美國
證券和交易委員會
華盛頓特區20549
表格
（標記一）
根據1934年證券交易法第13或15(d)節的季度報告 |
在截至的季度期間
或者
根據1934年證券交易法第13或15(d)節的轉型報告書 |
過渡期從______到______
委託文件編號：001-39866
（依據其憲章指定的註冊名稱）
（國家或其他管轄區的 公司成立或組織） |
（IRS僱主 |
，（主要行政辦公地址） |
(郵政編碼) |
公司電話號碼，包括區號：（
在法案第12(b)條的規定下注冊的證券：
每一類的名稱 |
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交易 符號: |
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在其上註冊的交易所的名稱 |
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請在以下複選框中打勾，指示註冊人：(1)在前12個月(或註冊人被要求提交這些報告的更短期間內)已經提交了1934年證券交易法第13或15(d)條規定需要提交的所有報告；以及(2)在過去的90天內一直受到了此類文件提交要求的限制。
請在以下複選框中打勾，指示註冊人是否已經電子提交了根據Regulation S-T規則405條(本章節的§232.405條)需要提交的所有互動數據文件在過去的12個月內(或註冊人被要求提交這些文件的更短期間內)。
勾選以下選框，指示申報人是大型加速評估提交人、加速評估提交人、非加速評估提交人、小型報告公司或新興成長型公司。關於「大型加速評估提交人」、「加速評估提交人」、「小型報告公司」和「新興成長型公司」的定義，請參見《交易所法規》第12億.2條。
大型加速報告人 |
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加速文件提交人 |
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☐ |
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☒ |
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較小的報告公司 |
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新興成長公司 |
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如果是新興成長型企業，請勾選複選標記，表明註冊者已選擇不使用延長過渡期來符合根據證券交易法第13(a)條規定提供的任何新財務會計準則。
請在以下空格內打勾，表示註冊人是不是外殼公司（按交易所法則120億.2條定義）。 是 ☐ 否
截至2024年11月6日，註冊者had
目錄
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頁 |
第I部分 |
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項目 1. |
5 |
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5 |
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6 |
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7 |
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8 |
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10 |
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11 |
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項目2。 |
22 |
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項目3。 |
32 |
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項目4。 |
32 |
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第二部分 |
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項目 1。 |
33 |
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項目1A。 |
33 |
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項目 2。 |
60 |
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項目 3。 |
60 |
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項目 4。 |
60 |
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項目5。 |
60 |
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項目6。 |
61 |
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62 |
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2
風險因素摘要
我們的業務受到眾多風險和不確定性的影響，包括本報告第II部分第1A項風險因素中所突顯的風險。以下是我們面臨的主要風險摘要：
3
4
第一部分—財務 信息
項目一。金融l 聲明。
PALLADYNE人工智能 corp
縮短的綜合資產表 資產負債表
（未經審計）
(以千為單位，除分享數據外)
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截至 |
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2024年9月30日 |
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2023年12月31日 |
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資產 |
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流動資產: |
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現金及現金等價物 |
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$ |
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$ |
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具市場性證券 |
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應收賬款 |
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待開票應收賬款 |
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庫存 |
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預付費用及其他流動資產 |
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全部流動資產 |
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物業及設備，扣除折舊後淨值 |
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經營租賃資產 |
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其他非流動資產 |
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總資產 |
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$ |
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$ |
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負債及股東權益 |
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流動負債： |
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應付帳款 |
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$ |
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$ |
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應計負債 |
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當期營運租賃負債 |
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流動負債合計 |
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經營租賃負債 |
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其他非流動負債 |
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總負債 |
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股東權益： |
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0.01 |
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資本公積額額外增資 |
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其他綜合收益累積額 |
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累積虧損 |
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股東權益總額 |
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負債和股東權益總額 |
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$ |
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$ |
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請參閱簡明合併財務報表附註。
5
PALLADYNE 人工智能 公司。
緊縮的綜合統計數據綜合營運狀況
（未經審計）
(以千為單位， 除非股份和每股數據)
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截至9月30日的三個月 |
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截至九個月的數據至9月30日， |
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2024 |
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2023 |
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2024 |
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2023 |
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凈收益 |
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$ |
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$ |
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$ |
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$ |
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營業費用： |
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營業成本（不包括下列獨立顯示的項目） |
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研究與開發 |
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一般及行政 |
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銷售與行銷 |
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無形資產攤銷費用 |
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資產減值及重組 |
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總營運費用 |
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業務虧損 |
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( |
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利息收益，淨額 |
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(虧損)授權工具負債上的（損失）收益 |
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其他收入，淨額 |
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所得稅前損益 |
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所得稅費用 |
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( |
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( |
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( |
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淨虧損 |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
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每股淨損失 |
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Basic and diluted |
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$ |
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$ |
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$ |
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計算每股淨損失時使用的加權平均股份 |
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基本和稀釋 |
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請參閱簡明綜合財務報表的附註。
6
PALLADYNE 人工智能 公司。
縮短的綜合資產表 綜合損益表
（未經審計）
(（以千為單位）)
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截至9月30日的三個月 |
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截至九個月的數據至9月30日， |
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2024 |
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2023 |
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2024 |
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2023 |
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淨虧損 |
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$ |
( |
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$ |
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$ |
( |
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其他綜合損益： |
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可供出售投資的未實現盈餘（虧損）的變動 |
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所有其他綜合收益（損失）之金額 |
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( |
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綜合虧損 |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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請參閱簡明合併財務報表附註。
7
PALLADYNE 人工智能 公司。
綜合財務報表摘要股東權益報表
（未經審計）
(以千為單位，除每股數據外)
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普通股 |
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額外 |
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其他累計 |
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總計 |
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A級 |
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實收資本 |
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綜合 |
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累積 |
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股東的 |
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股份 |
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金額 |
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資本 |
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（虧損）收益 |
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赤字 |
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股本 |
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2022年12月31日結餘 |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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基於股票的補償 |
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— |
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— |
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— |
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根據股權獎勵計劃發行的普通股 |
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— |
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— |
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— |
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— |
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為支付稅款扣繳而回購的股票及其他 |
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— |
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— |
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— |
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其他全面收益 |
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— |
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— |
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— |
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— |
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淨虧損 |
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— |
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— |
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— |
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— |
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( |
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( |
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2023年3月31日結束餘額 |
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$ |
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$ |
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$ |
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$ |
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$ |
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基於股票的補償 |
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— |
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— |
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— |
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— |
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根據股權獎勵計劃發行的普通股 |
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— |
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— |
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— |
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— |
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— |
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為支付稅款扣繳及其他而回購的股份 |
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( |
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— |
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( |
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— |
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— |
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( |
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其他綜合損失 |
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— |
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— |
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— |
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( |
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— |
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( |
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淨損失 |
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— |
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— |
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— |
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— |
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( |
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( |
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2023年6月30日結餘 |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
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基於股票的補償 |
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— |
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— |
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— |
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根據股權獎勵計畫發行的普通股 |
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— |
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— |
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— |
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— |
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— |
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為支付稅款扣繳及其他而回購的股份 |
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( |
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— |
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( |
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— |
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— |
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其他全面收益 |
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— |
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— |
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— |
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— |
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淨虧損 |
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— |
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— |
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— |
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— |
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( |
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( |
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2023年9月30日結餘 |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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普通股 |
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額外 |
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其他累計 |
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總計 |
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A級 |
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實收資本 |
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綜合 |
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累積 |
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股東的 |
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股份 |
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金額 |
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資本 |
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收入（損失） |
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赤字 |
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股本 |
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截至2023年12月31日的餘額 |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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基於股票的補償 |
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— |
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— |
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— |
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根據股權獎勵計劃發行的普通股 |
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— |
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— |
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— |
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— |
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— |
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為支付稅款而回購的股份 |
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( |
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— |
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( |
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— |
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— |
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( |
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其他綜合損失 |
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— |
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— |
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— |
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( |
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— |
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( |
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淨損失 |
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— |
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— |
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— |
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— |
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( |
) |
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( |
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2024年3月31日止結餘 |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
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基於股票的薪酬 |
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— |
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— |
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— |
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— |
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根據股權獎勵計劃發行的普通股 |
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— |
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— |
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— |
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— |
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— |
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購回的股票用於支付稅款扣繳 |
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( |
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— |
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( |
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— |
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— |
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( |
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行使股票期權 |
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— |
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— |
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— |
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其他全面收益 |
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— |
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— |
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— |
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— |
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淨虧損 |
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— |
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— |
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— |
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— |
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( |
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( |
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2024年6月30日餘額 |
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$ |
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$ |
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$ |
— |
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$ |
( |
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$ |
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基於股票的補償 |
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— |
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— |
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— |
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— |
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根據股權獎勵計劃發行的普通股 |
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— |
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— |
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— |
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— |
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— |
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購回的股票用於支付稅款扣繳 |
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( |
) |
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— |
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( |
) |
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— |
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— |
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( |
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行使股票期權 |
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— |
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— |
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— |
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淨損失 |
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— |
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— |
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— |
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— |
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( |
) |
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( |
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截至2024年9月30日的餘額 |
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$ |
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$ |
|
$ |
— |
|
$ |
( |
) |
$ |
|
||||
請參閱簡明合併財務報表附註。
9
PALLADYNE 人工智能 公司。
濃縮合併現金流量表
（未經審計）
（以千為單位）
|
|
截至九個月的數據至9月30日， |
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|||||
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|
2024 |
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|
2023 |
|
||
經營活動現金流量： |
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|
|
|
||
淨虧損 |
|
$ |
( |
) |
|
$ |
( |
) |
調整為使淨虧損轉化為經營活動所使用現金： |
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|
||
基於股票的薪酬 |
|
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|
||
固定資產及設備折舊 |
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||
無形資產攤薄 |
|
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權證負債的公允價值變動 |
|
|
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|
( |
) |
|
投資折價攤銷 |
|
|
( |
) |
|
|
( |
) |
資產減值 |
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營運資產和負債的變化： |
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|
||
應收帳款 |
|
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( |
) |
|
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未開票應收款 |
|
|
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||
庫存 |
|
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( |
) |
|
預付費用及其他流動資產 |
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其他非流動資產 |
|
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|
||
應付帳款 |
|
|
( |
) |
|
|
( |
) |
應計負債及其他流動負債 |
|
|
( |
) |
|
|
( |
) |
其他負債 |
|
|
( |
) |
|
|
( |
) |
經營活動所用的淨現金 |
|
|
( |
) |
|
|
( |
) |
投資活動之現金流量: |
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|
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|
||
購買不動產和設備 |
|
|
( |
) |
|
|
( |
) |
可銷售證券的購入 |
|
|
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|
( |
) |
|
到期的可交易證券 |
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|
||
投資活動產生的淨現金流量 |
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來自籌資活動的現金流量: |
|
|
|
|
|
|
||
行使股票期權所得 |
|
|
|
|
|
|
||
為支付稅款而回購的股份 |
|
|
( |
) |
|
|
( |
) |
資本租賃下的義務支付 |
|
|
( |
) |
|
|
( |
) |
籌集資金的淨現金流量 |
|
|
( |
) |
|
|
( |
) |
現金及現金等價物的淨（減少）增加 |
|
|
( |
) |
|
|
|
|
期初現金及現金等價物餘額 |
|
|
|
|
|
|
||
期末現金及現金等價物 |
|
$ |
|
|
$ |
|
||
現金流量資訊的補充披露： |
|
|
|
|
|
|
||
支付所得稅現金 |
|
$ |
|
|
$ |
|
||
請參見簡明合併財務報表的附註。
10
PALLADYNE AI corp.
簡明財務報表註解
（未經審計）
1.基礎報表 介紹及重要會計政策摘要
業務描述
附帶的中期未經審計的簡表合併財務報表是按照美國通用會計準則（GAAP）編制的。
截至2024年9月30日的簡表合併財務報表尚未經審計。此處所包含的截至2023年12月31日的簡表合併資產負債表是根據當日審計的合併財務報表編制的。按照GAAP編制的年度財務報表通常包括的某些信息和附註披露已經被壓縮或省略。因此，此處包含的信息應與公司截至2023年12月31日年度報告中包含的合併財務報表和附註一起閱讀，該報告已於2024年2月28日提交給SEC。
簡表合併財務報表包括公司及其全資子公司的帳戶。所有公司間帳戶和交易已在合併中消除。公司財政年度從1月1日開始，至12月31日結束。
根據公司管理層的意見，未經審計的簡表合併財務報表包括進行公平財務報表呈現所需的所有調整。所有調整均屬於正常重複性質。中期結果未必能反映未來任何季度或截至2024年12月31日財政年度的預期結果。.
反向股票拆分
於2023年7月5日，公司進行了
重點會計政策摘要及估計的使用
流動性和資本資源
截至2024年9月30日，現金、現金等價物和市場證券 $
這些第四和第五次經修訂的公司章程由The RMR Group Inc.的董事會於上述日期制定。基本報表已按照通用會計準則編制，並基於公司將繼續作爲持續經營實體的假設，考慮在正常業務運營中實現資產、滿足責任和承諾。
11
The 公司的主要流動資金來源是通過股票發行產生的現金。公司的主要現金用途是用於運營和行政活動，包括員工相關費用、一般運營和管理費用。未來的資本需求將取決於許多因素，包括公司的開發努力的時間和程度、銷售和營銷活動的擴展和成功、客戶增長率、客戶留存率、新產品推出及其市場接受度。公司相信，從本報告之日起的至少12個月內，它擁有足夠的財務資源。
收入確認
公司從其產品的銷售以及根據與客戶簽訂的合同安排提供的產品開發合同服務中確認營業收入。這些合同服務的資金由客戶提供。公司在轉移承諾的商品或服務給客戶時確認營業收入，確認的金額反映公司預期因這些商品或服務而應收的對價，按照以下五個步驟進行：
12
Revenue from Contracts with Customers
公司從兩個來源獲得營業收入。首先，公司簽訂的研發協議主要與公司產品的商業化有關。其次，公司銷售其產品及相關配件和維修服務。產品開發合同收入包括來自不同類型合同安排的收入，包括成本型合同和固定價格合同。產品收入主要由公司產品的銷售組成。
產品開發合同收入
成本型合同 – 研究、開發和/或測試服務合同，包括成本加固定費用和時間與材料合同，主要與公司的產品及相關科技的發展有關。成本型合同通常與美國政府簽訂。這些合同根據合同和聯邦採購規範（「FAR」）定義的價格按成本加上一個利潤率計費。FAR規定了政府採購的相關法規，並提供了在政府合同下確定商品和服務價格時可允許的成本類型的指導。成本型合同的營業收入在提供商品和服務時逐漸確認。
固定價格合同 – 固定價格開發合同主要與機器人平台領域的技術開發有關。固定價格開發合同通常需要將一組複雜的任務和元件整合成一個單一的交付物。固定價格合同的營業收入通常在提供商品和服務時逐漸確認。在公司實際成本與固定費用的差異程度上，我們將獲得更多或更少的利潤，或者可能面臨損失。公司將在損失發生的期間在收益中確認合同層面的損失。
2024年4月1日至9月30日期間在公司達到自研藥物肺健王PH（除許可收益之外）的總收入的前提下，公司可獲得的最高1000萬美元。
產品營業收入與公司傳統可銷售產品的銷售，以及某些雜項零件、配件和維修服務有關。公司對某些產品銷售提供有限的一年保修。產品保修被視爲保證類保修，不被視爲單獨的履約義務。產品營業收入在貨物所有權轉移時確認，通常是在發貨給客戶時。在確認產品營業收入時，依據歷史經驗和預期產品表現，設立估計保修費用的應計。
產品開發合同營業收入和產品營業收入的確認， 截至2024年和2023年9月30日的三個月和九個月，情況如下：
|
|
截至9月30日的三個月內 |
|
|
截至九月三十日止九個月。 |
|
||||||||||
(以千爲單位) |
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
產品開發合同營業收入 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
2024年4月1日至9月30日期間在公司達到自研藥物肺健王PH（除許可收益之外）的總收入的前提下，公司可獲得的最高1000萬美元。 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
營業收入，淨額 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
合同餘額
收入確認、開票和現金收集的時機導致在公司的簡明合併資產負債表中確認應收賬款、未開票應收款、合同資產和遞延收入。
收到的現金資金超過已確認收入，且取決於履行義務的滿意度，記作遞延收入。
合同資產包括未開票應收款，這些金額是由於收入確認與根據商定合同條款開票之間的時差造成的，通常在收入確認後發生。
截至 2024年9月30日和2023年12月31日，我們的應收賬款、未開票應收款、合同資產和遞延收入的期初和期末餘額如下：
13
(以千為單位) |
|
應收賬款 |
|
|
未開票應收款 |
|
|
合約資產 |
|
|
合同資產 |
|
|
透過收益 |
|
|||||
截至2023年12月31日的結束餘額 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
增加/(減少)，淨 |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
截至2024年9月30日的結束餘額 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
公司將其當前合約資產、長期合約資產和當前遞延收入分別記錄在預付費用及其他當前資產、其他非當前資產和應計負債內。在截至2024年9月30日的三個月和九個月內，公司確認了截至2023年12月31日所有存在的遞延收入。 截至所有期間結束時，有短期負債未償。
待履行績效義務
截至2024年9月30日公司尚有未完成的業務，或與剩餘的履約義務相關的營業收入，為$
作為一家新興成長公司（“EGC”），《啟動我們的業務創業法》（“JOBS法”）允許公司推遲採用適用於上市公司的新或修訂的會計準則，直到這些準則適用於私營公司。公司已選擇在JOBS法下使用這一延長過渡期，直到公司不再被視為EGC。以下討論的採用日期反映了這一選擇。
在2023年11月，財務會計準則委員會（“FASB”）發佈了ASU編號2023-07（“ASU 2023-07”），《分部報告》（主題280）：可報告分部披露的改進，該準則要求在年度和中期基礎上增強重要分部費用的披露。ASU 2023-07自2023年12月15日之後開始的財政年度和自2024年12月31日之後開始的財政年度的中期期間起生效，並且適用追溯基礎。允許提前採納。公司目前正在評估這一會計準則更新對其合併基本報表及相關披露的影響。
在2023年12月，FASB發佈了ASU編號2023-09（“ASU 2023-09”），《所得稅》（主題740）：所得稅披露的改進。ASU 2023-09要求公司每年披露有效稅率調節中的特定類別，並提供額外的關於符合量化門檻的調節項目的信息。此外，ASU 2023-09要求公司披露有關已支付所得稅的附加信息。ASU 2023-09將於2026年1月1日開始的年度期間生效，並將適用於前瞻性基礎，並選擇可以追溯適用該標準。 公司不期望ASU 2023-09對其合併基本報表產生重大影響。
2. 公允價值衡量
根據ASC第820號主題《公允價值衡量》，定義公允價值為在主要或最有利市場進行的有秩序交易日期，資產可能獲得的交易價格，或者轉讓負債時支付的退出價格。用於衡量公允價值的估價技術必須最大程度地利用可觀察輸入，並將不可觀察輸入最小化。公允價值層次結構為公開揭露公允價值衡量定義了一個三級估值層次，如下所示：
1級 - 公允價值基於可觀察輸入，如活躍市場中相同資產或負債的報價價格。
2級 - 公允價值基於活躍市場中類似資產或負債的報價價格，或者在不活躍或直接或間接可觀察市場中相同或相似資產或負債的報價價格確定。
3級 - 公允價值根據在測量日期活躍市場中不可觀察的一個或多個重大輸入確定，例如期權定價模型、現金流折現或類似技術。
14
資產和負債以重複性基礎公允價值衡量
公司定期評估其某些財務資產和負債的公允價值。
|
|
截至2024年9月30日 |
|
|||||||||||||
(以千為單位) |
|
第一級 |
|
|
第二級 |
|
|
第三級 |
|
|
總計 |
|
||||
資產： |
|
|
|
|
|
|
|
|
|
|
|
|
||||
現金等價物： |
|
|
|
|
|
|
|
|
|
|
|
|
||||
美國國庫券 |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
總資產 |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
負債： |
|
|
|
|
|
|
|
|
|
|
|
|
||||
warrants責任 |
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
||
總負債 |
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
||
|
|
截至2023年12月31日 |
|
|||||||||||||
(以千為單位) |
|
第一級 |
|
|
第二級 |
|
|
第三級 |
|
|
總計 |
|
||||
資產： |
|
|
|
|
|
|
|
|
|
|
|
|
||||
現金等價物： |
|
|
|
|
|
|
|
|
|
|
|
|
||||
美國國庫券 |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
有價證券： |
|
|
|
|
|
|
|
|
|
|
|
|
||||
美國國債 |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
總資產 |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
負債： |
|
|
|
|
|
|
|
|
|
|
|
|
||||
warrants責任 |
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
||
總負債 |
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
||
截至2024年9月30日該公司持有$
3. 資產負債表元件
存貨淨額
截至2024年9月30日和2023年12月31日，存貨淨額包括如下：
(以千為單位) |
|
2024年9月30日 |
|
|
2023年12月31日 |
|
||
製成品淨值 |
|
$ |
|
|
$ |
|
||
庫存總額 |
|
$ |
|
|
$ |
|
||
預付費用和其他流動資產
截至2024年9月30日和2023年12月31日，預付費用和其他流動資產包括以下內容:
(單位: 千元) |
|
2024年9月30日 |
|
|
2023年12月31日 |
|
||
預付保險 |
|
$ |
|
|
$ |
|
||
軟體 |
|
|
|
|
|
|
||
其他預付費用和資產 |
|
|
|
|
|
|
||
預付費用及其他流動資產總額 |
|
$ |
|
|
$ |
|
||
15
固定資產，淨值
截至2024年9月30日和2023年12月31日，物業和設備（淨值）包括以下內容：
(以千爲單位) |
|
2024年9月30日 |
|
|
2023年12月31日 |
|
||
機器人和製造業-半導體設備 |
|
$ |
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|
$ |
|
||
租賃改良 |
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|
|
|
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|
||
計算機設備 |
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|
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|
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融資租賃的計算機設備 |
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||
軟件 |
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|
|
|
|
|
||
傢俱和固定裝置，以及其他資產 |
|
|
|
|
|
|
||
234,036 |
|
|
|
|
|
|
||
累計折舊 |
|
|
( |
) |
|
|
( |
) |
物業和設備，淨值 |
|
$ |
|
|
$ |
|
||
2023年和2024年6月30日3個月和6個月內的折舊費用分別爲
應計負債
截至2024年9月30日和2023年12月31日，應計負債包括以下內容：
(以千爲單位) |
|
2024年9月30日 |
|
|
2023年12月31日 |
|
||
薪資和相關成本 |
|
$ |
|
|
$ |
|
||
合同重組應計費用 |
|
|
|
|
|
|
||
法律服務應計費用 |
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|
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|
|
|
||
其他應計費用和流動負債 |
|
|
|
|
|
|
||
總應計負債 |
|
$ |
|
|
$ |
|
||
4. 獲利股份
於2021年9月24日（「交割日期」），Rotor Acquisition Corp.（「Rotor」），一家特拉華公司，依據2021年4月5日訂立的合併協議及計畫（「原始合併協議」），成功完成先前宣布的業務結合（「業務結合」），該合併協議由Rotor、Rotor Merger Sub Corp.（一家特拉華公司及Rotor的直接全資子公司，以下簡稱「合併子公司」）及Sarcos Corp.（一家猶他公司，以下簡稱「舊Sarcos」）共同簽署，並於2021年8月28日訂立的合併協議及計畫修訂版（「修訂版」，合併協議經修訂後以下稱為「合併協議」），由Rotor、合併子公司及舊Sarcos共同簽署。根據合併協議的條款，Rotor與舊Sarcos之間的業務結合透過合併子公司與舊Sarcos的合併完成，舊Sarcos作為存續公司（以下簡稱「合併」）並成為Rotor的全資子公司。在交割日期，Rotor將其名稱更改為Sarcos科技與機器人公司。為了反映公司從以硬件為重點的公司轉型為以人工智能軟體為重點的公司，該公司於2024年3月將名稱從Sarcos科技與機器人公司更改為Palladyne AI Corp。
作為業務結合的結果，舊Sarcos的每位資本股持有者在業務結合交割後有權獲得條件合併補償，形式為獲利股份，最多總計
盈利分配股份被視為與股本相關的工具，而非已發行股份，因此不包含在公司的簡明合併資產負債表中的已發行股份中。截止至2024年9月30日，仍然有
16
5warrants
在2021年1月20日，Rotor完成了首次公開募股（“IPO”）的
每個整個warrant使註冊持有人有權購買
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. 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 the Company’s Common Stock underlying such Unit.
