue recognized exceeds the amount billed, and right to payment is not only subject to the passage of time and further performance.

The opening and closing balances of our accounts receivable, unbilled receivables, contract assets and deferred revenues are as follows:

Cash funds received in excess of revenue recognized that is contingent upon the satisfaction of performance obligations is accounted for as deferred revenue.

Contract assets include unbilled receivables which are amounts resulting from timing differences between revenue recognition and billing in accordance with agreed-upon contractual terms, which typically occur subsequent to revenue being recognized.

The opening and closing balances of our accounts receivable, unbilled receivables, contract assets and deferred revenue are as follows:

(In thousands)

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The Company recorded its current contract assets, long-term contract assets and current deferred revenue within prepaid expenses and other current assets, other non-current assets, and accrued liabilities, respectively.

For the deferred revenue balance, during the years ended December 31, 2021 and 2020 , the Company recognized revenue of $ 0.1 million and $ 0.2 million, respectively, in the consolidated statements of operations and comprehensive loss.

During the years ended December 31, 2022 and 2021, the Company recognized all of the deferred revenue which existed at December 31, 2021 and 2020, respectively.

Remaining performance obligations

As of December 31, 2022, the Company had backlog, or revenue related to remaining performance obligations, of $ 3.5 million.

We expect that all of this backlog will be recognized in 2022.

The Company expects most of this backlog to be recognized over the next 12 months .

Research and Development Costs

Research and development expenses consist of costs incurred for experimentation, design, and testing that are expensed as incurred.

Research and development expenses consist of costs incurred for experimentation, design and testing and are expensed as incurred.

Sales and Marketing Costs

The Company expenses advertising costs as incurred.

Marketing costs include product demonstration, customer service, lead generation, public relations, market research and internal labor in the consolidated statements of operations and comprehensive loss.

Marketing costs include product demonstration, customer service, lead generation, public relations, market research and internal labor, and are expensed as incurred.

Stock-Based Compensation

The Company calculates the fair value of all stock-based awards, including stock options and restricted stock awards on the date of grant.

The Company calculates the fair value of all stock-based awards, including stock options, restricted stock units and restricted stock awards on the date of grant.

The Company values stock options using the Black-Scholes option-pricing model, which requires the use of a number of assumptions, including expected volatility, expected life, risk-free interest rate and expected dividends.

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Conversely, in the event that all or part of the net deferred tax assets are determined not to be realizable in the future, an adjustment to the valuation allowance would be charged to earnings in the period such determination is made.

Recently Issued Accounting Standard Pronouncements

Recently Adopted Accounting Pronouncements

As an emerging growth company (“EGC”), the Jumpstart Our Business Startups Act (“JOBS Act”) allows the Company to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are applicable to private companies.

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The adoption dates discussed below reflect this election.

In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02 regarding Accounting Standards Codification (“ASC”) 842 Leases.

The amendments in this guidance require balance sheet recognition of lease assets and lease liabilities by lessees for leases classified as operating leases, with an optional policy election to not recognize lease assets and lease liabilities for leases with a term of 12 months or less.

The amendments also require new disclosures, including qualitative and quantitative requirements, providing additional information about the amounts recorded in the consolidated financial statements.

The amendments require a modified retrospective approach with optional practical expedients.

In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842):

Targeted Improvements.

ASU 2018-11 provides entities another option for transition, allowing entities to not apply the new standard in the comparative periods they present in their consolidated financial statements in the year of adoption.

In June 2020, the FASB Issued ASU 2020-05, Revenue from Contracts with Customers (Topic 606) and Leases (Topic 842):

Effective Dates for Certain Entities (“ASU 2020-05”).

The update defers the initial effective date of ASU 2016-02 by one year for private companies and private non-for-profits.

For these entities, the effective date is for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022.

The Company will present the impact of the new guidance in its annual statements as of December 31, 2022 and its interim statements thereafter.

The Company is currently in the process of evaluating the impact adopting ASC 842 will have on its consolidated financial statements and related disclosures.

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2019-12, Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes by removing certain exceptions to the previous guidance, and improving the consistent application of and simplification of other areas of the guidance.

The Company adopted this ASU on January 1, 2022 , using a prospective approach.

The adoption of ASU 2019-12 did no t have a material impact on the Company's condensed consolidated financial statements and related disclosures.

In February 2016, the FASB issued ASU 2016-02 - Leases (Topic 842), which requires companies to recognize on the consolidated balance sheet assets and liabilities for the rights and obligations created by leases.

The FASB has subsequently issued supplemental and clarifying ASUs inclusive of ASU 2020-05, which updated the effective date for “all other”

entities for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022.

The Company adopted ASC 842 effective January 1, 2022, using the modified retrospective transition method as allowed under ASU 2018-11 which includes the ability to recognize the cumulative effect of the adoption being recorded as an adjustment to retained earnings on January 1, 2022.

Prior period results will continue to be presented under ASC 840 as it was the accounting standards in effect for such periods.

The Company elected to apply the package of practical expedients that allows entities to forgo reassessing at the transition date:

(1) whether any expired or existing contracts are or contain leases;

(2) lease classification for any expired or existing leases;

and (3) whether unamortized initial direct costs for existing leases meet the definition of initial direct costs under the new guidance.

The Company did not elect the hindsight practical expedient.

The Company elected the practical expedient to account for lease and non-lease components as a single component and elected the short-term lease exemption for all contracts with lease terms of 12 months of less.

Due to the adoption of this guidance, the Company recognized operating right-of-use assets and operating lease liabilities of $ 10.1 million and $ 12.2 million, respectively, as of the date of adoption.

The difference between the right-of-use assets and lease liabilities on the accompanying consolidated balance sheet is primarily due to the accrual for lease payments as a result of straight-line lease expense.

The adoption of this new guidance did not have a material impact on the Company’s results of operations and comprehensive loss or cash flows.

Recently Issued Accounting Standard Pronouncements

In June 2016, the FASB Issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326):

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The Company does not expect adoption of this new guidance to have a material impact on its results of operations, financial condition and financial statement disclosures.

In December 2019, the FASB issued ASU No.

2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes (“ASU 2019-12”).

ASU 2019-12 is intended to simplify the accounting for income taxes by removing certain exceptions to the general principles and to simplify areas such as franchise taxes, step up in tax basis goodwill, separate entity financial statements and interim recognition of enactment of tax laws or rate changes.

The ASU is effective for the Company beginning January 1, 2022.

The Company does not expect the adoption of this standard to have a material impact on its consolidated financial statements.

Fair Value Measurements

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Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis

On a recurring basis, the Company measures certain of its financial assets and liabilities, namely its warrant liabilities and cash equivalents, at fair value.

On a recurring basis, the Company measures certain of its financial assets and liabilities at fair value.

The fair value of the Company’s financial assets and liabilities measured at fair value on a recurring basis was determined using the following inputs:

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(In thousands)

Marketable Securities:

Treasury securities

Warrant liability

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(In thousands)

Cash equivalents:

Money market funds

Cash equivalents consist primarily of money market funds with original maturities of three months or less at the time of purchase, and the carrying amount is a reasonable estimate of fair value.

There were no transfers between fair value measurements levels during the years ended December 31, 2021 and 2020.

The table below sets forth a summary of changes in the fair value of the Company’s Level 3 warrants for the year ended December 31, 2021:

Warrant liability

Total liabilities

As of December 31, 2022, the Company held $ 79.3 million of available-for-sale debt securities with maturity dates within one year.

The fair value of the Company's available-for-sale debt securities approximates their amortized cost basis.

The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.

The carrying amounts of accounts payable and accrued expenses approximate their fair values because of the relatively short periods until they are required to be settled.

The following table sets forth a reconciliation from the opening balances to the closing balances for Level 3 values:

(In thousands)

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Balance at December 31, 2021

The carrying amounts of accounts payable, accrued expenses and notes payable approximate their fair values because of the relatively short periods until they mature or are required to be settled.

Warrant liability transferred out of Level 3

Balance at December 31, 2022

Transfers to/from Levels 1, 2 and 3 are recognized at the beginning of the reporting period in which a change in valuation technique or methodology occurs.

During the first quarter of 2022 the trading price of our public warrants was used to value our private placement warrants, and a third-party valuation was no longer deemed necessary resulting in the estimated fair value of our private placement warrants being transferred from a Level 3 fair value measurement to a Level 2 fair value measurement.

Balance Sheet Components

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Finished goods, net

Total inventories

The Company had inventory reserves of $ 0.3 million and $ 0.1 million for t he years ended December 31, 2021 and 2020, respectively.

Total inventories, net

The Company had inventory reserves of $ 0.4 million a nd $ 0.3 million for t he years ended December 31, 2022 and 2021, respectively.

Prepaid expenses and other current assets

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Computer equipment

Capital leased computer equipment

Other fixed assets

Financed leased computer equipment

Furniture and fixtures, and other fixed assets

Construction in progress

Property and equipment, gross

Accumulated depreciation and amortization

Accumulated depreciation

Property and equipment, net

Depreciation expenses were $ 1.4 million and $ 0.5 million for the years ended December 31, 2022 and 2021, respectively.

Amortization of assets under capital leases is included as part of depreciation expense.

Amortization of assets under finance leases is included as part of depreciation expense.

Accrued liabilities

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December 31, 2021

Payroll and related costs

Capital leases and other

Finance leases

Deferred rent

Warrant liabilities

Total other non-current liabilities

The Company leases real estate for office space under operating leases with varying expiration dates through 2033 .

Leases are categorized at their commencement date , which is the date the Company takes possession or control of the underlying asset.

Certain of the operating leases include renewal options ranging from three to five years , which are not recognized as part of the right-of-use assets as the Company is not reasonably certain that the options will be exercised.

Lease expense recorded during the year ended December 31, 2022 were $ 2.4 million .

Lease costs for operating leases are as follows:

(In thousands)

Operating lease cost

Variable lease cost

Total lease cost

The following table summarizes the Company’s lease term and discount rate assumptions:

Operating leases

Weighted-average remaining lease term (years)

Weighted-average discount rate:

Supplemental cash flow and other information related to leases:

(In thousands)

Cash paid for amounts included in measurement of liabilities:

Operating cash flows from operating leases

Right-of-use assets obtained in a noncash exchange for new lease liabilities:

Operating leases

Undiscounted future minimum lease payments (displayed by year and in the aggregate) under noncancelable operating leases with terms of more than one year, as of December 31, 2022 are as follows:

(In thousands)

Operating Leases

2028 and thereafter

Total lease payments

Less interest

Present value of lease liabilities

Rent expense related to noncancelable operating leases totaled $ 1.4 million for the year ended December 31, 2021.

On April 25, 2022, the Company acquired RE2, Inc.

a Pittsburgh, PA based developer of autonomous and teleoperated mobile robotic systems.

This acquisition significantly increased our engineering team and added additional products and target markets to the Company’s total addressable market.

The aggregate consideration transferred was $ 90.1 million, of which $ 30.7 million was paid in cash, $ 44.0 million was comprised of 9,372,674 shares of common stock and $ 15.4 million was comprised of assumed options to purchase 3,877,039 shares of common stock.

Additionally, 1,400,000 shares of common stock were issued with a fair value of $ 6.6 million at the time of grant.

These shares are subject to risk of forfeiture which lapses in full four years after the acquisition date.

These shares were excluded from the consideration transferred and are recorded as stock-based compensation expense.

The acquisition was accounted for as a business combination and the total purchase consideration was allocated to the net tangible and intangible assets and liabilities based on their fair values on the acquisition date and the excess was recorded as goodwill.

The values assigned to the assets acquired and liabilities assumed are based on preliminary estimates of fair value available as of the issuance date of these consolidated financial statements and may be adjusted during the measurement period of up to 12 months from the date of acquisition as further information becomes available.

Any changes in the fair values of the assets acquired and liabilities assumed during the measurement period may result in adjustments to goodwill.

As of December 31, 2022, the primary areas that remain preliminary relate to the valuation of certain intangible items and various tax implications resulting from the acquisition.

The following table presents the preliminary purchase consideration allocation recorded in the Company’s consolidated balance sheet as of the acquisition date:

(in thousands)

Cash and cash equivalents

Accounts receivable

Unbilled receivables

Prepaid expenses and other current assets

Property and equipment

Intangible assets

Operating lease assets

Other non-current assets

Accounts payable

Accrued liabilities

Current operating lease liabilities

Operating lease liabilities

Deferred tax liabilities

Total acquisition consideration

The following table sets forth the components of identifiable intangible assets acquired and their estimated useful lives as of the date of acquisition (in thousands):

(in thousands)

Weighted Average Useful Life (in years)

Trade name and trademarks

Developed technology

Customer relationships

Total intangible assets

Goodwill represents the future economic benefits arising from other assets that could not be individually identified and separately recognized, such as the acquired assembled workforce and synergies expected to be achieved from the integration of RE2.

Goodwill is not deductible for tax purposes.

The results of operations of RE2 from the date of acquisition have been included in the Company’s consolidated financial statements.

Pro forma revenue and results of operations have not been presented because the historical results of RE2 are not material to the Company’s consolidated financial statements in any period presented.

Goodwill and Intangible Assets

Changes in the carrying amount of goodwill for the twelve months ended December 31, 2022 was as follows:

(In thousands)

Balance at December 31, 2021

Balance at December 31, 2022

As a result of sustained decreases in the Company’s publicly quoted share price the Company conducted an analysis of its goodwill as of December 31, 2022.