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 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.
當公司的每股價格等於或超過$時，warrants的贖回 普通股 $
如果以及當warrants可由公司贖回時，即使公司無法根據所有適用的州證券法登記或合資格出售基礎證券，公司仍可行使其贖回權。不過，除非根據證券法有效的登記聲明涵蓋當行使warrants可發行的公司的普通股，並且與該普通股相關的現行招股說明書在整個30天贖回期內可用，否則公司不會贖回warrants。
17
當我們普通股每股的價格等於或超過 $ 時，對 warrants 的贖回
6. 股票報酬
2021 股票計劃
2021 年度股權激勵計劃（“2021年計劃”）提供了期權、限制性股票單位（“RSUs”）、受限制的股票獎勵（“RSAs”）、股票增值權利（“SARS”）和績效獎勵，發行給公司員工、高級管理人員、董事、非僱員代理人和顧問。通常情況下，根據2021年計劃授予的未履行獎勵將於一定時期內解除限制， to
2015股票計劃
2015年股權激勵計劃（“2015計劃”）提供股票期權、RSUs、RSAs、SARS和績效獎項，以發行給公司員工、高級管理人員、董事、非雇員代理人和顧問。根據2015計劃，未履行獎項通常是按照 年逐年獲得
2024鼓勵計劃中明確定義的大寫詞彙
我們已採納2024年誘因股權激勵計劃（“誘因計劃”），有效日期為2024年12月15日，以預留
截至2024年9月30日，
2021員工股票購買計劃
2021員工認股計劃(“ESPP”)規定根據僱員授予的購買權利，在指定的發行期間通過主要通過選舉性薪資扣減積累的基金發行普通股股份。截至2024年9月30日，尚未啟動任何發售期，
18
我們將從 2024 年 12 月開始首次發售開始在 ESPP 下發售。發售期一般為
截至二零二零二四年九月三十日，
股票期權活動
以下總結了 Compa紐約截至 2024 年 9 月 30 日止九個月的股票期權活動：
|
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優先選項 |
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股數 |
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加權平均行使價 |
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加權-平均剩餘合約期限 |
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總體內在價值 |
|
||||
傑出 — 二零二三年十二月三十一日 |
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$ |
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$ |
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授予 |
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運動 |
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( |
) |
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取消 |
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( |
) |
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傑出 — 二零二四年九月三十日 |
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$ |
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$ |
|
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可行使用 — 二零二三年十二月三十一日 |
|
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$ |
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$ |
|
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可行動 — 二零二四年九月三十日 |
|
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$ |
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$ |
|
||||
期權重新定價
2024 年 4 月 17 日，本公司修訂了部分購買期權
一套修正案，以及
另一套修訂適用於購買合併購買期權
因修訂而須承認的增量公平價值總額為 $
限制的庫存單位活動
以下概述了公司截至二零二四年九月三十日止九個月的 RSU 活動：
|
|
限量庫存單位未償還 |
|
|||||
|
|
股數 |
|
|
加權平均授權日期公平價值 |
|
||
傑出 — 二零二三年十二月三十一日 |
|
|
|
|
$ |
|
||
授予 |
|
|
|
|
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|
||
已發布 |
|
|
( |
) |
|
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取消 |
|
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( |
) |
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|
||
傑出 — 二零二四年九月三十日 |
|
|
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|
$ |
|
||
19
限制股獎勵活動
以下總結了公司員工RSA活動 截至2024年9月30日，九個月的受限股獎勵活動：
|
|
限制股獎勵待處理 |
|
|||||
|
|
股份數量 |
|
|
加權平均授予日期公平價值 |
|
||
待處理–2023年12月31日 |
|
|
— |
|
|
$ |
— |
|
已授予 |
|
|
|
|
$ |
|
||
杰出 - 2024年9月30日 |
|
|
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|
$ |
|
||
股份補償費用
公司於綜合損益結算表中認列股票設立酬勞支出如下：
|
|
截至九月30日止三個月 |
|
|
截至九個月的2023年9月30日 |
|
||||||||||
(以千為單位) |
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
營業收入成本 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
研究與開發 |
|
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銷售與行銷 |
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一般及行政 |
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|
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資產減值及重組 |
|
|
— |
|
|
|
|
|
|
— |
|
|
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|
||
總股份補償費用 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
截至2024年9月30日，尚有約$的未認列營業收入。
7. 每股淨損
以下表列出了基本和稀釋每股淨損，歸屬於普通股股東的計算。 截至2024年9月30日和2023年9月30日之三個和九個月的數量總結如下：
|
|
截至九月30日止三個月 |
|
|
截至九個月的2023年9月30日 |
|
||||||||||
（以千為單位，除股份及每股數據外） |
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
分子: |
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|
||||
淨損失 |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
分母: |
|
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||||
加權平均流通股數，基本與稀釋 |
|
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|
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|
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|
||||
基本和稀釋每股淨損失 |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
反稀釋證券，不包括 |
|
|
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|
|
|
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|
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|
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|
||||
基本和稀釋每股淨損益歸屬於普通股股東，截至2024年和2023年九月三個月結束時，相同，因為包括普通股潛在股份 對於所呈現的時期，潛在股份的納入將會是反稀釋的。
8. 所得稅
爲了確定公司的季度所得稅準備金，公司使用了根據公司營運地區的預期年度收入和法定稅率制定的估計年度實有效稅率。某些重大的飛凡或不經常發生的項目會單獨報告，在發生的季度單獨確認，並且可能導致季度間有效稅率的變動來源。
公司
20
9. 承諾和事件
法律訴訟
公司已經參與並可能今後繼續參與各種索賠、訴訟、調查和其他業務常規過程中的訴訟。公司根據管理層認爲在其基本報表發佈之前可獲得的信息表明，截至基本報表日期發生了可能的損失，並且損失金額可以合理估計時，會計提供負債。公司會根據談判、和解、裁決、法律顧問的建議以及與特定案件有關的其他信息和事件的影響調整其計提。法律成本在發生時支出。 截至2024年9月30日和2023年12月31日，公司的資產負債表未記錄任何與法律訴訟相關的重大損失準備。
賠償責任
在業務常規過程中，公司向投資者、董事、高管、僱員、客戶或供應商提供或可能提供各種範圍和條款的賠償，涉及某些事項，包括因公司違反此類協議、公司提供的服務或第三方提出的知識產權侵權索賠而導致的損失。這些賠償可能在基礎協議終止後仍然有效，公司在這些賠償條款下可能需要支付的未來支付的最大潛在金額可能不受最大損失條款限制。公司在這些賠償條款下可能需要支付的未來支付的最大潛在金額是無法確定的。截至2024年9月30日和2023年12月31日，公司對這些賠償義務未計提負債，因爲有關這些賠償義務可能發生重大支付義務的可能性要麼不太可能，要麼無法合理估計。，公司尚未計提這些賠償義務的負債，因爲與這些賠償義務相關的發生重大支付義務的可能性要麼不太可能，要麼不可合理估計。
10. 分部信息
公司的首席執行官（「CEO」）是首席營運決策者（「CODM」）。 CODm根據彙總的財務信息分配資源並做出營運決策。 CODm不會評估低於彙總公司層面的盈利能力。因此，公司已確定其具有一個 可報告的板塊和營運板塊結構。
公司的營業收入主要來自美國客戶。 公司從美國以外地區客戶處獲得了$
所有長期資產均保留在美國。所有損失均歸屬於美國境內的業務。
11. 後續事項
2024年10月31日，公司與一位合格投資者簽訂了證券購買協議，根據協議，公司同意 (a) 發行並賣出
同樣是在2024年10月31日，公司與公司的首席執行官和董事會的某些成員簽訂了另一份證券購買協議，在協議中同意在一項定向增發中發行並賣出 (a)
所有與這些提供共同發行的認股權證行權價爲
A.G.P. / 成爲Benq全球合作伙伴註冊發行和定向增發的放置代理。A.G.P.根據其安排的銷售獲得的募集總額的%支付佣金。公司補償A.G.P. $用於某些費用和支出，包括法律費用，並支付不受審計的支出補貼$
21
第二條 管理對財務控件和經營成果的討論與分析。
在本節中，除非另有說明，「公司」、「Palladyne AI Corp.」、「Palladyne」、「我們」、「我們的」指的是Palladyne AI Corp.及其子公司，統稱爲。您應與本季度報告（本「報告」）中包含的未經審計的中期合併基本報表和相關附註一起閱讀以下關於我們財務狀況和運營結果的討論與分析，以及我們截至2023年12月31日的年度報告表格10-K（「2023年表格10-K」）和我們向SEC提交的其他文件，包括當前報告表格8-K。在下面關於前瞻性聲明的特別說明中提到，除了歷史信息外，以下討論與分析包含涉及風險、不確定性和假設的前瞻性聲明。我們的實際結果可能因某些因素而與這些前瞻性聲明中的預期結果有重大差異，包括本報告第II部分第1A項風險因素中列出的因素。
關於前瞻性聲明的特別說明
本報告中的某些聲明構成《1933年證券法》第27A條修正案（「證券法」）和《1934年證券交易法》第21E條修正案（「交易法」）所規定的「前瞻性聲明」。這些前瞻性聲明涉及未來財務表現的預期、業務戰略或對我們業務的期望。具體而言，前瞻性聲明可能包括涉及的聲明：
22
這些前瞻性聲明基於本報告日期之日可獲得的信息和我們管理層當前的期望、預測和假設，並涉及多種判斷、風險和不確定性。因此，不應依賴前瞻性聲明代表我們在任何隨後日期的觀點，在任何情況下，您不應過度依賴這些前瞻性聲明。我們不承擔更新前瞻性聲明以反映其制定日期後發生的事件或情況的義務，無論是基於新信息、未來事件或其他原因，除非根據適用的證券法需要。
這些前瞻性陳述涉及許多風險、不確定性（其中一些超出了我們的控制範圍）或其他假設，可能導致實際結果或表現與這些前瞻性陳述所表達或暗示的結果存在重大差異。這些風險和不確定性包括在本報告第二部分第一項A風險因素中描述的因素。如果其中一項或多項風險或不確定性實現，或者任何假設證明不正確，實際結果可能在重大方面與這些前瞻性陳述中預測的結果有所不同。我們的風險因素並不能保證在本報告日期沒有此類情況存在，不應被解讀爲肯定性聲明，表明此類風險或情況在整體或部分沒有實現。
此外，表述「我們相信」及類似的表述反映了我們對相關主題的信念和觀點。這些表述基於截至本報告日期我們所了解的信息，儘管我們認爲這些信息爲這些表述提供了合理的基礎，但這些信息可能是有限或不完整的，我們的表述不應被解讀爲我們對所有可能獲得的相關信息進行了詳盡的調查或審查。這些表述本質上具有不確定性，投資者被提醒不要過度依賴這些表述。
概述
我們的使命是爲客戶提供軟件，增強第三方固定和移動機器人系統的實用性和功能，使這些系統能夠快速觀察、學習、推理和在結構化和非結構化環境中行動。我們的AI/ML軟件平台採用人工智能（AI）和機器學習（ML）技術設計，以使機器人系統能夠感知其環境，並通過在邊緣（即在機器人系統上）使用動態實時操作進行泛化（即學習）來快速適應不斷變化的情況，而無需進行繁瑣的編程和最少的機器人訓練。我們相信這種「類人」學習和適應能力將成爲幫助客戶在動態或非結構化環境中保持最佳生產力的關鍵差異因素，對此情況更容易引起延誤和昂貴停機的新情況和意外挑戰。相對於其他競爭解決方案，由於使用我們的AI/ML軟件平台的機器人系統不需要始終連接到雲端，因此有利於提高價值主張，從而減少與雲端處理通常相關的性能問題。我們的方法還減少了與傳輸大量數據到雲端和從雲端傳輸的費用相關的問題。
As a pioneer in the robotic systems industry, we benefit from lessons learned over 30-plus years, as well as significant investment in our internal research and development efforts. Software has been an integral part of our development efforts over the years. Our vision for our AI/ML Software Platform began in 2017 as a foundational technology to enhance training for the autonomous operation of our own internally developed hardware solutions and progressed to our first contract with the U.S. Department of Defense to develop our CYTAR (Cybernetic Training for Autonomous Robots) AI/ML platform in 2019. We have since continued to develop our AI/ML software both for the U.S. Department of Defense and in connection with our development of commercial robotic systems.
We designed our AI/ML Software Platform to be hardware agnostic in order to be compatible with most industrial robots being sold today and to support specific types of commercially available robots with additional development and the necessary application programming interface (API). The AI/ML Software Platform is designed to enable robotic systems to perform tasks that involve variations in the environment and the objects being manipulated by the robot. Specifically, our AI/ML Software Platform incorporates internal and external environmental inputs that allow robots to comprehend their environment, determine reasonable behavior given these inputs and to act in real time to achieve the expected task. Each newly learned task will then be incorporated and used to perform future tasks. We believe this closed-loop autonomy approach is the key to how our software can expedite robot training, expand the tasks that a robot can perform, reduce costly workflow stoppages, mitigate downtimes and reduce human labor requirements.
23
Our AI/ML Software Platform is the foundation for our first two software products. The first, Palladyne IQ, has been developed for use with both stationary industrial robots and cobots, and the second, Palladyne Pilot, is being developed for use with mobile robotic platforms such as drones and unmanned ground vehicles.
We released the initial commercial version of our Palladyne IQ product on October 1, 2024 on schedule, and expect to release the initial commercial version of Palladyne Pilot by the end of the first quarter of 2025. The initial commercial version of our Palladyne IQ product continues to undergo reliability testing, debugging and other stabilizing improvements as we continue internal testing and learn from customer trials. We have conducted and continue to conduct customer trials of Palladyne IQ, and we expect more trials to begin throughout the remainder of 2024. We expect to begin generating revenues from commercial customers of Palladyne IQ in 2025. We expect to have the MVP version (i.e., a version of the product that is capable of performing the minimal functions necessary but that does not have all the features of and has not been fully tested, debugged or refined into our planned product for general commercial release) of Palladyne Pilot ready for customer trials by the end of 2024 and a commercial product ready for release by the end of the first quarter of 2025. We recently completed a customer trial of an early version of Palladyne Pilot on stationary devices.
We have U.S. government revenue-generating contracts related to various aspects of our AI/ML Software Platform and our Palladyne IQ and Palladyne Pilot products. As scheduled to date, we have timely met all the development milestones associated with these contracts and recognized revenue based on work completed.
Although to date we have met our key AI/ML Software Platform and related products' product development timelines and government contract milestones on schedule, we may not be able to do so in the future and our current expectations regarding the timing or success of customer trials, product release, revenues, features and related matters may be delayed or may not occur. Please see Part II Item 1A Risk Factors for a discussion of the risks related to these activities, in particular those discussed under “Risks Related to our Business”.
As a result of our business evaluation and refined product strategy announced in 2023, we reorganized our operations to focus on this AI/ML Software Platform opportunity and are taking or have taken actions to reduce costs, including our 2023 RIFs (as defined below) and winding down substantially all of our operations in Pittsburgh, Pennsylvania. For additional information around the risks associated with our strategic decision-making see Part II Item 1A Risk Factors “Due to our limited resources and access to capital, and our failure to properly estimate the time and expense required to commercialize our hardware-centric industrial robotics solutions, we made the decision to focus on our AI/ML Software Platform and related products and to suspend the development and commercialization of our hardware products. These and future decisions about how to use our limited resources may prove to be wrong and may adversely affect our business.”
Key Factors Affecting Operating Results
We believe that our performance and future success depend on several factors that present significant opportunities for us but also pose risks and challenges, including those discussed below and in Part II Item 1A Risk Factors.
Development, Testing and Commercial Launch of our AI/ML Software Products
We currently expect to derive commercial licensing revenues from Palladyne IQ and Palladyne Pilot beginning in 2025. We expect to continue commercialization efforts, internal testing and customer trials for both products for the remainder of 2024. Whether we are successful in these efforts depends on many factors, including those discussed under Part II Item 1A Risk Factors. Such risks may result in delay in achieving product revenues, which would adversely affect our financial condition and operating results.
Financing of Operations
We intend to use our cash on hand to continue to enhance our software platform and products, conduct product development activities, pursue marketing and sales opportunities and fund operations as we seek to commercialize and achieve revenue from our products. The amount and timing of our future funding requirements will depend on many factors, including the pace and results of our product development efforts, our ability to sell our software products and thereby recognize associated revenue, capital and human capital requirements to develop and sell products prior to receiving payments sufficient to cover our costs and our ability to lower product costs as volumes increase.
We have taken and continue to take numerous steps to manage our use of cash. For example, on July 12, 2023 (the “July 2023 RIF”), and on November 14, 2023 (the “November 2023 RIF,” and together with the July 2023 RIF, the “2023 RIFs”), we announced reductions in force intended to further conserve our cash resources and manage operating expenses. The majority of the cash payments related to the expenses from the July 2023 RIF were paid out during the third quarter of 2023. The majority of the cash payments related to the November 2023 RIF were paid out during the fourth quarter of 2023 and the first quarter of 2024. On October 31, 2024 we announced
24
that we raised approximately $7 million in gross proceeds from the sale of Common Stock and warrants through a registered offering and two separate private placements.
We believe we have sufficient liquidity to operate for at least the next 12 months without the need to raise additional capital. However, we may need to seek additional financing during that time to bolster our cash reserves and increase our ability to continue to pursue our business objectives. As a result, we intend to continue monitoring our liquidity, financial and business results and outlook and market conditions, and may be opportunistic and raise capital when we consider market conditions are good or a favorable opportunity exists. Any delays in the successful commercialization and sales of our AI/ML Software Platform will negatively impact our ability to generate revenue, our profitability, our cash flows, our overall operating performance and our ability to continue operations and result in the need to raise additional capital sooner than expected. We will continue to carefully evaluate our use of cash as we pursue our AI/ML Software Platform opportunity.
Any delays in the successful commercialization and sales of our products will negatively impact our ability to generate revenue, our profitability, our cash flows, our overall operating performance and our ability to continue operations and result in the need to raise additional capital sooner than expected. We will continue to carefully evaluate our use of cash as we pursue our AI/ML Software Platform opportunity.
Customer Demand
Although demand for AI/ML platforms and applications has grown in recent years, the market for these platforms and applications continues to evolve. The market demand for our software products is unproven, and important assumptions about the characteristics of targeted markets, pricing and sales cycles may be inaccurate. While we believe that our AI/ML Software Platform and related products will provide significant benefits and return on investment to customers, we are dependent on customers who are willing to adopt, purchase, and implement new technologies and products. If customer demand does not develop as expected or we do not accurately forecast pricing, adoption rates and sales cycles for our products, our business, results of operations and financial condition will be adversely affected.