The Company identified indicators of goodwill impairment for its single reporting unit and concluded that a triggering event had occurred which required a quantitative goodwill impairment assessment.

The primary indicators of impairment were the sustained decreases in the Company’s publicly quoted share price and market capitalization.

The Company estimated the reporting unit's fair value under an income approach using a discounted cash flow model.

The income approach used the reporting unit's projections of estimated operating results and cash flows that were discounted using a market participant discount rate based on the weighted-average cost of capital.

The main assumptions supporting the cash flow projections include, but are not limited to, revenue growth, margins, discount rate, and terminal growth rate.

The financial projections reflect management's best estimate of economic and market conditions over the projected period, including forecasted revenue growth, margins, capital expenditures, depreciation and amortization.

The Company recorded a $ 70.2 million non-cash goodwill impairment charge for the twelve months ended December 31, 2022.

Acquired Intangible Assets

Acquired intangible assets, net consisted of the following:

December 31, 2022

(In thousands)

Gross Carrying Amount

Accumulated Amortization

Net Carrying Amount

Weighted Average Remaining Useful Life

Trade name and trademarks

Developed technology

Customer relationships

The Company recorded $ 2.2 million of amortization expense during the twelve months ended December 31, 2022 , which was recorded as intangible amortization expense in the consolidated statement of operations.

There was no amortization expense

during the twelve months ended December 31, 2021 .

Due to the impairment of goodwill discussed above the Company performed an impairment analysis of its intangible assets and other long-lived assets.

As a result of this analysis, the Company concluded there was no impairment of intangible assets or other long-lived assets for the twelve months ended December 31, 2022.

As of December 31, 2022 future amortization expense related to acquired intangible assets was as follows:

(In thousands)

Amortization Expense

2028 and thereafter

Notes Payable

Paycheck Protection Program Loan

Old Sarcos received two unsecured loans under the Paycheck Protection Program (“PPP”) administered by the Small Business Administration, pursuant to the Coronavirus Aid, Relief, and Economic Security Act.

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The first PPP loan of $ 2.4 million was forgiven during June 2021, and the second PPP loan of $ 2.0 million was forgiven during November 2021.

The forgiveness of these PPP loans resulted in gains of $ 4.4 million during the year ended December 31, 2021 , which were recorded as gain on forgiveness of notes payable within the consolidated statements of operations and comprehensive loss.

Notes payable consisted of the following:

(In thousands)

First PPP loan

Total Notes payable

Notes payable, current portion

Notes payable, net of current portion

As of December 31, 2022, the Company did no t have any outstanding debt.

Reverse Recapitalization

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Earn-Out Shares

Each holder of Old Sarcos capital stock (including any Old Sarcos RSAs) is entitled to a right to Contingent Merger Consideration in the form of earn-outs, up to an aggregate of 28,125,000 shares of Common Stock.

The earn-outs will become payable as follows:

Each holder of Old Sarcos capital stock (including the Old Sarcos RSA) is entitled to a right to Contingent Merger Consideration following the closing of the Business Combination in the form of earn-outs, up to an aggregate of 28,125,000 shares of Common Stock (the “Earn-Out Shares”).

The Earn-Out Shares will become payable as follows:

14,062,500 shares of Common Stock of the Company in the aggregate if the closing share price of a share of Common Stock of the Company is equal to or exceeds $ 15.00 for 20 trading days in any 30 consecutive trading day period at any time during the period beginning on the first anniversary of the Closing Date and ending on the fourth anniversary of the Closing Date.

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The Earn-Out Shares issuable to holders of Old Sarcos capital stock are accounted for as equity-linked instruments and recorded in additional paid-in capital, and the Earn-Out Shares issuable to holders of Old Sarcos capital stock subject to restricted stock awards are accounted for as share-based compensation.

The earn-out shares are treated as equity-linked instruments as opposed to shares outstanding, and as such are not included in shares outstanding on the Company’s consolidated balance sheets.

Upon the closing of the Business Combination and the PIPE Financing, the Company received net cash proceeds of $ 228.8 million.

The following table reconciles the elements of the Merger to the consolidated statements of cash flows and the consolidated statements of stockholders’

equity for the year ended December 31, 2021 :

(In thousands)

Recapitalization

Cash proceeds from Rotor, net of redemptions and transaction expenses

Cash proceeds from PIPE Financing

Cash payment of transaction expenses - Sarcos

Net Cash proceeds from Merger and PIPE financing

Warrant liabilities assumed

Other non-cash net assets assumed

Unpaid and previously expensed Merger transaction costs

Net contributions from recapitalization

Immediately following closing of the Merger, the Company had 137,589,275 shares issued and outstanding of Common Stock.

The following table present the number of shares of the Company’s Common Stock outstanding immediately following the consummation of the Merger:

The Earn-Out Shares are treated as equity-linked instruments as opposed to shares outstanding, and as such are not included in shares outstanding on the Company’s condensed consolidated balance sheets.

As of December 31, 2022 , there were 28,125,000 Earn-Out Shares outstanding .

Immediately following the Business Combination, the Company had 137,589,275 shares issued and outstanding of Common Stock.

The following table presents the number of shares of the Company’s Common Stock outstanding immediately following the Business Combination:

Number of Shares

Rotor Class A Common Stock, outstanding prior to Merger

Rotor Class B Common Stock, outstanding prior to Merger

Rotor Class A Common Stock, outstanding prior to the Business Combination

Rotor Class B Common Stock, outstanding prior to the Business Combination

Class A common stock issued to PIPE Investors

redemption of Rotor Common Stock

Total shares from Merger and PIPE financing

Total shares from the Business Combination and PIPE financing

Recapitalization of Old Sarcos common stock into Class A common stock (1)

Total shares of Common Stock immediately after the Effective Time

Total shares of Common Stock immediately after the Business Combination

(1) The number of Old Sarcos shares was determined from the 21,483,286 shares of Old Sarcos Common Stock warrants, Common Stock and Preferred Stock outstanding immediately prior to the closing of the Business Combination, which are presented net of the Common and Preferred Stock redeemed, converted at the Exchange Ratio of 5.129222424 .

This excludes a restricted stock award for 5,129,222 shares that was unvested as of the date of the Merger.

All fractional shares were rounded down.

This excludes a restricted stock award for 5,129,222 shares that was unvested as of the date of the Business Combination.

All remaining fractional shares, after cumulating shares by stockholder, were rounded down.

In connection with the Merger, the Company incurred direct and incremental costs of approximately $ 32.9 million r elated to legal, accounting and other professional fees, which were deducted from the Company’s additional paid-in capital as a reduction of cash proceeds rather than expensed as incurred and $ 1.1 million of transaction costs that were recorded to operating expenses within the consolidated statements of operations and comprehensive loss.