Continued Investment and Innovation
We are a pioneer in the robotic systems industry and benefit from lessons learned over 30-plus years and significant investment in research and development in our proprietary technologies. Through our previous hardware development efforts, we developed a significant amount of advanced technology that we are leveraging to develop our AI/ML Software Platform and related products. We believe our financial performance is dependent on our ability to successfully develop and commercialize our advanced AI/ML technologies and related products. It is important that we continually identify and respond to rapidly evolving customer requirements and competitive threats, develop and introduce innovative products, enhance our products and generate active market demand for and sell our products. If we fail to do this, our market and financial position and revenue may be adversely affected, and our investments in these technologies will not be recovered.
Geopolitical and Macro-economic Environment
Geopolitical and macro-economic factors, such as inflation, interest rates, oil prices, unemployment rates, international conflicts, such as the current wars between Russia and Ukraine and in the middle east, volatility in the stock market and political or social unrest, can have significant impacts on economic activity, which in turn could affect demand for our products or our ability to cost-effectively develop and sell our products. Among other things, these and similar factors can affect our ability to hire or retain qualified personnel, our labor and materials costs, the prices we charge for our software products and the budgets of our customers and their expected return-on-investment from the purchase of a license for our software product. Many of these factors are outside of our control but can have a significant impact on our business success and operating results. If we are unable to manage our business successfully in response to any such factors, our business and results of operations would be adversely affected.
25
Results of Operations
Comparison of the Three Months Ended September 30, 2024, and 2023
Revenue, Net
The following table presents our revenue for the three months ended September 30, 2024, and 2023, respectively:
|
|
Three Months Ended September 30, |
|
|
2024 vs. 2023 Change |
|
||||||||||
(In thousands) |
|
2024 |
|
|
2023 |
|
|
Change |
|
|
% Change |
|
||||
Product Development Contract Revenue |
|
$ |
764 |
|
|
$ |
1,044 |
|
|
$ |
(280 |
) |
|
|
(27 |
)% |
Product Revenue |
|
|
107 |
|
|
|
783 |
|
|
|
(676 |
) |
|
|
(86 |
)% |
Revenue, net |
|
$ |
871 |
|
|
$ |
1,827 |
|
|
$ |
(956 |
) |
|
|
(52 |
)% |
Revenue decreased by $1.0 million, or 52%, from $1.8 million for the three months ended September 30, 2023, to $0.9 million for the three months ended September 30, 2024, as explained below.
Product Development Contract Revenue
Product development contract revenue decreased by $0.3 million, or 27%, from $1.0 million for the three months ended September 30, 2023, to $0.8 million for the three months ended September 30, 2024. The decrease was primarily due to the completion of certain product development contracts during 2023 that have not yet been replaced with new contracts. We expect future revenue from product development contracts to fluctuate due to the timing of additional development contracts signed and the completion of existing contracts. For the time being, we intend to take on only those development contracts that we believe support and contribute to our AI/ML Software Platform development efforts. As a result, there may be fewer opportunities to replace completed contracts.
Product Revenue
Revenue derived from product sales decreased by $0.7 million, or 86%, from $0.8 million for the three months ended September 30, 2023, to $0.1 million for the three months ended September 30, 2024. The decrease was due to fluctuations in legacy hardware product sales.
Operating Expenses
The following table presents our operating expenses for the three months ended September 30, 2024 and 2023:
|
|
Three Months Ended September 30, |
|
|
2024 vs. 2023 Change |
|
||||||||||
(In thousands) |
|
2024 |
|
|
2023 |
|
|
Change |
|
|
% Change |
|
||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cost of revenue |
|
$ |
479 |
|
|
$ |
1,222 |
|
|
$ |
(743 |
) |
|
|
(61 |
)% |
Research and development |
|
|
2,582 |
|
|
|
10,011 |
|
|
|
(7,429 |
) |
|
|
(74 |
)% |
General and administrative |
|
|
3,965 |
|
|
|
7,557 |
|
|
|
(3,592 |
) |
|
|
(48 |
)% |
Sales and marketing |
|
|
1,331 |
|
|
|
1,750 |
|
|
|
(419 |
) |
|
|
(24 |
)% |
Intangible amortization expense |
|
|
— |
|
|
|
819 |
|
|
|
(819 |
) |
|
|
(100 |
)% |
Asset write-down and restructuring |
|
|
(187 |
) |
|
|
11,222 |
|
|
|
(11,409 |
) |
|
|
(102 |
)% |
Total operating expenses |
|
$ |
8,170 |
|
|
$ |
32,581 |
|
|
$ |
(24,411 |
) |
|
|
(75 |
)% |
Cost of Revenue
Cost of revenue decreased by $0.7 million, or 61%, from $1.2 million for the three months ended September 30, 2023, to $0.5 million for the three months ended September 30, 2024. Cost of revenue decreased mainly due to decreased labor and material expenses charged to product development contracts due to contract mix during the three months ended September 30, 2024 as compared to the prior year period.
26
Research and Development
Research and development expense decreased by $7.4 million, or 74% from $10.0 million for the three months ended September 30, 2023, to $2.6 million for the three months ended September 30, 2024. The decrease was driven primarily by reduced labor and labor related expenses due to the 2023 RIFs.
General and Administrative
General and administrative expense decreased by $3.6 million, or 48%, from $7.6 million for the three months ended September 30, 2023, to $4.0 million for the three months ended September 30, 2024. General and administrative expense decreased primarily due to reduced labor and labor related expenses, including stock-based compensation, due to the 2023 RIFs.
Sales and Marketing
Sales and marketing expense decreased by $0.4 million, or 24%, from $1.8 million for the three months ended September 30, 2023, to $1.3 million for the three months ended September 30, 2024. This decrease was driven by a decrease in professional service fees related to third-party platform expense utilized in data management of our products and services and decreased events and public relations expenses.
Intangible Amortization Expense
As a result of our product development reprioritization announced in November 2023, our intangible assets were fully amortized as of December 31, 2023.
Asset Write-down and Restructuring
Asset write-down and restructuring expenses were $11.2 million for the three months ended September 30, 2023, as a result of the prior year product development reprioritization and the 2023 RIFs. There were no significant asset write-down and restructuring costs for the three months ended September 30, 2024.
Other Income
The following table presents other income for the three months ended September 30, 2024 and 2023, respectively:
|
|
Three Months Ended September 30, |
|
|
2024 vs. 2023 Change |
|
||||||||||
(In thousands) |
|
2024 |
|
|
2023 |
|
|
Change |
|
|
% Change |
|
||||
Other income |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest income, net |
|
$ |
249 |
|
|
$ |
806 |
|
|
$ |
(557 |
) |
|
|
(69 |
)% |
(Loss) gain on warrant liability |
|
|
(43 |
) |
|
|
96 |
|
|
|
(139 |
) |
|
|
(145 |
)% |
Other income, net |
|
|
— |
|
|
|
871 |
|
|
|
(871 |
) |
|
|
(100 |
)% |
Total other income |
|
$ |
206 |
|
|
$ |
1,773 |
|
|
$ |
(1,567 |
) |
|
|
(88 |
)% |
Other income decreased by $1.6 million for the three months ended September 30, 2024 as compared to the prior year period, primarily as a result of decreased other income related to the employee retention credit refund received during the prior year period and decreased interest income from our investments in marketable securities due to the reduction in invested funds during the current year period.
Provision for Income Taxes
We had no significant income tax expense for the three months ended September 30, 2024 and 2023. The provision for income taxes for the three months ended September 30, 2024 and 2023 is based on the Company’s estimated annualized effective tax rate for the fiscal years ending December 31, 2024 and 2023, respectively. For the three months ended September 30, 2024 and 2023, the Company’s recognized effective tax rate differs from the U.S. federal statutory rate as the Company recorded net losses during the period with a corresponding full valuation allowance on the net deferred tax assets created from the losses.
27
Comparison of the Nine Months Ended September 30, 2024, and 2023
Revenue, Net
The following table presents our revenue for the nine months ended September 30, 2024 and 2023, respectively:
|
|
Nine Months Ended September 30, |
|
|
2024 vs. 2023 Change |
|
||||||||||
(In thousands) |
|
2024 |
|
|
2023 |
|
|
Change |
|
|
% Change |
|
||||
Product Development Contract Revenue |
|
$ |
4,359 |
|
|
$ |
4,614 |
|
|
$ |
(255 |
) |
|
|
(6 |
)% |
Product Revenue |
|
|
2,666 |
|
|
|
786 |
|
|
|
1,880 |
|
|
|
239 |
% |
Revenue, net |
|
$ |
7,025 |
|
|
$ |
5,400 |
|
|
$ |
1,625 |
|
|
|
30 |
% |
Revenue increased by $1.6 million, or 30%, from $5.4 million for the nine months ended September 30, 2023, to $7.0 million for the nine months ended September 30, 2024, as explained below.
Product Development Contract Revenue
Product development contract revenue decreased by $0.3 million, or 6%, from $4.6 million for the nine months ended September 30, 2023, to $4.4 million for the nine months ended September 30, 2024. The decrease was primarily due to the completion of certain product development contracts during 2023 that have not yet been replaced with new contracts. We expect future revenue from product development contracts to fluctuate due to the timing of additional development contracts signed and the completion of existing contracts. For the time being, we intend to take on only those development contracts that we believe support and contribute to our AI/ML Software Platform development efforts. As a result, there may be fewer opportunities to replace completed contracts.
Product Revenue
Revenue derived from product sales increased by $1.9 million, from the nine months ended September 30, 2023. The increase was primarily due to fluctuations in legacy hardware product sales.
Operating Expenses
The following table presents our operating expenses for the nine months ended September 30, 2024 and 2023:
|
|
Nine Months Ended September 30, |
|
|
2024 vs. 2023 Change |
|
||||||||||
(In thousands) |
|
2024 |
|
|
2023 |
|
|
Change |
|
|
% Change |
|
||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cost of revenue |
|
$ |
2,934 |
|
|
$ |
3,951 |
|
|
$ |
(1,017 |
) |
|
|
(26 |
)% |
Research and development |
|
|
7,825 |
|
|
|
31,120 |
|
|
|
(23,295 |
) |
|
|
(75 |
)% |
General and administrative |
|
|
13,381 |
|
|
|
25,544 |
|
|
|
(12,163 |
) |
|
|
(48 |
)% |
Sales and marketing |
|
|
3,516 |
|
|
|
9,901 |
|
|
|
(6,385 |
) |
|
|
(64 |
)% |
Intangible amortization expense |
|
|
— |
|
|
|
2,457 |
|
|
|
(2,457 |
) |
|
|
(100 |
)% |
Asset write-down and restructuring |
|
|
(192 |
) |
|
|
16,328 |
|
|
|
(16,520 |
) |
|
|
(101 |
)% |
Total operating expenses |
|
$ |
27,464 |
|
|
$ |
89,301 |
|
|
$ |
(61,837 |
) |
|
|
(69 |
)% |
Cost of Revenue
Cost of revenue decreased by $1.0 million, or 26%, from $4.0 million for the nine months ended September 30, 2023, to $2.9 million for the nine months ended September 30, 2024. Cost of revenue decreased mainly due to decreased labor and material expenses charged to product development contracts due to contract mix, partially offset by increased product costs associated with our product revenue during the nine months ended September 30, 2024.
Research and Development
Research and development expense decreased by $23.3 million, or 75% from $31.1 million for the nine months ended September 30, 2023, to $7.8 million for the nine months ended September 30, 2024. The decrease was driven primarily by reduced labor and labor related expenses due to the 2023 RIFs.
28
General and Administrative
General and administrative expense decreased by $12.2 million, or 48%, from $25.5 million for the nine months ended September 30, 2023, to $13.4 million for the nine months ended September 30, 2024. General and administrative expense decreased primarily due to reduced labor and labor related expenses, including stock-based compensation, due to the 2023 RIFs.
Sales and Marketing
Sales and marketing expense decreased by $6.4 million, or 64%, from $9.9 million for the nine months ended September 30, 2023, to $3.5 million for the nine months ended September 30, 2024. This decrease was driven by a decrease in professional service fees related to third-party platform expense utilized in data management of our products and services, labor and labor related expenses due to the 2023 RIFs and decreased events and public relations expenses.
Intangible Amortization Expense
As a result of our product development reprioritization announced in November 2023, our intangible assets were fully amortized as of December 31, 2023.
Asset Write-down and Restructuring
Asset write-down and restructuring expenses were $16.3 million for the nine months ended September 30, 2023, as a result of the prior year product development reprioritization. There were no significant asset write-down and restructuring costs for the nine months ended September 30, 2024.
Other Income
The following table presents other income for the nine months ended September 30, 2024 and 2023, respectively:
|
|
Nine Months Ended September 30, |
|
|
2024 vs. 2023 Change |
|
||||||||||
(In thousands) |
|
2024 |
|
|
2023 |
|
|
Change |
|
|
% Change |
|
||||
Other income |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest income, net |
|
$ |
967 |
|
|
$ |
2,779 |
|
|
$ |
(1,812 |
) |
|
|
(65 |
)% |
(Loss) gain on warrant liability |
|
|
(175 |
) |
|
|
99 |
|
|
|
(274 |
) |
|
|
(277 |
)% |
Other income, net |
|
|
2 |
|
|
|
1,909 |
|
|
|
(1,907 |
) |
|
|
(100 |
)% |
Total other income |
|
$ |
794 |
|
|
$ |
4,787 |
|
|
$ |
(3,993 |
) |
|
|
(83 |
)% |
Other income decreased by $4.0 million for the nine months ended September 30, 2024 as compared to the prior year period, primarily as a result of employee retention credit refunds received in the prior year period and decreased interest income from our investments in marketable securities due to the reduction in invested funds during the current year period.
Provision for Income Taxes
We had no significant income tax expense for the nine months ended September 30, 2024 and 2023. The provision for income taxes for the nine months ended September 30, 2024 and 2023 is based on the Company’s estimated annualized effective tax rate for the fiscal years ending December 31, 2024 and 2023, respectively. For the nine months ended September 30, 2024 and 2023, the Company’s recognized effective tax rate differs from the U.S. federal statutory rate as the Company recorded net losses during the period with a corresponding full valuation allowance on the net deferred tax assets created from the losses.
Backlog and Total Estimated Contract Value
Our backlog, as of September 30, 2024, was $3.7 million, $2.7 million of which was funded and $1.0 million of which was unfunded. Our backlog is equal to our remaining performance obligations under contracts or the expected value of exercised contracts, both funded and unfunded, less revenue recognized to date. Our total estimated contract value, which combines backlog with estimated potential contract value, including unexercised options from existing firm contracts, was $10.6 million as of September 30, 2024.
Liquidity and Capital Resources
Cash, cash equivalents and marketable securities were $21.3 million as of September 30, 2024, compared to $39.1 million as of December 31, 2023. We have incurred losses and negative cash flows from operations since inception and are likely to continue to incur losses and negative cash flows from operations in the near term. As of September 30, 2024, we had an accumulated deficit of
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approximately $437.9 million and working capital of $19.8 million. On October 31, 2024, we announced that we raised approximately $7 million in gross proceeds from the sale of Common Stock and warrants through a registered offering and two separate private placements. We believe that our cash, cash equivalents and marketable securities on hand will be sufficient to support operations, working capital and capital expenditure requirements for at least the next 12 months from the date of this Report.
We released the initial commercial version of our Palladyne IQ product on October 1, 2024, on schedule, and expect to release the initial commercial version of Palladyne Pilot at the end of the first quarter of 2025. The initial commercial version of our Palladyne IQ product continues to undergo reliability testing, debugging and other stabilizing improvements as we continue internal testing and learn from customer trials. Customer trials of Palladyne IQ are ongoing, and we do not yet have sufficient feedback from customers to be able to predict the duration of the sales cycle or the timing, amount and growth rate of revenues associated with the Palladyne IQ product.
Our primary use of cash is for operations and administrative activities including employee-related expenses and general, operating and overhead expenses. While we do not have any debt, we do have a long-term lease for our facilities in Salt Lake City, Utah. Future capital requirements will depend on many factors, including the timing and extent of development efforts, the expansion and results of sales and marketing activities, the sales cycle for our products, customer acquisition and revenue growth rate, customer retention, the introduction of new and enhanced product offerings and market acceptance of our products.
We have taken many steps to reduce our use of cash, including suspending our hardware product development efforts and focusing those efforts on our AI/ML Software Platform and products derived from our AI/ML Software Platform, two reductions in force announced in 2023 and the closure of our operations in Pittsburgh, Pennsylvania. We plan to use our existing capital to complete the development of the initial commercial version of our Palladyne Pilot product and conduct sales and marketing efforts for both Palladyne IQ and Palladyne Pilot, as well as continue product development efforts for the next versions of our products. However, we are developing contingency plans to further limit operations and reduce costs and/or seek additional financing should product revenues not materialize or not materialize in time or sufficient amount to support our operations.
The amount and timing of our future funding requirements will depend on many factors, including the pace and results of our product development efforts, our ability to release and license our commercial products and thereby recognize associated revenue and capital requirements to conduct marketing and sales activities prior to receiving payments sufficient to cover our costs. Any delays in the successful commercialization of our software products will negatively impact our ability to generate revenue, profitability, overall operating performance, financial condition and ability to continue operations. If we are unable to raise additional capital when desired or needed, our business, results of operations and financial condition would be materially and adversely affected.
We may enter into arrangements to acquire or invest in complementary businesses, services and technologies, which may require acquisition capital as well as operational capital for these acquisitions or arrangements. We may be required to seek additional equity or debt financing to facilitate these arrangements. In the event that additional financing is required from outside sources in connection with these arrangements, we may not be able to raise it on terms acceptable to us, or at all.
We currently primarily use cash from equity financings to fund operations and capital expenditures and meet working capital requirements. If additional funds are required to support our working capital requirements, for acquisitions or for other purposes, we may seek to raise funds through additional debt or equity financings or from other sources. We have taken numerous steps to manage our use of cash, including conducting the 2023 RIFs, and other related actions. However, we may need to seek additional financing, and we intend to continue monitoring our liquidity, financial and business results and outlook and market conditions, and may be opportunistic and raise capital when market conditions are good or a favorable opportunity exists including in “at-the-market” equity offering programs. . Any delays in the successful commercialization and sales of our software products will negatively impact our ability to generate revenue, our profitability and our overall operating performance and result in the need to raise additional capital sooner than expected. If we raise additional funds through the issuance of equity or convertible debt securities, the percentage ownership of our equity holders could be significantly diluted and these newly issued securities may have rights, preferences or privileges senior to those of existing equity holders. If we raise additional funds by obtaining loans from third parties, the terms of those financing arrangements may include negative covenants or other restrictions on our business that could impair our operating flexibility and would also require us to incur additional interest expense. Additional financing may not be available at all or, if available, may not be available on terms favorable to us or that we find acceptable. For additional information around the risks associated with our capital needs see Part II Item 1A Risk Factors “Our business plans require a significant amount of capital. Our future capital needs may require us to sell additional equity or debt securities that may dilute our stockholders or introduce covenants that may restrict our operations or our ability to pay dividends. If we require additional capital and are not able to secure new funding, we may not be able to continue our business operations.”
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Cash Flows
The following table summarizes our cash flow data for the periods presented:
|
|
Nine Months Ended September 30, |
|
|
2024 vs. 2023 Change |
|
||||||||||
(In thousands) |
|
2024 |
|
|
2023 |
|
|
Change |
|
|
% Change |
|
||||
Net cash provided by (used in): |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net cash used in operating activities |
|
$ |
(17,531 |
) |
|
$ |
(60,123 |
) |
|
$ |
42,592 |
|
|
|
(71 |
)% |
Net cash provided by investing activities |
|
|
15,783 |
|
|
|
60,345 |
|
|
|
(44,562 |
) |
|
|
(74 |
)% |
Net cash used in financing activities |
|
|
(63 |
) |
|
|
(71 |
) |
|
|
8 |
|
|
|
(11 |
)% |
Net (decrease) increase in cash, cash equivalents |
|
$ |
(1,811 |
) |
|
$ |
151 |
|
|
$ |
(1,962 |
) |
|
|
(1,299 |
)% |
Net Cash Used in Operating Activities
Cash flows used in operating activities during the nine months ended September 30, 2024 decreased by $42.6 million to $17.5 million from $60.1 million during the same period in 2023. The decrease to net cash used in operating activities was primarily attributable to a $59.5 million decrease to net loss, which was driven by the 2023 RIFs, partially offset by a net decrease of $20.5 million in non-cash expenses driven mainly by decreased asset write-downs, stock-based compensation and amortization of intangible assets. Additionally, net cash used in operating activities related to changes in operating assets and liabilities decreased by $3.6 million, driven mainly by increases in inventories during the nine months ended September 30, 2023.
Net Cash Provided by Investing Activities
Our net cash provided by investing activities during the nine months ended September 30, 2024 decreased by $44.6 million. The decrease in cash provided by investing activities is predominantly due to the $61.4 million of maturities of marketable securities, net of purchases during the nine months ended September 30, 2023, as compared to the $16.0 million of maturities of marketable securities and no purchases of marketable securities, during the nine months ended September 30, 2024.
Net Cash Used In Financing Activities
Our net cash used in financing activities during the nine months ended September 30, 2024, decreased 11% as compared to the nine months ended September 30, 2023.
Emerging Growth Company Status
Section 102(b)(1) of the Jumpstart our Business Startups Act of 2012 (the “JOBS Act”) exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can choose not to take advantage of the extended transition period and comply with the requirements that apply to non-emerging growth companies, and any such election to not take advantage of the extended transition period is irrevocable.
We are an “emerging growth company” as defined in Section 2(a) of the Securities Act, and have elected to take advantage of the benefits of the extended transition period for new or revised financial accounting standards. We will remain an emerging growth company until the earliest of (i) the last day of the fiscal year in which the market value of Common Stock that is held by non-affiliates exceeds $700 million as of the end of that year’s second fiscal quarter, (ii) the last day of the fiscal year in which we have total annual gross revenue of $1.235 billion or more during such fiscal year (as indexed for inflation), (iii) the date on which we have issued more than $1 billion in non-convertible debt in the prior three-year period or (iv) December 31, 2026, and we expect to continue to take advantage of the benefits of the extended transition period, although we may decide to early adopt such new or revised accounting standards to the extent permitted by such standards. This may make it difficult or impossible to compare our financial results with the financial results of another public company that is either not an emerging growth company or is an emerging growth company that has chosen not to take advantage of the extended transition period exemptions because of the potential differences in accounting standards used.
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Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities and related disclosure of contingent assets and liabilities, revenue and expenses at the date of the financial statements. Generally, we base our estimates on historical experience and on various other assumptions in accordance with GAAP that we believe to be reasonable under the circumstances. Actual results may differ from these estimates.
Critical accounting policies and estimates are those that we consider the most important to the portrayal of our financial condition and results of operations because they require our most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. There have been no material changes to our critical accounting policies or estimates as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2023.
Recent Accounting Pronouncements
See Note 1, Basis of Presentation and Summary of Significant Accounting Policies, to our unaudited interim condensed consolidated financial statements included elsewhere in this Report for recently adopted accounting pronouncements and recently issued accounting pronouncements not yet adopted as of the date of this Report.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required under this item.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Disclosure controls are procedures that are designed with the objective of ensuring that information required to be disclosed in our reports filed under the Exchange Act, such as this Report, is recorded, processed, summarized and reported within the time period specified in the SEC rules and forms. Disclosure controls and procedures are also designed with the objective of ensuring that such information is accumulated and communicated to our management, including the principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Our management evaluated, with the participation of our chief executive officer and chief financial officer (our “Certifying Officers”), the effectiveness of our disclosure controls and procedures as of the end of the fiscal quarter ended September 30, 2024, pursuant to Rule 13a-15(b) under the Exchange Act. Based upon that evaluation, our Certifying Officers concluded that our disclosure controls and procedures were effective as of September 30, 2024.
We do not expect that our disclosure controls and procedures will prevent all errors and all instances of fraud. Disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Further, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and the benefits must be considered relative to their costs. Because of the inherent limitations in all disclosure controls and procedures, no evaluation of disclosure controls and procedures can provide absolute assurance that we have detected all our control deficiencies and instances of fraud, if any. The design of disclosure controls and procedures also is based partly on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting that occurred during the fiscal quarter ended September 30, 2024 covered by this Report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II—OTHER INFORMATION
Item 1. Legal Proceedings.
From time to time, we may be subject to legal proceedings. We are not currently a party to or aware of any proceedings that we believe will have, individually or in the aggregate, a material adverse effect on our business, financial condition or results of operations. Regardless of outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.
Item 1A. Risk Factors.
You should carefully consider the following risk factors, in addition to the other information contained in this Report, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our unaudited condensed consolidated financial statements and related notes. If any of the events described in the following risk factors and the risks described elsewhere in this Report occurs, our business, operating results and financial condition could be materially harmed. This Report also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of factors that are described below and elsewhere in this Report or other risks that we currently deem immaterial or that may be unknown to us.
Risks Related to Our Business
We are an early stage company with a history of losses and are likely to incur losses, which could be significant, for the foreseeable future.
We have incurred losses and negative cash flows from operations since inception and are likely to continue to incur losses and negative cash flows from operations in the near term. We incurred a net loss of $19.6 million for the nine months ended September 30, 2024, and a net loss of $115.6 million for the year ended December 31, 2023. As of September 30, 2024, we had an accumulated deficit of $437.9 million and working capital of $19.8 million. We believe that we are likely to continue to incur operating and net losses, which could be significant, for the foreseeable future. Our shift in product development and commercialization strategy to focus on our AI/ML Software Platform and related products has affected the timing of expected revenue and has made forecasting our quarterly and annual results more challenging. Even if we are able to successfully develop our AI/ML Software Platform and related products and attract customers for commercial sales, we may not become profitable. Our potential profitability is dependent upon the successful development, commercial introduction and adoption on a large scale of our AI/ML Software Platform and related products and our ability to lower costs, none of which may occur. We may not be successful in achieving meaningful revenues from these products. Further, the timing, amount and growth rate of any such revenues are unknown.
We are likely to continue to incur losses in future periods as we:
Because we will incur costs and expenses from these and other efforts before we receive significant licensing revenue, we expect to incur losses in future periods, which could be significant. In addition, we may find that these efforts are more expensive than we currently anticipate or that these efforts may result in less than expected or no additional revenue, which would further increase our losses and affect our ability to continue operations. We may have to obtain additional capital from external sources, and additional financing may not be available when needed or, if available, may not be available on terms favorable to us or to our stockholders. See “Our business plans require a significant amount of capital. Our future capital needs may require us to sell additional equity or debt securities that may dilute our stockholders or introduce covenants that may restrict our operations or our ability to pay dividends. If we require additional capital and are not able to secure new funding, we may not be able to continue our business operations.”
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Due to our limited resources and access to capital, and our failure to properly estimate the time and expense required to commercialize our prior hardware-centric industrial robotics solutions, we made the decision in late 2023 to focus on our AI/ML Software Platform and related products and to suspend the development and commercialization of our hardware products. These and future decisions about how to use our limited resources may prove to be wrong and may adversely affect our business.
We have limited financial and human resources and, as a result, we have in the past and may in the future forgo or delay pursuit of opportunities with product candidates that might have had greater commercial potential or a greater likelihood of success. For example, on November 14, 2023, we announced a pivot in strategy to suspend our efforts to bring our hardware products to market and instead focus our resources and efforts on the development of our commercial AI/ML Software Platform and related products and a related significant reduction in force. After continued analysis of our business and careful consideration of our hardware product’s development costs and market opportunity, and of our available resources, we concluded that focusing on our AI/ML Software Platform and related products met our goal of pursuing significant near-term revenue tied to acute customer needs and would reduce our capital requirements and related risks in line with available resources. However, this strategy may not prove to be effective. Moreover, we may not be able to monetize all of the assets unrelated to our current business strategy.
The development of our software products is a complex and evolving process that involves the development of new and emerging technologies, continued investment, including in privacy, safety and security efforts, and potential collaborations with other companies, developers, partners and other participants. Market acceptance of our software products is uncertain and we may need to change product features to meet customer needs. We regularly evaluate our product roadmaps and make significant changes as our understanding of the technological challenges and market landscape and our product ideas and designs evolve. In addition, we have no experience with commercializing a software platform or software products, which may enable other companies to compete more effectively than us, and we may not be successful. We also may be unsuccessful in our research and product development efforts.
As we develop and commercialize our AI/ML Software Platform and related products, we may become subject to a variety of existing or new laws and regulations in the United States and international jurisdictions, such as the European Union's Artificial Intelligence Act (the "AI Act"), including in the areas of privacy, security, safety, competition and consumer protection, which may delay or impede the development and commercialization of our AI/ML Software Platform and related products, increase our operating costs, require significant management time and attention or otherwise harm our business. As a result of these or other factors, our product strategy may not be successful in the foreseeable future, or at all, which would adversely affect our business, reputation, or financial results.
Our operating and financial projections rely on management assumptions and analyses. If these assumptions or analyses prove to be incorrect, as they often have in the past, our actual operating results may be materially different from our expected or forecasted results.
We are an early stage company, with no experience commercializing software products. Our projected financial and operating information reflect estimates of future performance and are based on multiple business, financial, technical and operational assumptions, including product strategy, timely hiring or retention of needed personnel, timing and success of commercial launch of our software products, the level of demand for our software products, the size of our target markets, the performance of our software platform and products, the utilization of the platform, product pricing and the nature and length of the sales cycle. However, given our limited commercial experience, many of these assumptions may prove to be incorrect. Projections and other statements about future expectations are forward-looking statements that are inherently subject to significant risks, uncertainties and contingencies, many of which are beyond our control (in addition to the information contained in these Risk Factors, see “Special Note Regarding Forward-Looking Statements” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”).
We have yet to achieve positive operating cash flow, and our ability to generate positive cash flow is uncertain.
We had negative cash flow from operating activities of $76.6 million and $65.4 million for the years ended December 31, 2023 and 2022, respectively, and negative cash flow from operating activities of $17.5 million for the nine months ended September 30, 2024. We expect to continue to have negative cash flow from operating and investing activities for the foreseeable future as we expect to incur research and development, sales and marketing, and general and administrative expenses and make capital expenditures in our efforts to commercialize our software products, increase sales and engage in continuous development work. We may not achieve positive cash flow in the near future or at all. Our business also may at times require significant amounts of working capital to support the growth of additional products. An inability to generate positive cash flow for the near term may adversely affect our ability to raise capital for our business on reasonable terms, adversely affect our ability to pursue our business objectives, diminish customer willingness to enter into transactions with us and have other adverse effects, all of which would affect our ability to continue operations. See "We are an early stage company with a history of losses and are likely to incur losses, which could be significant, for the foreseeable future."
We have no previous history or experience with commercializing software products and may not be able to do so efficiently, effectively or at all. We were unsuccessful in our efforts to commercialize the hardware technologies that we and our predecessor companies developed over the past several decades.
34
We have no previous history or experience commercializing AI/ML software products or platforms and may not be able to do so efficiently or effectively or at all. Further, we have historically been unsuccessful in our efforts to commercialize our hardware products. Moreover, commercialization may be delayed due to the challenges discussed under "Successful commercialization of our AI/ML Software Platform and related products may be delayed beyond our current expectations and therefore product availability to customers, customer acquisition and receipt of software licensing revenue could be delayed." A key element of our long-term business strategy involves sales, marketing, training and customer service operations, including hiring personnel with the necessary experience. Managing and maintaining these operations is expensive and time consuming, and an inability to leverage such an organization effectively or at all could inhibit potential sales and the penetration and adoption of our software products. In addition, certain decisions we make regarding priorities and staffing in these areas in our efforts to responsibly manage our financial resources could have unintended negative effects on our revenue, such as by weakening the sales and marketing infrastructures or lowering the quality of customer service.
Successful commercialization of our AI/ML Software Platform and related products may be delayed beyond our current expectations and therefore product availability to customers, customer acquisition and receipt of software licensing revenue could be delayed.
We are focused on the development and commercialization of our AI/ML Software Platform and related products. If product testing or customer use demonstrate that our software products do not deliver the performance, reliability, functionality and/or safety that we or our potential customers expect, commercial success may be delayed as we work to address the deficiencies. As a result of such delays, we may receive revenue later than expected or not at all if our potential customers decide to seek alternative solutions to our products, adversely affecting our results of operations and financial condition.
Moreover, our current estimates for completion of our Palladyne Pilot development efforts and the achievement of software product sales to potential customers are dependent in part on our ability to hire and retain qualified employees. We have seen a significant increase in personnel costs in recent years due to shortages of qualified personnel in the labor market and general inflationary pressures. If we are unable to recruit and retain employees as needed to complete the development of and commercialize our software products, we may be unable to do so in a timely manner or at all.
In addition, geopolitical events and macro-economic conditions, such as the current wars between Russia and Ukraine and in the middle east, inflation and high interest rates, and responses thereto have contributed to price increases. If we are unable to develop and commercialize our software products in a cost efficient manner, our financial results, financial condition and prospects would be materially and adversely affected.
Although to date we have met our primary software development milestones as scheduled, over recent years we experienced, and we continue to experience, these challenges, which have at times negatively impacted our product development schedules and progress. We expect these challenges to continue and, if they do and if we are unable to effectively mitigate their impact, it is likely that we will be unable to meet our currently expected timelines.
Our anticipated revenues are expected to be primarily derived from the licensing of our AI/ML Software Platform-related products for the foreseeable future.
If we are successful in commercializing our AI/ML Software Platform and related products, our revenue will be concentrated in licensing those software products for the foreseeable future. We will need to continue to enhance our platform, develop new capabilities and establish and grow our customer base to diversify our revenue and customers. To the extent our AI/ML Software Platform and related products do not meet customer expectations, or cannot be completed or released on their projected timelines and in line with cost targets, our future revenue, operating results and financial condition will be adversely affected.
Any issues in the development and use of our AI/ML Software Platform or related products, or issues in products developed by others, may result in reputational harm or liability.
Any issues in the development or use of our AI/ML Software Platform or related products, or issues in products developed by others, may result in reputational harm or liability. As with many innovations, AI presents risks, challenges, and unintended consequences that could affect its adoption, and therefore our business. AI algorithms and training methodologies may be flawed, ineffective or inadequate. AI development or deployment practices by us or others could result in incidents that impair the acceptance of AI solutions or cause harm to individuals or society. These deficiencies and other failures of AI systems could subject us to competitive harm, regulatory action, legal liability, and brand or reputational harm. If we enable or offer AI solutions that are controversial because of their impact on human rights, privacy, employment, or other social, economic, or political issues, we may experience competitive, brand, or reputational harm or legal and/or regulatory action. Further, incorporating AI gives rise to litigation risk and risk of non-compliance and unknown costs of compliance, as AI is an emerging technology for which the legal and regulatory landscape is not fully developed. See
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"Issues in the development and use of AI/ML, combined with an uncertain regulatory environment, may result in reputational harm, liability or other adverse consequences to our business operations."
Our AI/ML Software Platform and related products are new technologies, and customer trials and discussions may not result in purchases.
Our AI/ML Software Platform and related products are new technologies. At present, we have revenue generating contracts with U.S. government customers related to various aspects of our AI/ML Software Platform and related products, but no commercial customers. Our software products contain advanced software and control technologies that we have developed over many years. The design of our software products are significantly influenced by feedback from potential customers and reflects the needs they express. Even if we are able to successfully incorporate that feedback into our software platform and products, customers who initially expressed an interest in our software platform and products during the design or testing phase may not ever purchase the software. If we cannot commercialize our AI/ML Software Platform and related products on our expected schedule, if our products do not offer our potential customers the features, functionality and return on investment that they expect, if potential customers are unwilling or hesitant to adopt new technologies and products such as ours and/or if potential customers are not willing to pay for our software products at the rates that we currently expect, our ability to generate material revenues will be materially impaired.
Although we began initial customer testing in June 2024, we continue to have limited knowledge of the customer testing that will be required for customers to ultimately license our software products. As a result, customer testing may take longer than we anticipate, and we may not be able to provide such testing to the satisfaction of prospective customers, which could result in longer sales cycles and fewer purchases than anticipated. We may not be able to adapt our products to reflect customer feedback successfully or at all. If customers who initially express an interest in our software products and influenced their designs ultimately do not license our products, or if they adopt a competitors’ technology, our business, prospects, financial condition and operating results would be adversely affected.
In addition, to build and maintain our business, we must maintain confidence among customers and potential customers in our AI/ML Software Platform and related products, long-term financial viability and business prospects. Maintaining such confidence may be particularly complicated by certain factors including those that are largely outside of our control, such as our limited commercial software experience, customer unfamiliarity with our software, any delays in development, product performance, competition and uncertainty regarding the future of AI and robotics. If we do not generate sufficient license revenue, our business, prospects, financial condition and operating results would be materially and adversely affected. Further, if investors, analysts, rating agencies and other third parties are not confident in our AI/ML Software Platform and related products, our ability to commercialize the platform and related products, our financial viability, or our business prospects, we may not be able to raise any needed funding which would materially and adversely affect our financial condition and prospects and ability to continue operations.
If our target markets and the robotics industry do not continue to develop as we anticipate or if potential customers do not adopt our AI/ML Software Platform and related products and license our products, our sales will not grow as quickly as expected, or at all, and our business, operating results and financial condition would be harmed.
The market for our AI/ML Software Platform and related products and applications similar to the ones we are developing is relatively new and evolving. We are developing our software products to respond to an increasingly global and complex business environment with rigorous regulatory standards. If organizations do not allocate their budgets as we expect or if we do not succeed in convincing potential customers to license our software products, our sales will not grow as quickly as anticipated, or at all. Economic uncertainty or future deterioration in general economic conditions might also cause our customers to cut or delay their spending, and such cuts might disproportionately affect businesses like ours to the extent customers view our software products as too costly or discretionary. Moreover, market acceptance of our AI/ML Software Platform and related products is critical to our continued success. Even if the market grows as expected, if potential customers do not adopt our software products, our business, operating results, financial condition and growth prospects will be materially and adversely affected. If we are not able to generate material revenues from our software products before we exhaust our financial resources, we may need to cease business operations. See “We are an early stage company with a history of losses and are likely to incur losses, which could be significant, for the foreseeable future.” and “Our business plans require a significant amount of capital. Our future capital needs may require us to sell additional equity or debt securities that may dilute our stockholders or introduce covenants that may restrict our operations or our ability to pay dividends. If we require additional capital and are not able to secure new funding, we may not be able to continue our business operations.”
If we are unable to successfully introduce and implement enhancements, new features or modifications to our AI/ML Software Platform and related products, our business would be harmed.
If we are unable to successfully introduce and implement new applications, enhancements or features, or fail to develop new applications that achieve market acceptance or that keep pace with rapid technological developments, our business, operating results, financial condition and growth prospects would be adversely affected. The success of enhancements and new applications depend on several factors, including timely completion, introduction and market acceptance.
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We must continue to meet changing expectations and requirements of our customers. Any failure of our platform to operate effectively with future software, such as third-party robotic operating systems and technologies or to evolve and scale to address the changing needs of our customers could reduce the demand for our products or result in customer dissatisfaction. Further, uncertainties about the timing and nature of new software or technologies, or modifications to our platform or products or existing software or technologies, could increase our research and development expenses. If we are not successful in developing modifications and enhancements to our platform or products or if we fail to introduce new applications to market in a timely fashion, our products might become less marketable, less competitive or obsolete, our revenue growth might be significantly impaired and our business, operating results and financial condition could be harmed.
We may fail to attract or retain customers at sufficient rates or in sufficient numbers or at all.
We have no previous history or experience commercializing software products and may not be able to do so efficiently or effectively or at all. To create and grow our customer base, we must license our software to new customers, which we may not be able to do in sufficient numbers or at all. Even if we are able to attract customers, these customers may not maintain a high level of commitment to our software products. In addition, we will incur marketing, sales and other expenses, including referral fees, to attract new customers, which will offset revenue from such customers. For these and other reasons, we could fail to achieve revenue growth, which would adversely affect our results of operations, prospects and financial condition.
We expect our AI/ML Software Platform and related products to be used with robots operating in a wide variety of environments and for a broad range of complex uses. Our success depends on our ability, and the ability of our customers, to implement our products successfully in these environments. Customer retention will also be largely dependent on the quality and effectiveness of our customer service operations, which may be handled internally by our personnel and also by third-party service providers. We expect that we will need to often assist our customers in implementing our software products. If we or our customers are unable to implement our products successfully, or are unable to do so in a timely manner, inadequate performance might result and customer perceptions of our platform, products and company might be impaired, our reputation and brand might suffer, we may face legal claims, customers might choose not to renew or expand the use of our platform and we might lose opportunities for additional sales.
We have no previous history with our licensing sales model.
We have no experience with licensing software as a business model. The success of our strategy to build recurring revenue streams through software licenses depends on our ability to successfully market our software platform and products and the benefits of our product to customers and to successfully develop a network of ongoing customers that maintain or renew their licenses, pay for upgrades, license additional functionality, or expand the use of the software within their robotic systems. The likelihood of our success must be considered in light of these risks, and our license model may not prove successful.
In addition, our competitors may offer different pricing models that may be more attractive to potential customers. We may be required to adjust our sales model in response to these changes, which could adversely affect our financial performance.
Important assumptions about market demand, pricing, adoption rates and sales cycles for our software products may be inaccurate.
Our decision to pivot our business strategy to focus on the development of our commercial AI/ML Software Platform was based in part on our estimates of the potential addressable market, pricing, adoption rates and sales cycles for our platform and related products. However, the market demand for our software platform and products is unproven, and important assumptions about the characteristics of targeted markets, pricing and sales cycles may be inaccurate.
Given the evolving nature of the markets in which we operate, it is difficult to predict customer demand or adoption rates for our software products or the future growth of the markets we target. If one or more of the targeted markets experience a shift in customer demand, whether due to new solutions that better address customer needs or otherwise, our software products may not compete as effectively, if at all. If customer demand does not develop as expected, or if we do not accurately forecast pricing, adoption rates and sales cycles for our software products, our business, results of operations and financial condition will be adversely affected, perhaps materially.
The benefits of our AI/ML Software Platform and related products to customers and projected return on investment have not been substantiated through customer use.
Although we are conducting customer trials for certain of our software products, our AI/ML Software Platform and related products have not been commercially used by customers. Our software platform and related products may not perform consistent with customers’ expectations or consistent with other products that may be or may become available. Any failure of our software platform and products to perform as expected could harm our reputation and result in adverse publicity, lost revenue, license cancellation, harm to our brand,
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delays in availability, product liability claims and significant warranty and other expenses and could have a material adverse impact on our business, prospects, financial condition and operating results.
We currently intend to target many customers that are large businesses with substantial negotiating power, exacting product standards and potentially competitive internal solutions. If we are unable to sell our software products to these customers, our prospects and results of operations will be adversely affected.