On September 27, 2021, the Company’s Common Stock and Warrants began trading on the Nasdaq Global Market under the ticker symbols “STRC”

and “STRCW”, respectively.

As of December 31, 2021, the Company had authorized a total of 990,000,000 shares for issuance as Common Stock.

As of December 31, 2021, 137,722,658 shares of Common Stock were issued and outstanding.

In September 2016, the founders of Old Sarcos granted Old Sarcos a purchase right for 4,000,000 shares of Class B common stock of Old Sarcos originally purchased by the founders in 2015.

Old Sarcos had an exclusive option to repurchase unvested shares of Class B common stock at a price per share equal to the original issue price per share in the event that the founder’s relationship with Old Sarcos was terminated.

The repurchase right for the 4,000,000 shares lapsed in equal monthly amounts over 48 months ending in September 2020 .

The fair value of the repurchase rights were categorized as Class B common stock options at the date the repurchase rights were granted, based on the fair market value on the grant date.

These repurchase rights were recorded as stock-based compensation expense on a straight-line basis over the vesting period and were recorded to general and administrative expense within the consolidated statements of operations and comprehensive loss.

For the year ended December 31, 2020, the amount of stock-based compensation recognized related to the founder stock options was $ 1.5 million.

For the year ended December 31, 2021, no shares of Class B Common Stock were subject to the repurchase option and there was no unrecognized amount of stock-based compensation remaining.

Upon the closing of the Merger, holders of

outstanding Class B common stock of Old Sarcos received shares of the Company’s Common Stock in an amount determined by application of the Exchange Ratio, as discussed in Note 1, Basis of Presentation and Summary of Significant Accounting Policies .

Preferred Stock

As of December 31, 2021, the Company had authorized a total of 10,000,000 shares for issuance as preferred stock.

The Company’s board of directors has the authority to issue preferred stock and to determine the rights, privileges, preferences, restrictions and voting rights of those shares.

As of December 31, 2021, the Company had no shares of preferred stock outstanding as all preferred stock of Old Sarcos had been converted to Common Stock as part of the Business Combination.

Non-controlling Interest

The non-controlling interest represents the membership interest in ZeptoVision, Inc., (“Zepto”) that was held by a holder other than the Company.

Zepto was formed in April 2016 and the formation of Zepto was accounted for as a common control transaction at the time of formation.

As of December 31, 2020, the Company’s ownership percentage in Zepto was 79 %.

The Company has consolidated the financial position and results of operations of Zepto and reflected the 21 % interest as a non-controlling interest for the year ended December 31, 2020.

The carrying amount of the non-controlling interest was adjusted to reflect the change in its ownership interest in the subsidiary, with the offset to equity attributable to the Company.

On February 16, 2021, the Company acquired the non-controlling interest’s shares in Zepto for a purchase price of $ 0.2 million making Zepto a wholly owned subsidiary of the Company.

The acquisition of the remaining shares of Zepto resulted in the decrease of non-controlling interest to zero and adjustment to additional paid-in capital to reflect the Company’s increased ownership in Zepto.

On January 31, 2020, Old Sarcos issued 250,000 Class A Common Stock warrants to one of its investors, at an exercise price of $ 11.3243 per share with an expiration date of January 31, 2030 .

The Company generally accounts for warrants to purchase Common Stock as a component of equity at its issued cost unless the warrants include a conditional obligation to issue a variable number of shares or there is a deemed possibility that the Company may need to settle the warrants in cash.

Old Sarcos estimated the fair value of these warrants using the Black-Scholes option valuation model based on the estimated fair value of the underlying Common Stock, with the following assumptions:

remaining contractual term of ten years , risk-free interest rate of 3.05 %, volatility of 85 % and no dividend yield.

These estimates, especially the market value of the underlying Common Stock and the related expected volatility, are judgmental and could differ materially in the future.

Old Sarcos estimated the fair value of warrants exercisable for Class A Common Stock using the Black-Scholes option valuation model based on the estimated fair value of the underlying Common Stock.

Immediately prior to the effective time of the Merger, all the issued and outstanding warrants to purchase 250,000 shares of Class A Stock of Old Sarcos warrants were net exercised and upon the Closing were exchanged for shares of the Company’s Common Stock in an amount determined by application of the Exchange Ratio, as discussed in Note 1.

On January 31, 2020, Old Sarcos issued 250,000 Class A Common Stock warrants to one of the Series C Preferred Stock investors, at an exercise price of $ 11.3243 per share with an expiration date of January 31, 2030 .

Immediately prior to the Effective Time, all of the issued and outstanding warrants to purchase 250,000 shares of Class A Stock of Old Sarcos warrants were net exercised and then upon the Closing were exchanged for shares of the Company’s Common Stock in an amount determined by application of the Exchange Ratio, as discussed in Note 1.

On January 20, 2021, Rotor consummated the initial public offering (“IPO”) of 27,600,000 units (the “Units”), including the full exercise by the underwriters of their over-allotment option.

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At the Closing Date, Old Sarcos acquired the net liabilities from Rotor, including the Public Warrants, that were recorded as equity instruments, and the Private Placement Warrants, that were recorded as warrant liabilities (together the “Warrants”).

The Company estimated the fair value of the Private Placement Warrants exercisable for Common Stock measured at fair value on a recurring basis at the respective dates using the binomial lattice valuation model.

The binomial lattice valuation model inputs are based on the estimated fair value of the underlying Common Stock at the valuation measurement date, the remaining contractual term of the warrant, the risk-free interest rates, the expected dividends and the implied volatility of the price of the Company’s underlying stock.

These estimates, especially the expected volatility, are highly judgmental and could differ materially in the future.

The Company recognized a loss of $ 4.9 million related to the change in fair value of the Private

Placement Warrants during the year ended December 31, 2021, recorded as a loss on warranty liability within the consolidated statements of operations and comprehensive loss.

The following table provides quantitative information regarding assumptions used in the binomial lattice model to determine the fair value of the Private Placement Warrants:

December 31, 2021

September 24, 2021

(Closing Date)

Term (in years)

Implied volatility

Risk-free rate

Dividend yield

Each whole Warrant entitles the registered holder to purchase one share of our Common Stock at a price of $ 11.50 per share, subject to adjustment as discussed below, at any time commencing on January 20, 2022, provided that we have an effective registration statement under the Securities Act covering the shares of the Common Stock issuable upon exercise of the Warrants and a current prospectus relating to them is available (or we permit holders to exercise their Warrants on a cashless basis under the circumstances specified in the warrant agreement entered into between Continental Stock Transfer & Trust Company and Rotor (the “Warrant Agreement”)) and such shares are registered, qualified or exempt from registration under the securities laws of the state of residence of the holder.