We expect that many of our potential customers will be large businesses with substantial negotiating power relative to us and, in some instances, may have internal solutions that are competitive to our platform. These large businesses also have significant development resources, which may allow them to acquire or develop independently, or in partnership with others, competitive technologies. Meeting the technical requirements and securing binding commitments from any of these businesses will require a substantial investment of our time and resources. We may be unable to secure customers from these or other businesses or we may be unable to generate meaningful revenue from these key potential customers. If our software products are not selected by these large businesses or if these businesses develop or acquire competitive technology, it may have a material adverse effect on our business, prospects, financial condition and operating results.
A portion of our revenue is currently and will continue to be generated by contracts with government entities, which make us subject to a number of uncertainties, challenges and risks.
Contracts with government entities are subject to a number of risks. Such relationships can be highly competitive, expensive and time-consuming, often requiring significant upfront time and expense without any assurance that these efforts will generate revenue. In the event that we are successful in being awarded a government contract, such award may be subject to appeals, disputes or litigation, including bid protests by unsuccessful bidders. Government demand and payment for our solutions may be impacted by public sector budgetary cycles and funding authorizations, with funding reductions or delays adversely affecting public sector demand for our solutions. Government entities may have statutory, contractual or other legal rights to terminate our contracts for convenience or default. Also, see “We are subject to laws, regulations and contractual provisions as a government contractor or subcontractor, which may pose increased risk of potential liability and expenses related thereto, which could have a material adverse effect on our business, operating results and financial condition.”
We operate in a competitive industry that is subject to rapid technological change, and we expect competition to increase. Our products may not be competitive with other alternatives.
The AI/ML and robotics industries are subject to rapid technological change, and we expect competition to increase in the future. Our research and development efforts may be unable to keep up with changes in technology or its alternatives and, as a result, our competitiveness may suffer. Developments in alternative technologies or solutions may materially and adversely affect our competitiveness in ways we do not currently anticipate. While we plan to upgrade and adapt our software platform and products as we or others develop new technology, any failure by us to develop new or enhanced technologies or processes, or successfully react to changes or advances in existing technologies, could delay our development and introduction of new and enhanced products, which could result in the loss of competitiveness, decreased revenue and a loss of market share to competitors. We believe our AI/ML Software Platform and related products will compete (both directly and indirectly) with companies such as Covariant, Dexterity, Formic, GrayMatter Robotics, Intrinsic, Liquid AI, Mujin and Rapid Robotics. We believe that our competitors are seeking to solve the same or similar industry challenges as we are, but that most are focused on a particular aspect of the functionality of our AI Software Platform rather than a fully competitive solution.
While we view industrial robotics and cobot manufacturers such as ABB, Fanuc, Kawasaki, Kuka and Universal Robots, large system integrators such as Honeywell, Reply, and Rockwell Automation, and technology companies such as NVIDIA as potential target customers and/or channel and ecosystem partners for our software platform and products, we also recognize that these companies may emerge as formidable competitors through their own internal development efforts or future technology partnerships with and acquisitions of our competitors. They may bring their robust customer relationships, channels and significant financial resources to help accelerate the market viability of one of our direct or indirect competitors.
Many of our competitors and potential competitors have products that are commercially available and/or in development. We expect some products currently in development to become commercially available in the next few years. Further, our products may not be competitive with other alternatives.
Our competitor base may change or expand as we continue to develop and commercialize software products in the future. Competitors may develop products that utilize advanced technology similar to ours (such as computer vision, AI and ML) in a more effective way, or new technologies or products that provide superior results to customers or are less expensive than our software products. Our technologies and products could be rendered obsolete by such developments.
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Our competitors may respond more quickly to new or emerging technologies, undertake more extensive marketing campaigns, have greater financial, marketing, manufacturing and other resources than we do, or may be more successful in attracting potential customers, employees and strategic partners. In addition, potential customers could have long-standing or contractual relationships with competitors. Potential customers may be reluctant to adopt our software products, particularly if they compete with or have the potential to compete with, or diminish the need/utilization of software products or technologies provided by any of our competitors with whom they may have an existing relationship. If we are not able to compete effectively, our business, prospects, financial condition and operating results will be adversely affected.
In addition, because we operate in new and evolving markets, the actions of our competitors could adversely affect our business. Adverse events such as product defects or legal claims with respect to competing or similar products could cause reputational harm to the AI/ML software or robotics markets as a whole and, accordingly, our business.
We may not be able to complete or enhance our product offerings through our research and development efforts.
Even after introduction of a commercial version of a product, we will also likely need to continue to advance and evolve the product in response to the evolving demands of our customers in the various industries we expect to serve. Our Palladyne IQ product is in the early stages of commercialization and our Palladyne Pilot product remains under development. We will incur significant additional product development efforts and expenses, and we may not be successful in commercializing or marketing our products at all or within our currently expected timelines or available resources.
We released the initial commercial version of our Palladyne IQ product on October 1, 2024 on schedule, and expect to release the initial commercial version of Palladyne Pilot at the end of the first quarter of 2025. We also make iterative improvements throughout the development process and after commercial release. If we fail to adequately communicate to customers product improvements, or if customer feedback is not adequately reflected in our product improvements, customers may not be persuaded of the value of our software platform and products. If we fail to generate demand by developing products that incorporate features desired by customers, we may fail to generate revenue sufficient to achieve or maintain profitability. We have in the past experienced and may in the future experience delays in various phases of product development, including during research and development, release testing and marketing and customer education efforts. Further, delays in product development would postpone demonstrations and customer testing, which are important opportunities for customer engagement, and cause us to miss expected timelines. Such delays could cause customers to delay or forgo purchases of our products, or to purchase competitors’ products. Even if we are able to successfully develop our products when and as anticipated, we may not produce sales in excess of the costs of development, and our software platform and products may be quickly rendered obsolete by changing customer preferences or the introduction by competitors of products embodying new technologies or features. If we are unable to successfully manage our product development and communications with customers, customers may choose to not adopt or purchase our products, which would adversely affect our business, prospects, financial condition and operating results.
Risks Related to Our Operations & Growth
Real or perceived design flaws, errors, defects, glitches, bugs or malfunctions (collectively, "Defects") in our AI/ML Software Platform and related products, failure of our AI/ML Software Platform-related products to perform as expected, connectivity issues or user errors can result in lower than expected return on investment for customers, personal injury or property damage and significant security or safety concerns, each of which could materially and adversely affect our results of operations, financial condition or reputation.
The design, development and marketing of our AI/ML Software Platform and related products involve certain inherent risks. Real or perceived Defects, connectivity issues, unanticipated or unintended use of our software platform and products, user errors or inadequate disclosure of risks relating to the use of our products, among others, can lead to injury, property damage or other adverse events. We have conducted, are conducting and plan to continue to conduct extensive testing of our software platform and products, in some instances in collaboration with our customers, to ensure that any such issues can be identified and addressed. However, we may not be able to identify all such issues or, if identified, efforts to address them may not be effective in all cases, and our product testing may not be adequate. We plan to conduct investigations, where applicable, to identify the cause or causes of incidents and, when appropriate, implement changes to testing protocols or to the products to prevent such incidents from reoccurring. However, any implemented improvements may not fully prevent similar or other incidents in the future. Moreover, because of the size and weight of the third-party systems that may in the future use our AI/ML Software Platform and related products, and the nature and variability of the environments in which we expect this software to be used, adverse events relating to the use of our products could include significant injuries or even death. To the extent that Defects or connectivity issues are discovered during or after product development, we may experience delays in the development and/or sale of our products while the issues are resolved. If the issues cannot be adequately resolved, product sales may not occur and/or resume.
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In addition, we may not be aware of design Defects until injury to person or property has occurred. Such adverse events could lead to safety alerts relating to our software platform and products (either voluntary or required by governmental authorities), and could result, in certain cases, in the removal of our products from the market. Defects could also result in negative publicity, damage to our reputation or, in the event of regulatory developments, delays in new product approvals.
Complex software may frequently experience errors, especially when first introduced. Our products are complex and may experience errors or performance problems in the future. A failure of any part of our AI/ML Software Platform or related products could result in property damage, serious injury or even death. We plan to implement bug fixes and upgrades as part of our regular software maintenance, which may lead to downtime. Even if we are able to implement bug fixes and upgrades in a timely manner, customers and operators also may fail to install updates and fixes to the software for several reasons, including poor connectivity or inattention. Any such occurrence could cause delay in market acceptance of our software products, damage to our reputation, increased service and warranty costs, product liability claims and loss of revenue.
We anticipate that in the ordinary course of business we may be subject to product liability claims alleging defects in the design of our software platform and products. A product liability claim, regardless of its merit or eventual outcome, could result in significant legal defense costs and high punitive damage payments, damage our reputation or require significant costs to redesign or fix our software platform or products. Although we maintain product liability insurance, the coverage is subject to deductibles and limitations, and may not be adequate to cover future claims.
Even if our AI/ML Software Platform performs properly and our products are used as intended, if personal injuries occur while operating third-party products that use our AI/ML software, we could be exposed to liability and our results of operations, financial condition and reputation may be adversely affected.
Third-party systems that may in the future use our AI/ML Software Platform contain complex technology and must be used as designed and intended in order to operate safely and effectively. Even if our software platform and products are used as designed and intended, customers may not operate complex third-party systems that use our platform safely and effectively. In addition, we cannot predict all the ways in which the use or misuse of our platform and products can lead to injury or damage to property, and our training resources and safety systems may not be successful at preventing all incidents. If personal injury or damage to property were to occur while operating our platform and products in a manner consistent with our training and instructions or otherwise, we could be exposed to liability and our results of operations, financial condition and reputation may be adversely affected.
We use “open source” software, which could negatively affect our ability to offer our AI/ML Software Platform and related products and subject us to possible litigation.
Our AI/ML Software Platform incorporates “open source” software provided by third parties. Open source software is generally freely accessible, usable and modifiable, and is made available to the general public on an “as-is” basis under the terms of a non-negotiable license. Use and distribution of open source software may entail greater risks than use of third-party commercial software or internally developed software. Open source licensors generally do not provide warranties or other contractual protections regarding infringement claims or other claims relating to violation of intellectual property rights or the quality of the software. In addition, certain open source licenses, like the GNU Affero General Public License, may require us to offer for no cost the components of our platform that incorporate the open source software, to make available source code for modifications or derivative works we create by incorporating or using the open source software or to license our modifications or derivative works under the terms of the particular open source license. If we are required under the terms of an open source license to release our proprietary source code to the public, competitors could create similar products with lower development effort and time, which ultimately could result in a loss of sales for us.
We may also face claims alleging noncompliance with open source license terms or infringement, misappropriation or other violation of open source technology. These claims could result in litigation or require us to purchase a costly license, devote additional research and development resources to re-engineer our platform, discontinue the sale of our software products if re-engineering could not be accomplished on a timely or cost-effective basis, or make generally available our proprietary code in source code form, any of which would have a negative effect on our business and operating results, including being enjoined from the offering of the components of our platform that contained the open source software. We could also be subject to lawsuits by parties claiming ownership of what we believe to be open source software. Litigation could be costly for us to defend, have a negative effect on our operating results and financial condition and require us to devote additional research and development resources to re-engineer our platform.
Although we monitor use of open source software and try to ensure that none is used in a manner that would subject our platform to unintended conditions, few courts have interpreted open source licenses, and there is a risk that these licenses could be construed in a way that could impose unanticipated conditions or restrictions on our ability to commercialize our AI/ML Software Platform and related products. We cannot guarantee that we will incorporate open source software in our platform in a manner that will not subject us to liability, or in a manner that is consistent with our current policies and procedures.
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Our business and prospects depend significantly on our ability to build our brand. We may not succeed in establishing, maintaining and strengthening an effective brand, and our brand and reputation could be harmed by negative publicity regarding us or our AI/ML Software Platform and related products.
Our business and prospects are dependent on our ability to develop, maintain and strengthen our brand. If we do not continue to establish, maintain and strengthen our brand, we may lose the opportunity to build a critical mass of customers. We believe that our inability to successfully commercialize our hardware products, and our resulting financial performance, damaged our prior brand. As a result and to reflect our focus on our AI/ML Software Platform, in March 2024 we changed our name to Palladyne AI Corp. and have branded our AI/ML software products accordingly. Promoting and positioning our brand will likely depend significantly on our ability to provide high quality software and engage with our customers as intended. To promote our brand, we may be required to change or expand our customer development and branding practices, including increased marketing activities, which could result in substantially increased expenses. If we do not develop and maintain a strong brand, our business, prospects, financial condition and operating results will be materially and adversely impacted.
In addition, if safety incidents occur or are perceived to have occurred, whether or not such incidents are our fault, we could be subject to adverse publicity or resistance by our customers. In particular, given the popularity of social media, any negative publicity, whether true or not, could quickly proliferate and harm perceptions and confidence in our brands. Furthermore, there is the risk of potential adverse publicity related to our partners whether or not such publicity is related to their collaboration with us. Our ability to successfully position our brand could also be adversely affected by perceptions about the quality of our competitors’ products.
Our management team has broad discretion in making strategic decisions to execute our growth plans, and our management’s decisions have not always led to the desired result. Current and future decisions may not be successful in achieving our business objectives or may have unintended consequences that negatively impact our growth prospects.
Our management has broad discretion in making strategic decisions to execute our growth plans and may devote time and company resources to new or expanded product offerings, potential acquisitions or strategic alliances, prospective customers or other initiatives that do not necessarily improve our operating results or contribute to our growth. For example, in November 2023, we pivoted our business to focus on the development of our commercial AI/ML Software Platform and related products in lieu of hardware products. We concluded this strategy met our goal of pursuing significant near-term revenue tied to acute customer needs and would reduce our capital requirements and related risks in line with available resources. However, this strategy may not prove to be effective. Any failure by management to make strategic decisions that are ultimately accretive to our growth may result in unfavorable returns and uncertainty about our prospects, each of which could cause the price of our Common Stock to decline and have a material adverse effect on our business, prospects, financial condition and results and ability to continue operations.
If we fail to effectively manage our business, we may not be able to design, develop, market and commercialize our software products successfully.
Any failure to manage our business effectively could materially and adversely affect our prospects, financial condition and operating results. As we work to grow our business, we may need to manage the following activities, among others:
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We conducted two RIFs during 2023, the July 2023 RIF, affecting approximately 24% of our workforce at the time, and the November 2023 RIF, affecting approximately 70% of our workforce at the time, as we evaluated our business, organization, prospects and resources and ultimately decided to focus on our AI/ML Software Platform. However, these RIFs, in particular the November 2023 RIF, has placed and will continue to place additional strain on our existing resources, and we could experience systemic operating difficulties in managing our business and implementing controls and other business processes, resource constraints in our product development and commercialization efforts, or other limitations or difficulties that are difficult to predict at this time.
We may be unable to adequately control the costs associated with our operations in order to achieve profitability.
We will require significant capital to develop and grow our business, including successfully developing and commercializing our AI/ML Software Platform and related products, establishing or expanding our design, research and development, sales and maintenance and service capabilities and building our brands. We have incurred and expect to continue incurring significant expenses which will impact our profitability, including research and development expenses, sales and marketing expenses as we build our brand and market our software platform and products and general and administrative expenses. Although the RIFs and other cost-saving measures have significantly reduced expenses, it may be difficult to reduce expenses further or maintain current levels while pursuing our business objectives. Some of the factors that may lead to cost increases or difficulty further reducing cost are outside of our control, such as national or global geopolitical and economic conditions, including inflation and interest rates. In addition, we may incur significant costs upgrading or fixing Defects in our software platform and products. Our ability to continue our operations in the long term and potentially become profitable in the future will not only depend on our ability to commercialize our software platform and products to meet customer needs and identify and investigate new areas of demand, but also on our ability to license our products at prices needed to achieve sufficient revenues and margins to cover our cash outlay, including the risks and costs associated with any warranty obligations. If we are unable to efficiently design, develop, market, deploy, distribute and service our software products in a cost-effective manner, our operating results, financial condition and prospects would be materially and adversely affected and we may not achieve profitability.
We expect to incur substantial research and development costs and devote significant resources to developing and commercializing our AI/ML Software Platform and related products, and we may never reach profitability and/or achieve significant or any product revenues.
Our future growth depends on penetrating new markets, adapting our AI/ML Software Platform and products to new applications and customer requirements and introducing new features and functionality that achieve market acceptance. We expect to incur substantial, and potentially increasing, research, development, sales and marketing costs as part of our efforts to design, develop, enhance, and commercialize our AI/ML Software Platform and related products. Our research and development program may not produce successful results or, be sufficient to adapt to new or changing technologies (such as AI), and our products may not achieve market acceptance, create meaningful or any revenue or become profitable.
Our Palladyne IQ product requires certain limited hardware components, and we are dependent on our suppliers, some of which are currently single, sole or limited source suppliers. Any inability of these suppliers to deliver necessary components of our products at prices, volumes, performance, timing and specifications acceptable to us could have a material adverse effect on our business, prospects, financial condition and operating results.
We maintain a limited set of suppliers for the minimal hardware components that are required for use of our Palladyne IQ product. We expect most of our suppliers to be based in the United States. In some cases, we have sole source (where the component is only available from a single vendor, often as a result of customization for our use) or single source (where we purchase from a single vendor but there are alternative sources of the component) suppliers. We seek to minimize our dependence on sole or single source suppliers in order to reduce risk in our supply chain, including the risk of losing a sole or single source supplier due to bankruptcy, discontinuing production of the particular component or some other reason. However, some of the components used in our products may have to be purchased by us from a single source and some may only be available from a sole source. If our third-party suppliers are unable to supply key components and materials in the required volumes, at the needed times or at acceptable prices, our sales, revenue and profitability will likely be adversely affected and we may not be able to meet our obligations to customers. Our third-party suppliers may also not be able to meet the specifications and performance characteristics required by us, which would impact our ability to achieve our product specifications and performance characteristics as well. Additionally, our third-party suppliers may be unable to obtain required certifications or provide warranties for their products that are necessary for our products. If we are unable to obtain components and materials used in our products from our suppliers, our business would be adversely affected.
We have less negotiating leverage with suppliers than larger and more established companies and may not be able to obtain favorable pricing and other terms. For example, agreements with suppliers may include terms that are unfavorable to us, such as requirements that we order components and manufacture systems and solutions in excess of our demand due to minimum order quantity requirements or minimum price thresholds. While we believe that we may be able to establish alternate supply relationships and can obtain or engineer replacement components for our single source components, we may be unable to do so in time to support our production needs, or at
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all, or at prices or quality levels that are favorable to us. Further, we may not be able to develop satisfactory alternatives to sole-sourced components. Any inability to find satisfactory alternatives to our single- and sole-sourced component suppliers, whether due to bankruptcy of the supplier, a decision to discontinue manufacturing the component or for any other reason, could affect our costs and component availability and have a material adverse effect on our business, prospects, financial condition and operating results.
Furthermore, fluctuations or shortages in raw materials or components and other economic conditions may cause us to experience significant increases in freight charges and material costs. Substantial increases in the prices for our materials would increase our operating costs and could reduce our margins if the increased costs cannot be recouped through increased sales prices.
We face risks related to wars, natural disasters, health epidemics and other calamities, and supply chain disruption, any of which could significantly disrupt our operations.
Our facilities or operations, or any potential third-party suppliers, partners, or service providers could be adversely affected by events outside of our or their control, such as natural disasters, wars, health epidemics, and other calamities and force majeure events. Our backup system does not capture data on a real-time basis and we may be unable to recover certain data in the event of a server failure. Our backup system may not be adequate to protect us from the effects of fire, floods, typhoons, earthquakes, power loss, telecommunications failures, break-ins, war, riots, terrorist attacks, cybersecurity incidents or similar events. Any of the foregoing events may give rise to interruptions, breakdowns, system failures, technology platform failures or internet failures, which could cause the loss or corruption of data or the malfunction of software or hardware, which could significantly disrupt our operations. Additionally, depending upon any potential health pandemics, epidemics or outbreaks that may emerge, our potential customers and partners may suspend or delay their engagement with us or take other actions or experience their own negative impacts, any of which could result in a material adverse effect on our financial condition and ability to meet current timelines. The COVID-19 pandemic adversely affected our ability to recruit skilled employees to join our team, conduct research and development activities and engage with development customers, and it or other similar events could do so again and may impede our product development timelines.
Events impacting our supply chain could be caused by factors beyond the control of our suppliers or us, including labor actions, increased demand, problems in production or distribution and/or disruptions in third-party logistics, information technology or transportation systems. Some of our key suppliers are relatively small companies that could be especially susceptible to these risks. In addition, global events in recent years have resulted in widespread global supply chain disruptions to vendors including critical supply chain shortages, labor shortages, significant material cost inflation and extended lead times for items that are required for our operations. Any such interruptions to our supply chain could increase our costs and could limit the availability of products critical to our operations.
Risks Related to Our Finances
Our business plans require a significant amount of capital. Our future capital needs may require us to sell additional equity or debt securities that may dilute our stockholders or introduce covenants that may restrict our operations or our ability to pay dividends. If we require additional capital and are not able to secure new funding, we may not be able to continue our business operations.
Although we believe we have sufficient capital to fund our business for at least the next 12 months, we may seek additional financing
during that time to bolster our cash reserves and ensure our ability to continue to pursue our business objectives. Our current business plans may require us to secure additional financing prior to achieving positive operating cash flows, and we do not anticipate achieving positive operating cash flows in the near term. As a result, we intend to continue monitoring our liquidity, financial and business results and outlook and market conditions, and may be opportunistic and raise capital when we consider market conditions are good or a favorable opportunity exists to bolster our cash reserves, reduce our financial risk, help finance research and development costs and pursue business objectives. Any delays in the successful commercialization and sales of our software products will negatively impact our ability to generate revenue, our profitability and our overall operating performance and result in the need to raise additional capital sooner than expected.
Even if we generate positive operating cash flows, we may need to raise significant amounts of additional capital to fund our business thereafter, including to finance ongoing research and development costs, any significant unplanned or accelerated expenses and new strategic alliances or acquisitions. The fact that we have limited experience commercializing our software products, coupled with our belief that our AI/ML Software Platform represents a significant technology advancement, means we have limited to no historical data on the demand for our software platform and products. In addition, we expect our expenses to continue to be significant in the foreseeable future as we continue development activities and bring our products to market, and that our level of cash usage will be significantly affected by customer demand for our platform. As a result, our future capital requirements are uncertain and actual capital requirements may be different from those we currently anticipate. We may need to seek equity or debt financing to finance our expenses and capital expenditures, and such financing might not be available to us in a timely manner or on terms that are acceptable, or at all. Even if available, the sale of additional equity or equity-linked securities could dilute our stockholders, and the incurrence of indebtedness would result in debt service obligations and could result in operating and financing covenants that would restrict our operations.
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Additional financing may not be available to us when we need it or it may not be available on favorable terms. Our ability to obtain any necessary financing to carry out our business plan is subject to a number of factors, including general market conditions and investor acceptance of our business model. Current capital market conditions, including the impact of inflation, have increased borrowing rates and can be expected to significantly increase our cost of capital as compared to prior periods should we seek additional funding. Moreover, global capital markets have undergone periods of significant volatility and uncertainty in the past, and there can be no assurance that such financing alternatives will be available to us on favorable terms or at all, should we determine it necessary or advisable to seek additional capital. If we raise additional capital through public or private equity offerings, the ownership interest of our existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect our stockholders’ rights. If we raise additional capital through debt financing, we may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, buying or selling assets, making capital expenditures or declaring dividends.
These factors may make the timing, amount, terms and conditions of such financing unattractive or unavailable to us. If we are unable to raise sufficient funds if and when needed, we will have to significantly reduce our spending, delay or cancel our planned activities or substantially change our corporate structure or potentially cease operations and liquidate. We might not be able to obtain any funding, and might not have sufficient resources to conduct our business as projected or at all, either of which could mean that we would be forced to curtail or discontinue our operations.
If we cannot raise additional funds when we need or want them, our operations, prospects and financial condition would be materially and adversely affected.
Our recent initiatives to improve our cost structure, including significant workforce reductions, may not result in all anticipated savings, could result in total costs and expenses that are greater than expected and could disrupt our business.
We conducted two RIFs in 2023, one in July 2023, affecting approximately 24% of our workforce at the time, and another in November 2023, affecting approximately 70% of our workforce at the time. These and other efforts resulted in significant annualized cost savings. However, we may incur additional expenses not currently contemplated due to events associated with the RIFs or otherwise. The annualized cost savings are estimates and subject to a number of assumptions, and actual results may differ materially. We may not realize, in full or in part, the anticipated benefits and savings from the RIFs due to unforeseen difficulties, delays or unexpected costs, the cost savings we have achieved may not be sufficient and some cost savings may not be long-term, especially if our business grows. If we are unable to realize or sustain the expected operational efficiencies and cost savings from the RIFs and our other cost saving measures, our operating results and financial condition would be adversely affected. In addition, we may need to undertake additional workforce reductions, restructuring activities or other measures to reduce costs in the future. Furthermore, our initiatives to improve our cost structure, including the RIFs, may be disruptive to our operations. For example, our workforce reductions have resulted in and may continue to result in some attrition beyond planned staff reductions, and may lead to the loss of institutional knowledge and expertise, increased difficulties in our day-to-day operations, pressure on our controls and processes and reduced employee morale. We may need to seek contractor support due to unwanted attrition at unplanned additional expense or harm our productivity. In addition, we may be unsuccessful in distributing the duties and obligations of departed employees that are necessary to our operations among our remaining employees or to contractors, which could result in disruptions to our operations. Our workforce reductions could also harm our ability to attract and retain qualified personnel who are critical to our business, and make it difficult for us to pursue new opportunities and initiatives and require us to hire qualified replacement personnel. Any failure to attract or retain qualified personnel could prevent us from successfully developing or selling our software platform and products, which would adversely affect our business, financial condition, and results of operations.
Our financial results may vary significantly from period to period due to fluctuations in our operating costs, revenues (including from development contracts), product demand and other factors.
We expect our period-to-period financial results to vary based on our operating costs and product demand, which we anticipate will fluctuate as the pace at which we continue to design, develop and release software products. Additionally, as we commercialize our AI/ML Software Platform and related products and/or enter into or complete government or development contracts, we expect our revenue from period to period to fluctuate, including as we introduce new products, features or functionality or introduce our AI/ML Software Platform and related products to new markets for the first time. As a result of these factors, we believe that quarter-to-quarter comparisons of our operating results, especially in the near term, are not necessarily meaningful and that these comparisons cannot be relied upon as indicators of future performance. Moreover, our operating results may not meet expectations of equity research analysts, ratings agencies or investors, who may be particularly focused on quarterly financial results. If any of this occurs, the trading price of our securities could fall substantially, either suddenly or over time, and/or experience significant volatility.
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We are highly dependent on the services of our senior management and other key employees and, if we are unable to attract, integrate and retain a sufficient number of qualified employees, our ability to develop and commercialize our AI/ML Software Platform and related products, operate our business and compete could be harmed.
Our success depends, in part, on our ability to retain our key personnel. The unexpected loss of or failure to retain one or more of our senior managers or other key employees could delay product development and require outsourcing to third parties, each of which in turn could adversely affect our business. For example, we are highly dependent on the services of our AI/ML Software Platform leadership team, in particular our Chief Technology Officer, Dr. Denis Garagic. Dr. Garagic has a significant influence on our AI/ML Software Platform development efforts and our business plan. If he were to discontinue service due to death, disability or any other reason, we may be significantly disadvantaged and his departure or the departure of other key contributors to our software and technology development efforts could result in delays in product development, or potentially an inability to successfully complete development of our AI/ML Software Platform and related products at all, which would materially and adversely harm our business, results of operations and financial condition. Further, we may have difficulty finding, or be unable to find, qualified successors to any such persons should they depart the Company. If we are unable to successfully continue development and commercialization of our AI/ML Software Platform and related products in a timely manner, whether due to the departure of any such persons or otherwise, we may not have sufficient time or resources to pursue alternative plans or opportunities and may need to cease operations. We do not maintain key-person insurance for any of our senior management.
We have experienced and may continue to experience changes in our senior management team. For example, Benjamin G. Wolff rejoined the Company’s executive team as President and Chief Executive Officer in February 2024. In connection with this change in management, there have been changes to the Company’s operations and there may be additional changes in the future. If we do not successfully implement and adapt to these changes they may not lead to the desired improvement in our business and results of operation. This in turn, could have a material adverse effect on our business. Any inability to successfully manage these changes could be viewed negatively by our customers, employees, investors and other third-party partners, and could have an adverse impact on our business and results of operations.
Our success also depends, in part, on our ability to identify, hire, attract, train and develop other highly qualified personnel as needed, specifically AI/ML software engineers. Because of the innovative and advanced nature of our technology, individuals with the necessary experience have not been, and likely will continue not to be, readily available to hire, and as a result, we may need to expend significant time and expense to recruit and retain experienced employees and appropriately train any newly hired employees. Integrating new employees can also cause disruptions to processes, projects, culture, priorities and the Company as a whole. We face intense competition for experienced and highly skilled employees, specifically AI/ML software engineers, from numerous other companies, including other software and technology companies, many of whom have greater financial and other resources than we do, and our ability to hire, attract and retain them depends on our ability to provide competitive compensation. We may not be able to attract, assimilate, develop or retain qualified personnel in the future, and our failure to do so could adversely affect our business, including the execution of our strategy. Our recent RIFs and concerns about our financial condition may also cause us to experience increased difficulty attracting and retaining highly qualified personnel. We may incur significant costs to attract and retain qualified personnel, including significant expenditures related to salaries and benefits and compensation expenses related to equity awards, and we may lose new employees to competitors or other companies before we realize the benefit of our investment in recruiting and training them. Moreover, new employees may not be or become as productive as we expect, or may not fit culturally, and long-term employees may not embrace new leaders, priorities, methods, processes or other changes and may decide to leave or not perform as well as they did in the past, as we may face challenges in adequately or appropriately integrating them into our workforce and culture.
Our headquarters are in Salt Lake City, Utah, which has fewer highly skilled employees in the AI/ML software and robotics fields than some other major metropolitan areas. In addition, as part of the pivot in strategy announced in November 2023 to focus on our AI/ML Software Platform, we closed our facility in Pittsburgh, Pennsylvania and may no longer be able to attract highly skilled employees in that location. To attract and retain key personnel, we may need to open offices in other areas of the country, which could increase costs and reduce productivity. Any failure by our management team and our employees to perform as expected may have a material adverse effect on our ability to design and launch our software products or to operate our business and compete, as well as on our business, prospects, financial condition and operating results.
We incur significant expenses and administrative burdens as a publicly-traded company, which could have a material adverse effect on our business, prospects, financial condition and operating results.
As a publicly-traded company, we are incurring legal, accounting and other expenses that we previously did not have, and these expenses may increase as we continue to implement and strengthen controls, processes and systems and employ related personnel and after we are no longer an emerging growth company, as defined in Section 2(a) of the Securities Act. We are subject to reporting and other requirements of the Exchange Act, the Sarbanes-Oxley Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act, as well as rules adopted by the SEC and the Nasdaq Stock Market LLC ("Nasdaq"). Our management and other personnel devote a substantial amount of time to these compliance initiatives. We may need to hire additional employees to support our operations as a
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public company, which will increase our operating costs in future periods. Moreover, these rules and regulations have substantially increased our legal and financial compliance costs and make some activities more time-consuming and costly. These increased costs have increased our net loss. For example, it has been more expensive for us to obtain appropriate director and officer liability insurance coverage than we incurred as a private company. We cannot accurately predict or estimate the amount or timing of all the additional costs we may incur. Being a public company could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as executive officers. Such increased expenses and administrative burdens involved in operating as a public company consume significant financial resources and any increases could have a material adverse effect on our business, financial condition and operating results.
If we fail to maintain and strengthen effective systems of disclosure controls and procedures and internal control over financial reporting, our ability to produce timely and accurate financial statements or comply with applicable regulations could be adversely affected.
We expect that the requirements of the Exchange Act, the Sarbanes-Oxley Act and the rules and regulations of Nasdaq will continue to result in significant legal, accounting and financial compliance costs, make some activities more difficult, time-consuming and costly, and place significant strain on personnel, systems and resources.
The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. We are continuing to develop and refine our disclosure controls, internal control over financial reporting and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we will file with the SEC is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that information required to be disclosed in reports under the Exchange Act is accumulated and communicated to our principal executive and financial officers in a timely manner. The development and implementation of the processes and controls necessary for us to achieve the level of accounting standards required of a public company have increased and may continue to increase our legal and compliance costs, and such costs may be greater than expected.
We have previously identified material weaknesses in our internal control over financial reporting, and undertook remediation efforts to address the identified deficiencies and concluded that each material weakness was remediated as of December 31, 2021 and June 30, 2022, respectively. Our current controls and any new controls that we develop may be inadequate because of changes in conditions of our business or otherwise. Any failure to develop or maintain effective controls, or any difficulties encountered in their implementation or improvement, could adversely affect our operating results or cause us to fail to meet our reporting obligations and may result in a restatement of our financial statements for prior periods. Any failure to implement and maintain effective internal controls also could adversely affect the results of periodic management evaluations and annual independent registered public accounting firm attestation reports regarding the effectiveness of our internal control over financial reporting to the extent we are required to include such evaluations and reports in our periodic reports that we file with the SEC under Section 404 of the Sarbanes-Oxley Act. Ineffective disclosure controls and procedures and internal control over financial reporting could also cause investors to lose confidence in our reported financial and other information.
In order to maintain and improve the effectiveness of our disclosure controls and procedures and internal control over financial reporting, we expect to continue to expend significant resources, including accounting-related costs, and provide significant management oversight. Any failure to maintain the adequacy of our internal controls, or consequent inability to produce accurate financial statements on a timely basis, could increase operating costs and could materially and adversely affect our ability to operate our business. If our internal controls are or are perceived to be inadequate or if we are or are perceived to be unable to produce timely or accurate financial statements, investors may lose confidence in our operating results and the trading price of our securities could decline. In addition, if our financial statements are not filed on a timely basis, we could be subject to sanctions, enforcement actions or investigations by Nasdaq, the SEC or other regulatory authorities or to private litigation. As a result, any failure to maintain effective internal control over financial reporting could result in a material adverse effect on our business and the price of our Common Stock.
Our independent registered public accounting firm is not required to formally attest to the effectiveness of our internal control over financial reporting until after we are no longer an emerging growth company. At such time, our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our controls are documented, designed or operating. Any failure to maintain effective disclosure controls and procedures and internal control over financial reporting could have a material and adverse effect on our business, prospects, financial condition and operating results.
Our ability to use net operating loss carryforwards and other tax attributes may be limited in connection with ownership changes.
We have incurred losses during our history and do not expect to become profitable in the near future, and we may never achieve profitability. To the extent that we continue to generate tax losses, unused losses will carry forward to offset future taxable income, if any, until such unused losses expire.
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Under the Tax Cuts and Jobs Act of 2017 (the Tax Act), as modified by the Coronavirus Aid, Relief and Economic Security Act of 2020 (the CARES Act), U.S. federal net operating loss carryforwards generated in taxable periods beginning after December 31, 2017, may be carried forward indefinitely, but the deductibility of such net operating loss carryforwards in taxable years beginning after December 31, 2020, is limited to 80% of taxable income. States may not conform to the Tax Act or the CARES Act in their entirety, if at all. Suspensions or other restrictions on the use of net operating losses or tax credits, possibly with retroactive effect, may result in our existing net operating losses or tax credits expiring or otherwise being unavailable to offset future income tax liabilities.
In addition, our net operating loss carryforwards are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities. Under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended (the “Code”), these U.S. federal net operating loss carryforwards and other tax attributes may become subject to an annual limitation in the event of certain cumulative changes in the ownership of our company. An “ownership change” pursuant to Section 382 of the Code generally occurs if one or more stockholders or groups of stockholders who own at least 5% of a company’s stock increase their ownership by more than 50 percentage points over their lowest ownership percentage within a rolling three-year period. Our ability to utilize net operating loss carryforwards and other tax attributes to offset future taxable income or tax liabilities may be limited as a result of ownership changes. Similar rules may apply under state tax laws. If we earn taxable income, such limitations could result in increased future income tax liability to us and our future cash flows could be adversely affected. We have recorded a full valuation allowance related to our net operating loss carryforwards and other deferred tax assets due to the uncertainty of the ultimate realization of the future benefits of those assets.
We have been and may in the future be subject to risks associated with strategic relationships or transactions and may not identify or form desired strategic relationships in the future.
We may seek to enter into strategic alliances, joint ventures, minority equity investments, acquisitions, collaborations and in-license arrangements. There is no guarantee that any of these partnerships or acquisitions would lead to any binding agreements or lasting or successful business relationships with third parties or that any of the other anticipated benefits will be achieved. If any of these relationships are established, they may subject us to a number of risks, including risks associated with sharing proprietary information, non-performance by the third-party and increased expenses in establishing new relationships, any of which could materially and adversely affect our business. We may have limited ability to monitor or control the actions of these third parties and, to the extent any of these strategic partners suffers negative publicity or harm to their reputation from events relating to their business, we may also suffer negative publicity or harm to our reputation by virtue of our association with any such third-party.
We expect that strategic business relationships will be an important factor in the growth and success of our business. However, we may not be able to identify or secure suitable business relationship opportunities in the future or our competitors may capitalize on such opportunities before we do. Moreover, identifying such opportunities could require substantial management time and resources, and negotiating and financing relationships involves significant costs and uncertainties. If we are unable to successfully source and execute on strategic relationship opportunities in the future, our overall growth could be impaired, and our business, prospects, financial condition and operating results could be materially adversely affected.
When appropriate opportunities arise, we have in the past, and may in the future acquire additional assets, products, technologies or businesses that are complementary to our existing business. From time to time, the sellers of these assets, products and technologies or businesses may retain certain rights to the technology that they sell to us, which in some circumstances could allow the sellers to compete with us. In addition to possible stockholder approval, we may need approvals and licenses from relevant government authorities for acquisitions and to comply with any applicable laws and regulations, which could result in delays and costs, and may disrupt our business strategy if we fail to do so. Furthermore, acquisitions and the subsequent integration of new assets and businesses into our own require significant attention from our management and could result in a diversion of resources from our existing business, which in turn could have an adverse effect on our operations and financial results. Acquired assets or businesses may not generate the financial results we expect. Acquisitions could result in the use of substantial amounts of cash, potentially dilutive issuances of equity securities, the occurrence of significant goodwill impairment charges, amortization expenses for other intangible assets and exposure to potential unknown liabilities of the acquired business. For example, we have previously experienced an impairment of all of the goodwill associated with our acquisition of RE2. Moreover, the costs of identifying and consummating acquisitions may be significant.
Risks Related to Legal Claims and Regulatory Compliance
Issues in the development and use of AI/ML, combined with an uncertain regulatory environment, may result in reputational harm, liability or other adverse consequences to our business operations.
AI/ML technologies are complex and rapidly evolving, and we face significant competition from other companies as well as an evolving regulatory landscape. The introduction of AI/ML technologies into new or existing products may result in new or enhanced governmental or regulatory scrutiny, litigation, confidentiality or security risks, ethical concerns or other complications that could adversely affect our business, reputation or financial results or limit the functionality of our software platform or our ability to sell our software products. Governmental bodies have implemented laws and are considering further regulation of AI/ML technologies that could negatively impact
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our ability to use and develop platforms and products incorporating these technologies. For example, on October 30, 2023 the Biden administration issued an Executive Order to, among other things, establish extensive new standards for AI safety and security.
Additionally, on March 13, 2024, the European Parliament adopted the AI Act. The AI Act proposes a framework of prohibitions and disclosure, transparency and other regulatory obligations based on various levels of risk for businesses introducing AI systems in the EU. Once the AI Act becomes effective, certain provisions could require us to alter or restrict our use of AI, depending on respective levels of risk-categorization, types of systems, and manner of use, under the AI Act. The AI Act also may require us to comply with monitoring and reporting requirements. Noncompliance with the AI Act could result in fines of up to €35 million or 7% of annual global turnover for the previous year, whichever is higher. Other jurisdictions may adopt similar or more restrictive legislation that may render the use of such technologies challenging. Numerous other laws and bills proposed at the U.S. federal and state level, as well as internationally, aimed at regulating the deployment or provision of AI systems and services. This includes the Colorado AI Act, which was passed and will become effective February 1, 2026, and, like the AI Act, provides for a regulatory risk-based framework, and numerous laws enacted in California in September 2024.
Our efforts to comply with the AI Act and other legislation or regulations, whether now in effect or as may be proposed or enacted in the future, relating to AI/ML technologies may be difficult, onerous, and costly, and could adversely affect our business, reputation, financial condition, results of operations, and growth prospects. We may need to devote substantial time and resources to evaluate our obligations under the AI Act and other legislation and regulations and to develop and execute a plan designed to ensure compliance. Further, the intellectual property ownership and license rights, including copyright, surrounding AI/ML technologies have not been fully addressed by U.S. courts or other federal or state laws or regulations, and the use or adoption by our customers of third-party AI/ML technologies into robotic products and services may result in exposure to claims of copyright infringement or other intellectual property misappropriation or infringement.
Uncertainty around new and emerging AI/ML technologies, may require additional investment in the development and maintenance of proprietary datasets and ML models, development of new approaches and processes to provide attribution or remuneration to creators of training data, and development of appropriate protections and safeguards for handling the use of data with AI technologies, which may be costly and could impact our expenses as we utilize AI/ML technologies within our products. The use of AI/ML technologies presents emerging ethical and social issues, and if we enable or offer solutions that draw scrutiny or controversy due to their perceived or actual impact on customers or on society as a whole, we may experience brand or reputational harm, competitive harm and/or legal liability. These challenges may make it harder for us to conduct our business using AI, and may lead to regulatory fines or penalties, require us to change our product offerings or business practices, or prevent or limit our use of AI. If we cannot use AI, or that use is restricted, our business may be less efficient, or we may be at a competitive disadvantage. Any of these factors could adversely affect our business, financial condition, and results of operations.
Changes in tax laws could have a material adverse effect on our business, cash flows, results of operations or financial condition.
We are subject to the tax laws, regulations, and policies of several taxing jurisdictions. Changes in tax laws, as well as other factors, could cause us to experience fluctuations in our tax obligations and effective tax rates or otherwise adversely affect our tax positions and/or our tax liabilities. For example, many countries and local jurisdictions and organizations such as the Organization for Economic Cooperation and Development have proposed or implemented new tax laws or changes to existing tax laws. The Tax Act has eliminated the option to deduct research and development expenditures currently and instead requires taxpayers to capitalize and amortize them over five or fifteen years. The Inflation Reduction Act of 2022 imposed a 1% excise tax on certain repurchases of stock. Any new tax laws or changes to existing tax laws could adversely affect our effective tax rate, operating results, tax credits or incentives or tax payments, or require our potential customers to pay additional taxes, which could have a material adverse effect on our business, cash flows, results of operations or financial condition.
We may become subject to new or changing governmental regulations relating to the development, marketing, licensing, distribution or use of our AI/ML Software Platform and related products or to the providing of customer service, and a failure to comply with such regulations could lead to delays in launching our platform and/or withdrawal of our platform from the market, delay our projected revenues, increase costs and/or make our business unviable if we are unable to modify our software platform to comply.