Pursuant to the Warrant Agreement, a Warrant holder may exercise its Warrants only for a whole number of shares of our Common Stock.

This means only a whole Warrant may be exercised at a given time by a Warrant holder.

Each whole Warrant entitles the registered holder to purchase one share of the Company's Common Stock at a price of $ 11.50 per share, subject to adjustment as discussed below, at any time commencing on January 20, 2022, provided that the Company has an effective registration statement under the Securities Act of 1933, as amended (the “Securities Act”) covering the shares of the Common Stock issuable upon exercise of the Warrants and a current prospectus relating to them is available (or the Company permits holders to exercise their Warrants on a cashless basis under the circumstances specified in the warrant agreement (the “Warrant Agreement”) entered into between Continental Stock Transfer & Trust Company and Rotor and such shares are registered, qualified or exempt from registration under the securities laws of the state of residence of the holder.

Pursuant to the Warrant Agreement, a Warrant holder may exercise its Warrants only for a whole number of shares of the Company's Common Stock.

The Warrants will expire five years after the completion of the Business Combination, or September 24, 2026 , at 5:00 p.m., New York City time, or earlier upon redemption or liquidation.

We will not be obligated to deliver any Common Stock pursuant to the exercise of a Warrant and will have no obligation to settle such Warrant exercise unless a registration statement under the Securities Act with respect to the shares of our Common Stock underlying the Warrants is then effective and a prospectus relating thereto is current, subject to our satisfying our obligations described below with respect to registration, or a valid exemption from registration is available.

No Warrant will be exercisable, and we will not be obligated to issue a share of our Common Stock upon exercise of a Warrant unless the share of our Common Stock issuable upon such Warrant exercise has been registered, qualified or deemed to be exempt under the securities laws of the state of residence of the registered holder of the Warrants.

In the event the conditions in the two immediately preceding sentences are not satisfied with respect to a Warrant, the holder of such Warrant will not be entitled to exercise such Warrant and such Warrant may have no value and expire worthless.

In no event will we be required to net cash settle any Warrant.

In the event a registration statement is not effective for the exercised Warrants, the purchaser in the Rotor IPO of a Unit containing such Warrant will have paid the full purchase price for the Unit solely for the share of our Common Stock underlying such Unit.

As of December 31, 2022 , there were 20,549,453 Warrants outstanding.

The Company will not be obligated to deliver any Common Stock pursuant to the exercise of a Warrant and will have no obligation to settle such Warrant exercise unless a registration statement under the Securities Act with respect to the shares of Common Stock underlying the Warrants is then effective and a prospectus relating thereto is current, subject to the Company satisfying its obligations described below with respect to registration, or a valid exemption from registration is available.

No Warrant will be exercisable, and the Company will not be obligated to issue a share of Common Stock upon exercise of a Warrant unless the share of the Company's Common Stock issuable upon such Warrant exercise has been registered, qualified

or deemed to be exempt under the securities laws of the state of residence of the registered holder of the Warrants.

If the conditions in the two immediately preceding sentences are not satisfied with respect to a Warrant, the holder of such Warrant will not be entitled to exercise such Warrant and such Warrant may have no value and expire worthless.

In no event will the Company be required to net cash settle any Warrant.

Except as described herein, the Private Placement Warrants have terms and provisions that are identical to those of the Public Warrants.

If the Private Placement Warrants are held by holders other than the Sponsor or its permitted transferees, the Private Placement Warrants will be redeemable by us in all redemption scenarios and exercisable by the holders on the same basis as the Public Warrants.

The Private Placement Warrants will not be redeemable by us so long as they are held by the initial purchasers or its permitted transferees, subject to certain exceptions.

The Sponsor, or its permitted transferees, have the option to exercise the Private Placement Warrants on a cashless basis.

Redemption of Warrants When the Price per Share of Our Common Stock Equals or Exceeds $ 18.00 .

Once the Warrants become exercisable, we may call the Warrants for redemption:

If the Private Placement Warrants are held by holders other than the initial purchasers or their permitted transferees, the Private Placement Warrants will be redeemable by the Company in all redemption scenarios and exercisable by the holders on the same basis as the Public Warrants.

The Private Placement Warrants will not be redeemable by the Company so long as they are held by the initial purchasers or their permitted transferees, subject to certain exceptions.

The initial purchasers or their permitted transferees, have the option to exercise the Private Placement Warrants on a cashless basis.

Redemption of Warrants When the Price per Share of the Company's Common Stock Equals or Exceeds $ 18.00 .

Once the Warrants become exercisable, the Company may call the Warrants for redemption:

in whole and not in part;

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prior written notice of redemption (the “30-day redemption period”) to each Warrant holder;

if, and only if, the last reported sale price of the shares of our Common Stock for any 20 trading days within a 30 -trading day period commencing after the Warrants become exercisable and ending three business days before we send the notice of redemption to the Warrant holders (which we refer to as the “Reference Value”) equals or exceeds $ 18.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like).

If and when the Warrants become redeemable by us, we may exercise our redemption right even if we are unable to register or qualify the underlying securities for sale under all applicable state securities laws.

However, we will not redeem the Warrants unless an effective registration statement under the Securities Act covering the shares of our Common Stock issuable upon exercise of the Warrants is effective and a current prospectus relating to those shares of our Common Stock is available throughout the 30-day redemption period.

if, and only if, the last reported sale price of the shares of the Company's Common Stock for any 20 trading days within a 30 -trading day period commencing after the Warrants become exercisable and ending three business days before the Company sends the notice of redemption to the Warrant holders (which is referred to as the “Reference Value”) equals or exceeds $ 18.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like).

If and when the Warrants become redeemable by the Company, the Company may exercise its redemption right even if it is unable to register or qualify the underlying securities for sale under all applicable state securities laws.

However, the Company will not redeem the Warrants unless an effective registration statement under the Securities Act covering the shares of the Company's Common Stock issuable upon exercise of the Warrants is effective and a current prospectus relating to those shares of the Company's Common Stock is available throughout the 30-day redemption period.

Redemption of Warrants When the Price per Share of Our Common Stock Equals or Exceeds $ 10.00 .

Once the Warrants become exercisable, we may redeem the outstanding Warrant s (except as described herein with respect to the Private Placement Warrants if we do not utilize this redemption provision):

Once the Warrants become exercisable, the Company may redeem the outstanding Warrants (except as described herein with respect to the Private Placement Warrants if the Company does not utilize this redemption provision):

in whole and not in part;

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provided that holders will be able to exercise their Warrants on a cashless basis prior to redemption and receive that number of shares determined by reference to an agreed table based on the redemption date and the “fair market value”

of our Common Stock;

of the Company's Common Stock;

if, and only if, the Reference Value (as defined above) equals or exceeds $ 10.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like);

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Stock-based Compensation

Equity Incentive Plan

2021 Stock Plan

The Old Sarcos 2015 Equity Incentive Plan (the “2015 Plan”) provided stock option awards, RSUs and RSAs for issuance to Company employees, officers, directors, non-employee agents and consultants.

These awards vest over three to five years and are exercisable up to 10 years from the date of grant.

Unvested options are forfeited upon termination.

Following the closing of the Merger, no further awards will be made under the 2015 Plan.

Any forfeited awards will be added to the 2021 Plan.

Sarcos Technology and Robotics Corporation 2021 Equity Incentive Plan (the “2021 Plan”) provides stock options, RSUs, RSAs, stock appreciation rights (“SARS”) and performance awards for issuance to Company employees, officers, directors, non-employee agents and consultants.

In general, outstanding awards granted under the 2021 Plan vest over one to four years and, in the case of options, are exercisable up to 10 years from the date of grant.

The maximum number of shares of Common Stock that may be issued pursuant to the 2021 Plan is (i) 30.0 million shares of Common Stock of the Company plus (ii) any shares of Common Stock subject to stock options and other awards that were assumed in the Business Combination and expire or otherwise terminate without having been exercised in full, are tendered to or withheld by the Company for payment of an exercise price or for tax withholding obligations, or are forfeited to or repurchased by the Company due to failure to vest, with the maximum number of shares to be added to the 2021 Plan pursuant to clause (ii) equal to 12.8 million shares of Common Stock.

As of December 31, 2022, 24.9 million shares were available for grant under the 2021 Plan.

2015 Stock Plan

On September 15, 2021, the stockholders of the Company approved the Sarcos Technology and Robotics Corporation 2021 Equity Incentive Plan (the “2021 Plan”), and on the Closing Date, the 2021 Plan was approved by the board of directors.

The 2021 Plan provides stock option awards, RSUs and RSAs for issuance to Company employees, officers, directors, non-employee agents and consultants.

In general, these awards vest over one to four years and are exercisable up to 10 years from the date of grant.

The maximum number of shares of Common Stock that may be issued pursuant to the 2021 Plan is (i) 30,000,000 shares of Common Stock of the Company plus (ii) any shares of Common Stock subject to stock options and other awards that were assumed in the Business Commination and expire or otherwise terminate without having been exercised in full, are tendered to or withheld by the Company for payment of an exercise price or for tax withholding obligations, or are forfeited to or repurchased by the Company due to failure to vest, with the maximum number of shares to be added to the 2021 Plan pursuant to clause (ii) equal to 12,760,600 shares of Common Stock.

As of December 31, 2021 , 27,842,561 shares were available to grant under the 2021 Plan.

The Old Sarcos 2015 Equity Incentive Plan (the “2015 Plan”) provided stock options, RSUs, RSAs, SARS and performance awards for issuance to Company employees, officers, directors, non-employee agents and consultants.

Outstanding awards under the 2015 Plan generally vest over three to five years and are exercisable up to 10 years from the date of grant.

Unvested options are forfeited upon termination.

No further awards may be made under the 2015 Plan.

Any forfeited awards will be added to the 2021 Plan as described above .

RE2 Stock Plans

In connection with the acquisition of RE2, the Company assumed the outstanding stock plans and certain outstanding stock options of RE2.

These stock options are governed by the plans and agreements under which they were originally issued, but are now exercisable for shares of Common Stock.

Stock Option Activity

The following summarizes the Company’s stock option activity for the years ended December 31, 2022 and 2021:

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December 31, 2022

The aggregate intrinsic value is the fair market value on the reporting date less the exercise price for each option.

The aggregate intrinsic value of the options exercised was $ 0.8 million an d $ 0.3 million du ring the years ended December 31, 2021 and 2020, respectively.

For options granted during the years ended December 31, 2021, and 2020, the weighted average estimated fair value was $ 4.79 and $ 0.72 per option, respectively.

(a) In connection with the acquisition of RE2, the Company assumed certain outstanding options to acquire RE2 common stock which, following such assumption, were converted to options to acquire 3.9 million shares of the Company's Common Stock at a we ighted-average exercise price of $ 1.05 per share.

For options granted during the years ended December 31, 2022 and 2021, the weighted-average grant-date fair value was $ 0.96 and $ 4.79 per option, respectively.

The Company utilizes the Black-Scholes option pricing model for estimating the fair value of options granted, which requires the input of subjective assumptions.

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Treasury zero-coupon issues with an equivalent remaining term equal to the expected life of the award.

The Company calculated the fair value of option grants on the respective dates of grant using the following weighted average assumptions:

The Company calculated the fair value of options granted under the 2021 Plan on the respective dates of grant using the following weighted average assumptions:

Risk-free interest rate

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Certain awards granted under the 2015 Plan included vesting conditions related to the completion of a qualifying liquidity event and/or requirements related to the forfeiture of cash compensation .

In April 2021, the Board of Directors of the Company appro ved a modification that updated the terms of the awards such that the Business Combination would satisfy the liquidity event vesting condition for eight award recipients.

In April 2021, the Board of Directors of the Company appro ved a modification that updated the terms of certain awards such that the Business Combination would satisfy the liquidity event vesting condition for eight award recipients.

T otal incremental compensation costs resulting from the modification of these RSUs was $ 9.7 million, of which $ 8.4 million was recognized during the year ended December 31, 2021.

The following summarizes the Company’s employee RSAs activity for the year ended December 31, 2021:

The following summarizes the Company’s employee RSA activity for the years ended December 31, 2022 and 2021:

Restricted Stock Awards Outstanding

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December 31, 2021

As of December 31, 2021 , the only holder of RSAs was Mr.

Wolff, the Company’s Executive Chairman.

The RSAs held by Mr.

Wolff vest over a 15-month period following the consummation of a qualifying transaction.

For the five-year period prior to the grant of the RSAs, Mr.

Wolff had not received any equity compensation from the Company other than RSUs issued in lieu of cash compensation.

The RSAs include vesting acceleration provisions which would result in the award becoming fully vested following a change in control event or upon death of the grantee.

The Business Combination was determined to be the qualifying transaction that triggered the commencement of the 15-month vesting period, resulting in the recognition of compensation expense for RSAs o f $ 26.2 million f or the year ended December 31, 2021.

Wolff is eligible to receive additional shares upon achievement of earn-out targets as discussed in Note 5 above.

The Company recognized compensation expe nse of $ 5.1 million f or these earn-out shares during the year ended December 31, 2021.

Outstanding –

December 31, 2022

The Company recognized stock-based compensation expense in the consolidated statement of operations and comprehensive loss as follows:

For the year ended December 31,

(In thousands)

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Total stock-based compensation expense

As of December 31, 2021 , there was approximately $ 47.8 million of unrecognized stock-based compensation cost, which is expected to be recognized over an average period of 1.9 years.