We may become subject to new or changing international, national, state and local regulations, including laws relating to the development, marketing, licensing, distribution or use of AI/ML software products such as ours, or to the providing of customer service. Such laws and regulations may also cover employment, taxation, privacy, data security, data protection, pricing, content, copyrights and other intellectual property, mobile communications, electronic contracts and other communications, consumer protection, unencumbered internet access to our services, the design and operation of websites, and the characteristics and quality of software and services, and may require us to pause sales and modify our software products, which would likely result in a material adverse effect on our revenue and financial condition, especially if implemented on a large scale or in a key market. Such laws and regulations can also give rise to liability, such as fines and penalties or for property damage, bodily injury and cleanup costs. Capital and operating expenses needed to comply with laws and regulations can be significant, and violations may result in substantial fines and penalties, third-party
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damages, suspension of production or a cessation of our operations. Any failure to comply with such laws or regulations could lead to withdrawal of our software products from the market.
We may be subject to claims, lawsuits, arbitration proceedings, government investigations and other legal, regulatory and administrative proceedings and face potential liability and expenses related thereto, which could have a material adverse effect on our business, operating results and financial condition.
We may be subject to claims, lawsuits, arbitration proceedings, government investigations and other legal, regulatory and administrative proceedings. In addition, we may be subject to the heightened scrutiny that is sometimes directed toward companies taken public via a business combination with a special purpose acquisition company. The outcome of any such claims, investigations or proceedings cannot be predicted with any degree of certainty. In the ordinary course of business we have been and may in the future be the subject of various legal claims. Any such claims, investigations or proceedings against us, whether meritorious or not, could be time-consuming, result in costly litigation, be harmful to our reputation, require significant management attention and divert significant resources, and the resolution of any such claims, investigations or proceedings could result in substantial damages, settlement costs, fines or penalties that could adversely affect our business, financial condition or operating results or result in harm to our reputation and brand, sanctions, consent decrees, injunctions or other remedies requiring a change in our business practices.
Further, under certain circumstances we have or may take on contractual or other legal obligations to indemnify and to incur legal expenses on behalf of investors, directors, officers, employees, customers, vendors or other third-parties. For example, our Amended and Restated Bylaws (the "Bylaws") provide that we will indemnify our directors and officers, and may indemnify our employees, agents and other persons, to the fullest extent permitted by the Delaware General Corporation Law. We have also entered into indemnification agreements with directors and officers that require us, among other things, to indemnify them against claims that may arise due to their service in those capacities. These indemnification agreements also require us to advance expenses reasonably and actually incurred by them in investigating or defending any such claims, and it may be difficult or impossible to recover any advanced expenses if it turns out the person was not entitled to indemnification. If we are required or agree to defend or indemnify, or advance expenses to, any of our investors, directors, officers, employees, customers, vendors or other third-parties, we could incur material costs and expenses that could adversely affect our business, results of operations or financial condition.
We are subject to evolving laws, regulations, standards, policies and contractual obligations related to data privacy and security, and our actual or perceived failure to comply with such obligations could harm our reputation, subject us to significant fines and liability or otherwise adversely affect our business, prospects, financial condition and operating results.
We are subject to or affected by a number of national, state and local laws and regulations, as well as contractual obligations and industry standards, that impose certain obligations and restrictions with respect to data privacy and security, and govern our collection, storage, retention, protection, use, processing, transmission, sharing and disclosure of personal information, including that of our employees, customers and others. Many jurisdictions have enacted laws requiring companies to notify individuals, regulatory authorities and others of security breaches involving certain types of data. Such laws may be inconsistent or may change or additional laws may be adopted. In addition, our agreements with certain customers may require us to notify them in the event of a security breach or incident. Such mandatory disclosures are costly and could lead to negative publicity, penalties, fines, litigation and other proceedings or cause our customers to lose confidence in the effectiveness of our security measures and require us to expend significant capital and other resources to respond to and/or alleviate problems caused by the actual or perceived security breach or incident.
As a government contractor or subcontractor, we are subject to the Department of Defense's ("DoD") cybersecurity requirements, including compliance with the newly formalized Cybersecurity Maturity Model Certification ("CMMC") Program's requirements. Depending on certain factors, including the awarding DoD agency and type of contract, we may be required to obtain and affirm specific third-party cybersecurity certifications to be deemed eligible for award. Failure to comply with these requirements could restrict our ability to compete for, be awarded and/or perform on DoD contracts. The DoD expects that all new contracts will be required to comply with the CMMC program by 2026, and initial requests for information and for proposal have already begun. To the extent we, or our subcontractors or other third parties on whom we rely, are unable to achieve certification in advance of contract awards that specify the requirement, we may be deemed ineligible for awards or follow-on awards for existing work with the DoD, which could materially and adversely affect our results of operations, financial condition, business and prospects. We will also be required to go through a recertification process periodically, which may increase our costs of compliance relating to such certification, may increase risk exposure based on frequency of recertification affirmations and may cause operational delays. In addition, obligations that may be imposed on us under the CMMC program may be different from or in addition to those otherwise required by applicable laws and regulations, which may cause additional expense for compliance.
The global data protection landscape is rapidly evolving, and implementation standards and enforcement practices are likely to remain uncertain for the foreseeable future. We may not be able to monitor and react to all developments in a timely manner. For example, California adopted the California Consumer Privacy Act ("CCPA"), which became effective in January 2020. The CCPA establishes a privacy framework for covered businesses, including an expansive definition of personal information and data privacy rights for
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California residents. The CCPA includes a framework with potentially severe statutory damages and private rights of action. The CCPA was modified and supplement by, the California Privacy Rights Act ("CPRA"), which went into effect on January 1, 2023. Numerous other states have proposed, and in many cases have enacted, laws addressing data privacy and security, which in many cases are similar to the CCPA and CPRA. The U.S. federal government also is contemplating federal privacy legislation. As we expand our operations, the CCPA, CPRA, and other laws and regulations relating to privacy and data security may increase our compliance costs and potential liability. Compliance with any applicable privacy and data security laws and regulations is a rigorous and time-intensive process, and we may be required to put in place additional mechanisms to comply with such laws and regulations.
Additionally, as our international presence expands, we may become subject to or face increasing obligations under laws and regulations in countries outside the United States, many of which, such as the European Union’s General Data Protection Regulation ("GDPR") and national laws supplementing the GDPR, as well as legislation substantially implementing the GDPR in the United Kingdom, which generally are more stringent than those currently enforced in the United States. The GDPR requires companies to meet stringent requirements regarding the handling of personal data of individuals located in the European Economic Area. The GDPR also includes significant penalties for noncompliance, which may result in monetary penalties of up to the higher of €20 million or 4% of a group’s worldwide turnover for the preceding financial year for the most serious violations. The United Kingdom’s version of the GDPR, which it maintains along with its Data Protection Act, also provides for substantial penalties that, for the most serious violations, can go up to the greater of £17.5 million or 4% of a group’s worldwide turnover for the preceding financial year. Many other jurisdictions globally are considering or have enacted legislation providing for local storage of data or otherwise imposing privacy, data protection and data security obligations in connection with the collection, use and other processing of personal data. As a general matter, compliance with laws, regulations, contractual obligations, industry standards, and any rules or guidance from self-regulatory organizations relating to privacy, data protection, and data security that apply, or are asserted to apply, to our operations may result in substantial costs and may necessitate changes to our business practices, which may compromise our growth strategy, adversely affect our ability to acquire customers, and otherwise adversely affect our business, prospects, results of operations, and financial condition.
We publish privacy policies and other documentation regarding our collection, processing, use and disclosure of personal information and/or other confidential information. Although we endeavor to comply with our published policies and other documentation, we may at times fail to do so or may be perceived to have failed to comply with such policies and other actual or asserted legal or contractual obligations relating to privacy, data protection or data security. Moreover, despite our efforts, we may not be successful in achieving compliance, including if our employees, contractors, service providers or vendors fail to comply with our published policies and documentation. Such failures can subject us to potential action by governmental or regulatory authorities if they are found to be deceptive, unfair, or misrepresentative of our actual practices. Any actual or perceived inability to adequately address privacy and security concerns or comply with applicable laws, rules and regulations relating to privacy, data protection or data security, or applicable privacy notices, could lead to investigations, claims and proceedings by governmental entities and private parties, damages for contract breach and other significant costs, penalties or liabilities. Any such claims or other proceedings could be expensive and time-consuming to defend and could result in adverse publicity. Any of the foregoing may have an adverse effect on our business, prospects, results of operations, and financial condition.
We are subject to cybersecurity risks to our operational systems, security systems, infrastructure and data processed by us or third-party vendors.
Our business and operations may involve the collection, storage, processing and transmission of personal data and certain other sensitive and proprietary data of collaborators, customers and others. Additionally, we maintain sensitive and proprietary information relating to our business, such as our own proprietary information and personal data relating to our employees. An increasing number of organizations have disclosed breaches of their information security systems and other information security incidents, some of which have involved sophisticated and highly targeted attacks. We have been and may in the future be a target for cybersecurity attacks designed to disrupt our operations or to attempt to gain access to our systems, data processed or maintained in our business, trade secrets or other proprietary information or financial resources. Some of our employees work remotely which has increased security risks. In addition, the risk of state-supported and geopolitical-related cybersecurity attacks is believed to be heightened in connection with international conflicts and any related political or economic responses and counter-responses.
We are at risk for interruptions, outages and breaches of (a) operational systems, including business, financial, accounting, product development, data processing or production processes, owned by us or our third-party vendors or suppliers; (b) facility security systems, owned by us or our third-party vendors or suppliers; (c) in-product technology, owned by us or our third-party vendors; (d) our software, including third-party software we license; and (e) customer data that we process or our third-party vendors process on our behalf. Because techniques used to obtain unauthorized access to or to sabotage information systems change frequently and may not be known until launched against a target, we may be unable to anticipate or prevent these attacks, react in a timely manner or implement adequate preventive measures, and we may face delays in our detection or remediation of, or other responses to, security breaches and other privacy-and security-related incidents. Such incidents could: materially disrupt our operational systems; result in loss of intellectual property, trade secrets or other proprietary or competitively sensitive information; compromise certain information of customers, employees, or others; jeopardize the security of our facilities; or affect the performance of in-product technology and the integrated
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software in our systems. Certain efforts may be state-sponsored or supported by significant financial and technological resources, making them even more difficult to detect, remediate and otherwise respond to.
We plan to include product services and functionality that utilize data connectivity to monitor performance and timely capture opportunities to enhance performance and for safety and cost-saving preventative maintenance. The availability and effectiveness of our services depend on the continued operation of information technology and communications systems. Our systems will be vulnerable to damage or interruption from, among others, physical theft, fire, terrorist attacks, natural disasters, power loss, war, telecommunications failures, viruses, denial or degradation of service attacks, ransomware and other malicious code, social engineering schemes, insider theft or misuse or other attempts to harm our systems. We may face objections to our intended collection or use of data, which may require us to implement new or modified data handling policies and mechanisms, increase our maintenance costs and costs associated with data processing and handling, and harm our business prospects. The use of AI/ML technologies may result in security incidents and our use of AI/ML technologies may create additional cybersecurity risks or increase cybersecurity risks, including risks of security breaches and incidents. Further, AI/ML technologies may be used in connection with certain cybersecurity attacks, including to launch more automated, targeted and coordinated attacks, resulting in heightened risks of security breaches and incidents.
Although we have implemented and are in the process of implementing additional systems and processes that are designed to protect our data and systems within our control, prevent data loss and prevent other security breaches and security incidents, these security measures cannot guarantee security. The IT infrastructure used in our business may be vulnerable to cyber attacks or security breaches or incidents, and third parties may be able to access data, including personal data and other sensitive and proprietary data of ours and our customers, collaborators and partners, our employees’ personal data or other sensitive and proprietary data accessible through those systems, or such data otherwise may be subject to unauthorized use, disclosure, unavailability, modification or other processing. Employee error, malfeasance or other errors in the storage, use or transmission of any of these types of data could result in an actual or perceived privacy or security breach or other security incident.
Moreover, there are inherent risks associated with developing, improving, expanding and updating our current systems, such as the disruption of our data management, procurement, product development, finance and sales and service processes. These risks may affect our ability to manage our data or deploy and service our products and solutions, adequately protect our intellectual property or achieve and maintain compliance with, or realize available benefits under, applicable laws, regulations and contracts. We cannot be sure that these systems upon which we rely, including those of our third-party vendors or suppliers, will be effectively implemented, maintained or expanded as planned. If we do not successfully implement, maintain or expand these systems as planned, our operations may be disrupted, our ability to accurately and timely report our financial results could be impaired and deficiencies may arise in our internal control over financial reporting, which may impact our ability to certify our financial results. Moreover, our proprietary information or intellectual property could be compromised or misappropriated and our reputation may be adversely affected. If these systems do not operate as we expect them to, we may be required to expend significant resources to make corrections or find alternative sources for performing these functions.
Any actual or perceived security breach or security incident, or any systems outages or other disruption to systems used in our business, could interrupt our operations, result in loss or improper access to, or acquisition, unavailability, modification, disclosure or other processing of, data or a loss of intellectual property protection, harm our reputation and competitive position, reduce demand for our software products, damage our relationships with customers, partners, collaborators or others or result in claims, regulatory investigations and proceedings and significant legal, regulatory and financial exposure, and any such incidents or any perception that our security measures are inadequate could lead to loss of confidence in us and harm to our reputation, any of which could adversely affect our business, financial condition and results of operations. Any actual or perceived breach of privacy or security, or other security incident, impacting any entities with which we share or disclose data (including, for example, our third-party technology providers) could have similar effects. We expect to incur significant costs in an effort to detect and prevent privacy and security breaches and other privacy- and security-related incidents, and may face increased costs and requirements to expend substantial resources in the event of an actual or perceived privacy or security breach or other incident.
We are subject to laws, regulations and contractual provisions as a government contractor or subcontractor, which may pose increased risk of potential liability and expenses related thereto, which could have a material adverse effect on our business, operating results and financial condition.
As a government contractor or subcontractor, we must comply with laws, regulations and contractual provisions relating to the formation, administration and performance of government contracts and inclusion on government contract vehicles, which affect how we and our partners do business with government agencies. U.S. governmental agencies, such as the Defense Contract Audit Agency and the Defense Contract Management Agency, routinely audit and investigate government contractors. In addition, as a result of actual or perceived noncompliance with government contracting laws, regulations or contractual provisions, we may be subject to non-ordinary course audits and internal investigations which may prove costly to our business financially, divert management time or limit our ability to continue selling our software products to our government customers. These laws and regulations may impose other added costs on our business, and failure to comply with these or other applicable regulations and requirements, including non-compliance in the past,
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could lead to claims for damages, downward contract price adjustments or refund obligations, civil or criminal penalties, termination of contracts and suspension or debarment from government contracting for a period of time with government agencies. Any such damages, penalties, disruption or limitation in our ability to do business with a government would adversely impact, and could have a material adverse effect on, our business, prospects, financial condition and operating results.
We are subject to U.S. and foreign anti-corruption and anti-money laundering laws and regulations. We can face criminal liability and other serious consequences for violations of these laws, which can harm our business, prospects, financial condition and operating results.
We are subject to the U.S. Foreign Corrupt Practices Act of 1977, as amended (FCPA), the U.S. domestic bribery statute contained in 18 U.S.C. § 201, the U.S. Travel Act, and other anti-corruption, anti-bribery and anti-money laundering laws, including those of other countries in which we conduct activities. Anti-corruption laws are interpreted broadly and prohibit companies and their employees, business partners, third-party intermediaries, representatives and agents from authorizing, promising, offering or providing, directly or indirectly, improper payments or anything else of value to government officials, political candidates, political parties or commercial partners for the purpose of obtaining or retaining business or securing an improper business advantage.
We have direct and indirect interactions with foreign officials, including in furtherance of sales to governmental entities in non-U.S. countries. We sometimes leverage third parties to conduct our business abroad, and our third-party business partners, intermediaries, representatives and agents may have direct or indirect interactions with officials and employees of government agencies or state-owned or affiliated entities. We can be held liable for the corrupt or other illegal activities of our employees or these third-parties, even if we do not explicitly authorize or have actual knowledge of such activities. The FCPA and other applicable laws and regulations also require that we keep accurate books and records and maintain internal controls and compliance procedures designed to prevent any such actions. While we have policies and procedures to address compliance with such laws, our employees, business partners, third-party intermediaries, representatives and agents may take actions in violation of our policies and applicable law, for which we may be ultimately held responsible. Our exposure for violating these laws increases as our international presence expands and as we increase sales and operations in foreign jurisdictions.
Any allegations or violations of the laws and regulations described above may result in whistleblower complaints, adverse media coverage, investigations, substantial civil and criminal fines and penalties, damages, settlements, prosecution, enforcement actions, imprisonment, the loss of export or import privileges, suspension or debarment from government contracts, tax reassessments, breach of contract and fraud litigation, reputational harm and other consequences, any of which could adversely affect our business, prospects, financial condition and operating results. In addition, responding to any investigation or action will likely result in a significant diversion of management’s attention and resources and significant defense costs and other professional fees.
We are subject to governmental export and import controls and laws that could subject us to liability if we are not in compliance with such laws.
Our AI/ML Software Platform and related products and technology are subject to compliance with applicable export control, import and economic sanctions laws and regulations, including the U.S. Export Administration Regulations, U.S. International Traffic in Arms Regulations, U.S. Customs regulations and various economic and trade sanctions regulations administered by the U.S. Treasury Department’s Office of Foreign Assets Control. Exports of our software products and technology must be made in compliance with these laws and regulations. If we fail to comply with these laws and regulations, we and certain of our employees could be subject to substantial civil or criminal penalties, including the possible loss of export or import privileges; debarment from U.S. government contracting; fines, which may be imposed on us and responsible employees or managers; and, in extreme cases, the incarceration of responsible employees or managers.
Moreover, international sales of our software may be subject to first obtaining licenses, clearances or authorizations from various regulatory entities. If we are not allowed to export our software or the clearance process is burdensome and costly, our ability to generate revenue would be adversely affected.
In addition, changes to our software, or changes in applicable export control, import or economic sanctions laws and regulations may create delays in the introduction and sale of our software products, constrain collaboration with suppliers or other business partners or, in some cases, prevent the export or import of our software to certain countries, governments or persons altogether. Compliance with such laws and regulations may also be costly and require time and attention from our management. Any change in export, import or economic sanctions laws and regulations, shift in the enforcement or scope of existing laws and regulations or change in the countries, governments, persons or technologies targeted by such laws and regulations could also result in decreased use of our software platform systems, as well as our decreased ability to export or market our software to potential customers. Any decreased use of our software products or limitation on our ability to export or market our software would likely adversely affect our business, prospects, financial condition and operating results.
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Increased scrutiny and changing expectations from regulators, investors, customers, employees, and others regarding our environmental, social and governance practices and reporting could cause us to incur additional costs, devote additional resources and expose us to additional risks, which could adversely impact our reputation, customer acquisition and retention, access to capital and employee retention.
Companies across all industries are facing increasing scrutiny related to their environmental, social and governance, or ESG, practices and reporting. Regulators, investors, customers, employees and other stakeholders have focused increasingly on ESG practices and placed increasing importance on the implications and social cost of their investments, purchases and other interactions with companies. If our ESG practices and reporting do not meet investor, customer, or employee expectations, which continue to evolve, our brand, reputation and customer retention may be negatively impacted. We could also incur additional costs and need to devote additional resources to monitor, report and implement various ESG practices, including as a result of regulatory developments.
Risks Related to Our Intellectual Property
Our success depends in part on our ability to obtain and maintain protection for the intellectual property relating to our software and other technologies.
Our success depends in part on our ability to obtain and maintain protection for the intellectual property relating to our software and other technologies. We seek to protect our intellectual property through a combination of patents, trademarks and other intellectual property rights, as well as confidentiality and/or intellectual property assignment agreements with our employees and certain of our contractors, consultants, scientific advisors and other vendors and third-parties. In addition, we rely on copyright and trade secret law to protect our proprietary software and product candidates/products in development.
Patent positions covering robotics software and solutions can be highly uncertain and involve many new and evolving complex legal, factual and technical issues. Patent laws and interpretations of those laws are subject to change and any such changes may diminish the value of our patents or narrow the scope of our right to exclude others. In addition, we may fail to apply for or be unable to obtain patents necessary to protect our technology or software platform or related products from competition or fail to enforce our patents due to lack of information about the exact use of technology or processes by third parties or for a variety of other reasons. Also, we cannot be sure that any patents will be granted in a timely manner or at all with respect to any of our pending patent applications or that any patents that are granted will be adequate to exclude others for any significant period of time or at all. Given the foregoing, and in order to continue reducing operational expenses, we are investing fewer resources in filing and prosecuting new patents and on maintaining and enforcing various patents, especially in regions where we currently do not focus our market growth strategy or with respect to patents with less relevance to our current business.
Litigation to establish or challenge the validity of patents, or to defend against or assert against others’ infringement, unauthorized use, enforceability or invalidity, can be lengthy and expensive and may result in our patents being invalidated or interpreted narrowly and may restrict our ability to be granted new patents related to our pending patent applications. Even if we prevail, litigation may be time consuming, force us to incur significant costs and divert management’s attention from managing our business while any damages or other remedies awarded to us may not be valuable or adequate. In addition, U.S. patents and patent applications may be subject to interference or derivation proceedings, and U.S. patents may be subject to re-examination and inter partes or post grant review proceedings in the U.S. Patent and Trademark Office. Furthermore, our issued patents may be subject to claims of invalidity based on earlier filed patents or published applications not discovered in any patent searches or by the patent offices that carried out examination of the issued patents. Foreign patents may also be subject to opposition or comparable proceedings in corresponding foreign patent offices. Any of these proceedings may be expensive and could result in the loss of a patent or denial of a patent application, or the loss or reduction in the scope of one or more of the claims of a patent or patent application.