As of December 31, 2022 , there was approximately $ 29.8 million of unrecognized stock-based compensation cost, which is expected to be recognized over a weighted average period of 3.1 years.

Net loss per Share

The following table sets forth the computation of the basic and diluted net loss per share attributable to common stockholders for the twelve months ended December 31, 2022 and 2021:

Year ended December 31,

For the twelve months ended December 31,

(In thousands, except share and per share data)

Net loss attributable to common stockholders

Weighted average shares outstanding, basic and diluted

Basic and diluted net loss per share

The basic and diluted net loss per share for the twelve months ended December 31, 2021, which has been computed to give effect to the conversion of the Old Sarcos Class B common stock and all convertible preferred shares into Old Sarcos Class A common stock as though the conversion had occurred as of the beginning of the period or the original date of issuance, if later.

Anti-dilutive securities, excluded

The basic and diluted net loss per share for the twelve months ended December 31, 2021 has been computed to give effect to the conversion of the Old Sarcos Class B common stock and all convertible preferred shares into Old Sarcos Class A common stock as though the conversion had occurred as of the beginning of the period or the original date of issuance, if later.

Basic and diluted net loss per share attributable to common stockholders is the same for the twelve months ended December 31, 2022 and 2021 , as the inclusion of potential shares of Common Stock would have been anti‑dilutive for the periods presented.

The following table discloses securities that could potentially dilute basic net loss per share in the future that were not included in the computation of diluted net loss per share:

As of December 31,

Outstanding warrants

Outstanding restricted stock awards

Outstanding stock options and restricted stock units

Outstanding earnout shares

Total anti-dilutive securities

Loss before provision for income taxes was $ 161.0 million and $ 81.5 million for the years ended December 31, 2022 and 2021 , respectively, all of which was generated in the United States.

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Total deferred

Total provision for income taxes

Total income tax benefit (expense)

The Company's provision for income tax differs from the amount computed by applying the statutory federal income tax rate to income before taxes as follows:

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Change in valuation allowance

Change in valuation allowance - acquisition

Research credits

Permanent differences

Change in effective tax rate

Goodwill impairment

Warrant revaluation

Disallowed executive compensation

Stock compensation

Total provision for income taxes

As of December 31, 2021 and 2020, the net deferred tax asset consisted of the following:

As of December 31, 2022 and 2021, the net deferred tax assets consisted of the following:

(In thousands)

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Research credits

Research and experimental capitalization

Lease liability

Net operating loss carryforwards

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Property and equipment

Right-of-use-asset

Total deferred tax liabilities

Net deferred tax asset

Net deferred tax assets

Valuation allowances are established when necessary to reduce deferred tax assets, including temporary differences and net operating loss carryforwards, to the amount expected to be realized in the future.

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deferred tax assets will not be realized.

As of December 31, 2021, a valuation allowance has been recorded on the Company’s deferred tax assets to recognize only the proportion of the deferred tax asset that is more likely than not to be recognized.

As of December 31, 2022, a valuation allowance has been recorded on the Company’s deferred tax assets to recognize only the portion of the deferred tax asset that is more likely than not to be recognized.

The Company’s total valuation allowance was $ 44.5 million at December 31, 2022 and $ 35.5 million at December 31, 2021.

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As of December 31, 2022 , the Company had cumulative federal net operating losses of approximately $ 141.3 million.

Of these losses, $ 5.9 million were generated in 2015 through 2017, prior to the Tax Cuts and Jobs Act enactment, and will begin expiring from 2035 to 2037 if not utilized.

Of these losses, $ 7.5 million were generated in 2015 through 2017, prior to the Tax Cuts and Jobs Act enactment, and will expire between 2035 to 2037 if not utilized.

The remaining net operating losses have an indefinite carryforward period.

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This credit has been offset by a liability for unrecognized tax benefits of $ 2.9 million.

If not utilized, the credits will expire beginning in 2035 through 2041.

If not utilized, the credits will expire between 2034 through 2042.

As of December 31, 2021, the Company had a $ 3.9 million deferred tax asset related to a federal research and development credit carryforward.

As of December 31, 2021, the Company had cumulative state net operating losses of approximately $ 89.1 million.

As of December 31, 2022 , the Company had state net operating losses of approximately $ 107.8 million.

Of the total state net operating losses, approximately $ 96.8 million is attributable to Utah.

Utah law allows unused net operating losses arising in tax years beginning after December 31, 2017 to be carried forward indefinitely.

Of the total $ 88.8 million of Utah net operating losses, $ 82.5 million are carried forward indefinitely, and the remaining net operating losses will expire beginning in 2035 through 2037.

The remaining state net operating loss carryforwards are attributable to various other states with varying

expiration periods.

Of the total $ 96.8 million of Utah net operating losses, $ 90.5 million are carried forward indefinitely, and the remaining net operating losses will expire between 2035 through 2037.

Of the total state net operating losses, approximately $ 9.8 million is attributable to Pennsylvania.

Pennsylvania net operating losses will expire between 2034 through 2042.

The remaining state net operating loss carryforwards are attributable to various other states with varying expiration periods.

As of December 31, 2021, the Company had cumulative state net operating losses of approximately $ 89.1 million .

Of the total state net operating losses, approximately $ 53.5 million is attributable to Utah.

As of December 31, 2021, the Company had a $ 1.4 million deferred tax asset related to Utah research and development credits carryforward.

Of the total state net operating losses as of December 31, 2021, approximately $ 88.8 million is attributable to Utah.

As of December 31, 2022 , the Company had a $ 2.4 million deferred tax asset related to state research and development credits carryforward.

Of the total state research and development credits, approximately $ 2.0 million is attributable to Utah.

This credit has been offset by a liability for unrecognized tax benefits of $ 1.0 million.

If not utilized, the credits will expire beginning in 2029 through 2036.

Of the total state research and development credits, approximately $ 0.4 million is attributable to Pennsylvania.

If not utilized, the credits will expire between 2033 through 2035.

As of December 31, 2021, the Company had a $ 1.4 million deferred tax asset related to a Utah research and development credit carryforward.

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As of December 31, 2022, there are no income tax returns currently under audit.

On April 25, 2022, the Company acquired RE2 in a tax-free stock purchase.

The acquired deferred tax liabilities of RE2 were available to offset the reversal of the Company’s preexisting deferred tax assets.

As a result of the acquisition, the Company determined a portion of its preexisting tax assets were more likely than not to be realized by the combined entity, and the valuation allowance was reduced.

The Company recorded a deferred tax benefit of $ 3.9 million related to the reduction of its valuation allowance.

On August 16, 2022, the Inflation Reduction Act (“IRA”) was signed into law by President Biden.

The IRA includes a corporate minimum tax of 15 % on certain large corporations with greater than $ 1 billion in average adjusted financial statement income and an excise tax on certain stock repurchases executed after December 31, 2022.

There are no impacts to the Company in 2022, and the Company does not expect a material impact on its consolidated financial statements in the foreseeable future as a result of the IRA.

Commitments and Contingencies

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Legal costs are expensed as incurred.

The Company has recorded an accrual of $ 0.5 million as of December 31, 2021, related to estimated settlements for ongoing legal claims.

The Company did not record any material loss contingency in the balance sheet as of December 31, 2020.

The Company has not recorded any material loss contingency related to legal proceedings in the balance sheet as of December 31, 2022 and 2021.

Indemnifications

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The maximum potential amount of future payments the Company could be required to make under these indemnification provisions is indeterminable.

The Company has never paid a material claim, nor has the Company been involved in litigation in connection with these indemnification arrangements.

As of December 31, 2021 and 2020, the Company has not accrued a liability for these indemnifications as the likelihood of incurring a payment obligation, if any, in connection with these indemnifications is not probable or reasonably estimable due to the unique facts and circumstances involved.

Operating Leases

The Company leases facilities under noncancelable operating lease agreements.

Future minimum rental payments under the noncancelable operating leases, subsequent to December 31, 2021, are as follows:

(In thousands)

Operating Leases

2027 and thereafter

Rent expense related to noncancelable operating leases totaled $ 1.4 million and $ 0.3 million for the years ended December 31, 2021 and 2020, respectively.

One of the operating leases includes two three-year renewal options.

Capital Leases

The Company leases equipment under agreements expiring at various times during the next three years.

The Company has recorded the capital lease obligation within its consolidated balance sheets.

Future minimum rental payments under the noncancelable capital leases, subsequent to December 31, 2021, are as follows:

(In thousands)

Capital Leases

Minimum lease payment including interest

Amount representing interest

Minimum lease payments excluding interest

As of December 31, 2022 and 2021, the Company has not accrued a liability for these indemnification obligations as the likelihood of incurring a material payment obligation in connection with these indemnification obligations is either not probable or not reasonably estimable due to the unique facts and circumstances involved.

Unconditional purchase commitments

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The CODM allocates resources and makes operating decisions based on financial information presented on a consolidated basis.

The profitability of the Company’s product group is not a determining factor in allocating resources and the CODM does not evaluate profitability below the level of the consolidated company.

The CODM does not evaluate profitability below the level of the consolidated company.

Accordingly, the Company has determined that it has a single reportable segment and operating segment structure.

The Company’s revenue is derived primarily from U.S.

During the year ended December 31, 2021 and 2020 , the Company had no material revenue earned from customers located outside the United States.

During the year ended December 31, 2022, the Company ha d $ 2.8 million of revenue earned from customers located outside the United States.

During the year ended December 31, 2021 , the Company had no material revenue earned from customers located outside the United States.

All long-lived assets are maintained in the United States.

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Related Party Transactions

As of December 31, 2020 , the Company held a controlling interest of 79 % in Zepto.

The remaining 21 % of Zepto was held by MLC 401k Trust for the benefit of the Company’s Chief Legal Officer.

On February 16, 2021, Old Sarcos acquired the non-controlling interest’s shares in Zepto for a purchase price of $ 0.2 million making Zepto a wholly-owned subsidiary of the Company.

During the year ended December 31, 2020 , the Company entered into an agreement with one of its investors, Delta Air Lines, Inc., to provide demonstration services.

The Company recognized $ 0.1 million of revenue related to these services during the year ended December 31, 2020 .

No revenue was recognized for the year ended December 31, 2021.

On April 4, 2021, the Company entered into an agreement with Palantir as described above.

Pursuant to that agreement, the Company committed to access software products and utilize services from Palantir over the next six years for a total cost of $ 42.0 million.

The software and services are an integral part of the Company’s plans to provide Robots as a Service upon commercialization of the Company’s Guardian XO and XT robotic systems.

Palantir was an investor in the PIPE Financing.

The Company recognized $ 2.2 million in sales and marketing expenses, related to services provided by Palantir during the year ended December 31, 2021 .

The Company had a prepaid expense balance of $ 3.6 million related to the Palantir contract as of December 31, 2021.

On May 16, 2021, the Company entered into an agreement with Sparks Marketing Corp.

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who is the brother-in-law of Mr.

Wolff, our former CEO and current Executive Chairman of the Board.

The Company recognized $ 0.8 million related to costs capitalized to construction in progress for the experiential mobile display for the period ended December 31, 2021 .

Wolff, our former CEO and current Director.

As of December 31, 2022 , the Company has capitalized $ 0.8 million to property plant and equipment for the experiential mobile display.

Employee Benefits

The Company has a defined contribution 401(k) plan covering substantially all employees.

The plan allows employees to defer up to 100 % of their employment income (subject to annual contribution limits imposed by the I.R.S.) after all taxes and applicable benefit deductions.

The Company did not provide matching contributions for the employee contributions to the plan during the years ended December 31, 2021 and 2020;

and no amounts have been accrued as of December 31, 2021 and 2020 .

Subsequent events

On March 28, 2022, the Company filed a current report on form 8-K and press release announcing that the Company had reached a definitive agreement to acquire RE2, Inc., a Pittsburgh, PA based developer of manipulator arms with human-like performance, intuitive robot interfaces, and advanced autonomy capabilities for use in any environment.

T he aggregate consideration for the acquisition of RE2 will be approximately $ 100.0 million, subject to customary purchase price adjustments for cash, net working capital and indebtedness.

The consideration for the acquisition of RE2 will be comprised of approximately $ 30.0 million in cash, which the Company expects to fund with cash on hand, and approximately $ 70.0 million in shares of the Company's common stock.

The number of shares of common stock to be issued in the acquisition of RE2 will be based on the volume weighted-average price per share over a 10-day trading period ending on the third business day prior to the closing and is subject to a collar, with a floor of $ 5.00 per share and a ceiling of $ 9.00 per share.

The acquisition of RE2 is subject to certain customary and other closing conditions, and is expected to close during the second quarter of 2022.

The Company has defined contribution 401(k) plans covering substantially all employees as of December 31, 2022 .

The plans allow employees to defer up to 100 % of their employment income (subject to annual contribution limits imposed by the I.R.S.) after all taxes and applicable benefit deductions.

In April 2022 the Company began providing employees with 401(k) matching contributions.

The Company recognized $ 0.9 million of expense for 401(k) matching contributions during the twelve months ended December 31, 2022.

Changes in and Disagreements w ith Accountants on Accounting and Financial Disclosure.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data