In addition, we seek to protect our trade secrets, know-how, and confidential information that is not patentable or for which we decide not to seek a patent by entering into confidentiality and intellectual property assignment agreements with our employees and certain of our contractors and confidentiality agreements with certain of our consultants, scientific advisors and other vendors and contractors. However, we may fail to enter into the necessary agreements, and even if entered into, these agreements may be breached or otherwise fail to prevent disclosure, third-party infringement or misappropriation of our proprietary information, may be limited as to their term and may not provide an adequate remedy in the event of unauthorized disclosure or use of proprietary information. Enforcing a claim that a third party illegally obtained or is using our trade secrets without authorization may be expensive and time consuming, and the outcome is unpredictable. Some of our employees or consultants or service providers may own certain technology which they license to us for a set term. If these technologies are material to our business after the term of the license and we are unable to use them, it could adversely affect our business and profitability.
We have taken and continue to take precautions to initiate safeguards to protect our information technology systems. However, these measures may not be adequate to safeguard our proprietary information, which could lead to the loss or impairment thereof or to expensive litigation to defend our rights against competitors who may be better funded and have superior resources. In addition,
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unauthorized parties may attempt to copy or reverse engineer certain aspects of our software or other technologies that we consider proprietary or our proprietary information may otherwise become known or may be independently developed by our competitors or other third parties. If other parties are able to use our proprietary technology or information, our ability to compete could be harmed. Further, unauthorized use of our intellectual property may have occurred, or may occur in the future, without our knowledge.
We also have made efforts to register and enforce our trademark rights. However, trademark law and the associated infringement analysis is complex, and, notwithstanding our efforts to develop and enforce our trademark portfolio, both outgoing and incoming claims of trademark infringement could lead to limitations, loss or impairment of those trademark rights or to expensive litigation to prosecute or defend our trademark rights against third-party infringers who may be better funded and have superior resources.
If we are unable to obtain or maintain adequate protection for our intellectual property, or if any protection is reduced or eliminated, competitors may be able to use our technologies, resulting in harm to our competitive position and our business.
We may not be able to effectively protect our intellectual property rights in our target markets or at all.
Filing, prosecuting, maintaining and defending patents and trademarks and seeking to enforce copyrights on our intellectual property in all target markets would be prohibitively expensive and time consuming, and thus our intellectual property rights outside the United States are limited. In addition, the laws of some of our target markets, especially developing countries, such as China, do not protect intellectual property rights to the same extent as federal and state laws in the United States. Also, it may not be possible to effectively enforce intellectual property rights in some countries at all or to the same extent as in the United States and other countries. Consequently, we are unable to prevent third parties from using our inventions in all of our target markets, or from selling or importing products made using our inventions, technologies or software in the jurisdictions in which we do not have (or are unable to effectively enforce) patent or other intellectual property protection. Competitors may use our technologies in jurisdictions where they have not obtained patent protection to develop, market or otherwise commercialize their own products, and we may be unable to prevent those competitors from importing those infringing products into territories where we have patent protection, but enforcement may not be as strong as in the United States. These products may compete with our software products and our patents and other intellectual property rights may not be effective or sufficient to prevent them from competing in those jurisdictions. Moreover, strategic partners, competitors or others may raise legal challenges against our intellectual property rights or may infringe upon our intellectual property rights, including through means that may be difficult to detect or prevent.
Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. Proceedings to enforce our patent rights in the United States or foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and could provoke third parties to assert patent infringement or other claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property rights in the United States and around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license from third parties.
We may be subject to intellectual property infringement claims or misappropriation claims, which may be time consuming and expensive and, if adversely determined, could limit our ability to commercialize our software products.
Companies operating in the robotics software industry may face difficulty enforcing their patent and other intellectual property rights and may become subject to a substantial amount of litigation over these rights. In particular, our competitors in both the United States and abroad, many of which have substantially greater resources than we have and have made substantial investments in competing technologies, have been issued patents and filed patent applications with respect to their products and processes and may apply for other patents in the future. The large number of patents, the rapid rate of new patent issuances and the complexities of the technology involved increase the risk of patent litigation.
Determining whether a product infringes a patent involves complex legal and factual issues and the outcome of patent litigation is often uncertain. No assurance can be given that patents containing claims covering our software products, technology or methods do not exist, have not been filed or could not be filed or issued. In addition, because patent applications can take years to issue and because publication schedules for pending applications vary by jurisdiction, there may be applications now pending of which we are unaware and which may result in issued patents that our current or future products infringe. Also, because the claims of published patent applications can change between publication and patent grant, published applications that initially do not appear to be problematic may issue with claims that potentially cover our software, technology or methods. Moreover, there may be pending, published or allowed applications that may disclose, but not claim, subject matter covering our software, technology or methods, where such pending or published applications may be amended, or one or more continuation or divisional applications may be filed, in an attempt to capture, to the extent possible, such software, technology or methods that are in the public domain, and which may result in issued patents that our current or future products infringe.
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Infringement actions and other intellectual property claims brought against us, whether with or without merit, may cause us to incur substantial costs and could place a significant strain on our financial resources, divert the attention of management, and harm our reputation. We cannot be certain that we will successfully defend against any allegations of infringement. If we are found to infringe another party’s patents, we could be required to pay damages. We could also be prevented from selling our infringing software products, unless we can obtain a license to use the technology covered by such patents or can redesign our software products so that they do not infringe. A license may not be available on commercially reasonable terms or at all, and we may not be able to redesign our software products to avoid infringement. In these circumstances, we may not be able to sell our software products at competitive prices or at all, and our business, prospects, financial condition and operating results would be harmed.
Intellectual property discovered through government funded programs may be subject to federal regulations such as “march-in” rights, certain reporting requirements and a preference for U.S.-based companies. Compliance with such regulations may limit our exclusive rights and limit our ability to contract with non-U.S. manufacturers.
We may develop, acquire, or license intellectual property rights that have been generated through the use of U.S. government funding or grants. Pursuant to the Bayh-Dole Act of 1980, the U.S. government has certain rights in inventions developed with government funding. These U.S. government rights may include a non-exclusive, non-transferable, irrevocable worldwide license to use inventions for any governmental purpose. In addition, the U.S. government may have the right, under certain limited circumstances, to require us to grant exclusive, partially exclusive, or non-exclusive licenses to any of these inventions to a third party if the U.S. government determines that: (1) adequate steps have not been taken to commercialize the invention; (2) government action is necessary to meet public health or safety needs; or (3) government action is necessary to meet requirements for public use under federal regulations (also referred to as “march-in rights”). Such “march-in” rights would apply to new subject matter arising from the use of such government funding or grants and would not extend to pre-existing subject matter or subject matter arising from funds unrelated to the government funding or grants. If the U.S. government exercised its march-in rights in our intellectual property rights generated through the use of U.S. government funding or grants, we could be forced to license or sublicense intellectual property we developed or that we license on terms unfavorable to us, and there can be no assurance that we would receive compensation from the U.S. government for the exercise of such rights. The U.S. government may also have the right to take title to these inventions if the grant recipient fails to disclose the invention to the government or fails to file an application to register the intellectual property within specified time limits. Intellectual property generated under a government funded program is also subject to certain reporting requirements, compliance with which may require us to expend substantial resources. In addition, the U.S. government requires that any products embodying any of these inventions or produced through the use of any of these inventions be manufactured substantially in the United States. This preference for U.S. industry may be waived by the federal agency that provided the funding if the owner or assignee of the intellectual property can show that reasonable but unsuccessful efforts have been made to grant licenses on similar terms to potential licensees that would be likely to manufacture substantially in the United States or that under the circumstances domestic manufacture is not commercially feasible. This preference for U.S. industry may limit our ability to contract with non-U.S. product manufacturers for products covered by such intellectual property.
We may be subject to damages resulting from claims that we or our employees have wrongfully used or disclosed alleged trade secrets of our employees’ former employers.
We may be subject to claims that we or our employees have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of an employee’s former employers. Litigation may be necessary to defend against these claims. If we fail to defend against such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel or be forced to seek a license, which may not be available on commercially acceptable terms or at all. A loss of key personnel or their work product could hamper or prevent our ability to commercialize our software products, which could severely harm our business. Even if we are successful in defending against these claims, litigation could result in substantial costs and demand on management resources.
Risks Related to Ownership of our Securities
The price of our Common Stock could decline due to the large number of shares of our Common Stock being subject to employee equity awards.
We have granted and expect to continue to grant equity awards to our directors and employees as additional compensation in an effort to align their interests with those of our stockholders. Because these awards may be scheduled to vest during specified points in time, such as expected open trading windows under our insider trading policy, there is a potential that sales of large amounts of our Common Stock may take place during concentrated periods, leading to a decline in the price of our Common Stock.
“Sell-to-cover” transactions can be used in connection with the vesting and settlement of equity awards that are granted to our employees so that shares of our Common Stock are sold on behalf of our employees in an amount sufficient to cover the tax withholding obligations and, if applicable, exercise price associated with these awards. As a result of these transactions, a significant number of shares of our Common Stock may be sold over a limited time period in connection with significant vesting events. We may also settle tax withholding
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obligations in connection with vesting of awards through “net settlement,” in which we remit cash to satisfy the tax withholding obligation and withhold a number of the vested shares on each vesting date. Depending on the fair value of our Common Stock and the number of awards vesting on any applicable vesting date, such net settlement could require us to expend substantial funds to satisfy tax withholding.
The markets for our Common Stock and Warrants have been volatile and may not continue at all.
Since the Business Combination and the commencement of the trading of our Common Stock and Warrants on the Nasdaq Global Market, the prices of our Common Stock and Warrants have been volatile and may continue to fluctuate significantly due to various factors, some of which are beyond our control. Any of the factors listed below could have a material adverse effect on your investment in our securities and our securities may trade at prices significantly below the price you paid for them. In such circumstances, the trading price of our securities may not recover and may experience a further decline.
Factors affecting the trading price of our securities may include:
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Broad market and industry factors may materially harm the market price of our securities irrespective of our operating performance or any of the factors listed above. The securities markets in general have experienced price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of the particular companies affected. The trading prices and valuations of these securities, including our securities, are not predictable. A loss of investor confidence in the market for the stocks of other companies which investors perceive to be similar to us could depress our stock price regardless of our business, prospects, financial conditions or results of operations. A decline in the market price of our securities also could adversely affect our ability to issue additional securities and our ability to obtain additional financing in the future.
In the past, securities class action litigation has often been initiated against companies following periods of volatility in their stock price. This type of litigation could result in substantial costs and divert our management’s attention and resources, and could also require us to make substantial payments to satisfy judgments or to settle litigation.
Our Common Stock and Warrants are subject to potential delisting from The Nasdaq Global Market in the event we do not meet Nasdaq's continued listing requirements, which would likely impair the liquidity of the trading market for our Common Stock and Warrants.
Our listing on the Nasdaq Global Market is contingent upon meeting all the continued listing requirements of the Nasdaq Global Market, including a minimum market value of $15 million, a minimum bid price of $1.00 per share for our Common Stock and timely filing requirements of all required periodic reports with the SEC.
On January 23, 2023, we received written notice from the Listing Qualifications Department of Nasdaq notifying us that, based on the closing bid price of our Common Stock for the previous 30 consecutive business days, we did not comply with the minimum bid price requirement for continued listing on The Nasdaq Global Market, and that we had until July 22, 2023 to regain such compliance. To do so, our Board of Directors and stockholders approved a 1-for-6 reverse stock split after which we regained compliance with Nasdaq’s continued listing requirements.
On October 24, 2023, we again received written notice from the Listing Qualifications Department of Nasdaq notifying us that, based on the closing bid price of our Common Stock for the previous 30 consecutive business days, we no longer complied with the minimum bid price requirement for continued listing on The Nasdaq Global Market. We regained compliance on March 8, 2024 when the closing bid price of our Common Stock had been at least $1.00 per share for a minimum of 10 consecutive business days.
Although we were able to regain compliance with the minimum bid price requirement within Nasdaq's automatic compliance period each time we received notice of non-compliance, if our stock price declines we could again fail to comply with this requirement and may not be able to regain compliance. In the event we again become out of compliance with the minimum bid price requirement or if we were to become out of compliance with the other listing requirements and we were not able to regain compliance with requirements for continued listing on Nasdaq, we may transfer to and commence trading on the OTC Markets. Shares traded on the OTC Markets generally have lower trading volumes, fewer market makers, higher trading volatility and wider spreads between bid and ask quotations than shares traded on major national exchanges such as Nasdaq. The OTC Markets are also less regulated than a major exchange like Nasdaq, and typically require less stringent corporate governance requirements. If our Common Stock or Warrants become delisted from Nasdaq for any reason and are quoted on the OTC Markets such as OTCQX, OTCQB or OTC Pink, an inter-dealer automated quotation system for equity securities that is not a national securities exchange, stockholders would likely find it more difficult to trade or obtain accurate price quotations for our shares. Delisting would likely also reduce the visibility, liquidity, and value of our Common Stock, reduce institutional investor interest in us, and may increase the volatility of our Common Stock. Delisting could also cause a loss of confidence of potential industry partners, lenders, and employees, which may harm our ability to raise capital through alternative financing sources on terms acceptable to us, which could further harm our business and our future prospects. Some or all of these material adverse consequences may contribute to a further decline in our stock price. If an active trading market for our securities is not sustained with sufficient trading volume, you may have limited or no ability to sell your securities.
If securities or industry analysts cease publishing research or reports about us, our business or our market, or if they change their recommendations regarding our Common Stock, then the price and trading volume of our Common Stock could decline.
The trading markets for our Common Stock and Warrants will be influenced by the research and reports that industry or securities analysts may publish about us, our business, our market or our competitors. Analysts who previously covered us in the past have since ceased publishing research or reports about us. If any analysts who cover us in the future change their recommendation regarding our stock adversely, or provide more favorable relative recommendations about our competitors, the price of our Common Stock and Public Warrants would likely decline. If any analyst covering our company in the future were to cease coverage of us or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could cause the prices and trading volumes of the Common Stock and Public Warrants to decline.
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There is no guarantee that the Public Warrants or Private Placement Warrants will ever be in the money, and they may expire worthless.
The exercise price of our Warrants is higher than is typical with many companies that have merged with similar blank check companies in the past. Historically, with regard to units offered by blank check companies, the exercise price of a Warrant was generally a fraction of the purchase price of the units in the initial public offering. The exercise price for our Warrants is $11.50 per warrant. Upon exercise, the exercise price of the Warrants and the number of shares of Common Stock issuable shall be adjusted 1-for-6, the same ratio as the reverse stock split that was effective as of July 5, 2023. There is no guarantee that the Warrants will ever be in the money prior to their expiration, and as such, the Warrants may expire worthless.
We may redeem unexpired Warrants prior to their exercise at a time that is disadvantageous to Warrant holders, thereby making their Warrants worthless.
We have the ability to redeem outstanding Warrants at any time after they become exercisable and prior to their expiration, subject to certain exceptions, provided that the last reported sales price of our Common Stock equals or exceeds $60.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalization and the like) for any 20 trading days within a 30 trading-day period ending on the third trading day prior to the date on which we give proper notice of such redemption to the Warrant holders and provided certain other conditions are met. For additional information on the circumstances in which the Public Warrants may be redeemed, see "Description of Securities—Warrants—Public Stockholders’ Warrants" in our prospectus filed with the SEC on April 6, 2022. 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. Redemption of the outstanding Warrants could force the Warrant holders (i) to exercise their Warrants and pay the exercise price therefor at a time when it may be disadvantageous for them to do so, (ii) to sell their Warrants at the then-current market price when they might otherwise wish to hold their Warrants or (iii) to accept the nominal redemption price which, at the time the outstanding Warrants are called for redemption, is likely to be substantially less than the market value of their Warrants. None of the Private Placement Warrants will be redeemable by us so long as they are held by the initial purchasers or their permitted transferees, subject to certain exceptions.
Warrants are exercisable for Common Stock, and their exercise would increase the number of shares eligible for future resale in the public market and result in dilution to our stockholders.
As of September 30, 2024, there were 20,549,453 Warrants outstanding. Each whole Warrant entitles the holder to purchase one sixth of a share of the Company’s Common Stock at a price of $11.50 per warrant, which is equivalent to approximately 3,424,909 shares of Common Stock. The shares of Common Stock issued upon exercise of our Warrants will result in dilution to the then existing holders of Common Stock and increase the number of shares eligible for resale in the public market. Sales of substantial numbers of such shares in the public market could adversely affect the market price of our Common Stock or Public Warrants.
Anti-takeover provisions contained in our Charter and Bylaws, as well as provisions of Delaware law, could impair a takeover attempt, which could limit the price investors might be willing to pay in the future for our Common Stock.
Our Charter and Bylaws contain provisions that may discourage unsolicited takeover proposals that stockholders may consider to be in their best interests. We are also subject to anti-takeover provisions under Delaware law, which could delay or prevent a change of control. Together, these provisions may make more difficult the removal of management and may discourage transactions that otherwise could involve payment of a premium over prevailing market prices for our securities. These provisions include:
Our Bylaws provide that the Court of Chancery of the State of Delaware will be the sole and exclusive forum for certain stockholder litigation matters, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, employees or stockholders.
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Our Bylaws provide, to the fullest extent permitted by law, that internal corporate claims may be brought only in the Court of Chancery in the State of Delaware (or, if the Court of Chancery does not have, or declines to accept, jurisdiction, another state court or a federal court located within the State of Delaware). In addition, our Bylaws provide that the federal district courts of the United States will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act. This forum selection provision will not apply to claims brought to enforce a duty or liability created by the Exchange Act. Any person or entity purchasing or otherwise acquiring or holding any interest in our stock shall be deemed to have notice of and consented to the forum provision in our Bylaws.
This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or any of our directors, officers, other employees or stockholders, which may discourage lawsuits with respect to such claims. Alternatively, if a court were to find the choice of forum provision contained in our Bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, operating results and financial condition. For example, under the Securities Act, federal courts have concurrent jurisdiction over all suits brought to enforce any duty or liability created by the Securities Act, and investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder. Accordingly, there is uncertainty as to whether a court would enforce such a forum selection provision as written in connection with claims arising under the Securities Act.
The JOBS Act permits “emerging growth companies” like us to take advantage of certain exemptions from various reporting requirements applicable to other public companies that are not emerging growth companies.
We qualify as an “emerging growth company” as defined in Section 2(a)(19) of the Securities Act, as modified by the JOBS Act. As such, we take advantage of certain exemptions from various reporting requirements applicable to other public companies that are not emerging growth companies for as long as we continue to be an emerging growth company, including (i) the exemption from the auditor attestation requirements with respect to internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act of 2002, (ii) the exemptions from say-on-pay, say-on-frequency and say-on-golden parachute voting requirements and (iii) reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements. As a result, our stockholders may not have access to certain information they deem important. We will remain an emerging growth company until the earliest of (i) the last day of the fiscal year (a) following January 20, 2026, the fifth anniversary of Rotor’s initial public offering, (b) in which we have total annual gross revenue of at least $1.235 billion or (c) in which we are deemed to be a large accelerated filer, which means the market value of our Common Stock and Public Warrants that is held by non-affiliates exceeds $700 million as of the last business day of our prior second fiscal quarter, and (ii) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period.
In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the exemption from complying with new or revised accounting standards provided in Section 7(a)(2)(B) of the Securities Act as long as we are an emerging growth company. An emerging growth company can therefore delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies, but any such election to opt out is irrevocable. We have elected to avail ourselves of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, we, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of our financial statements with another public company that is neither an emerging growth company nor an emerging growth company that has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.
Investors may find our Common Stock or Public Warrants less attractive because we rely on these exemptions and may continue to rely on them to the extent they remain available to us. If some investors find our Common Stock or Public Warrants less attractive as a result of these exemptions and reduced disclosure as an emerging growth company, there may be a less active trading market for and/or more price volatility with respect to our Common Stock or Public Warrants.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
Not Applicable.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
(a)
On November 13, 2024, we entered into an Open Market Sale AgreementSM (the “Sale Agreement”) with Jefferies LLC (“Jefferies”) to sell shares of our Common Stock, from time to time, through an “at the market offering” program under which Jefferies will act as sales agent. Any shares sold pursuant to the Sale Agreement will be issued pursuant our effective shelf registration statement on Form S-3 (File No. 333-268399), filed with the Securities and Exchange Commission (the “SEC”) on November 15, 2022 and declared effective on November 23, 2022, including the prospectus supplement relating to the sale of the shares dated November 13, 2024.
Upon delivery of an issuance notice and subject to the terms and conditions of the Sale Agreement, Jefferies will use commercially reasonable efforts consistent with its normal sales and trading practices and applicable state and federal laws, rules and regulations and the rules of The Nasdaq Stock Market LLC to sell shares from time to time based upon our instructions, including any price, time or size limits that we specify. Under the Sale Agreement, Jefferies may sell shares in privately negotiated transactions, as block transactions or by any method deemed to be an “at the market offering” as defined in Rule 415(a)(4) under the Securities Act of 1933, as amended.
We have agreed to pay Jefferies a commission of 3% of the aggregate gross proceeds from each sale of shares and have agreed to provide Jefferies with customary indemnification and contribution rights. We have also agreed to reimburse Jefferies for certain specified expenses. We are not obligated to sell any shares under the Sale Agreement. The offering of shares pursuant to the Sale Agreement will terminate upon the termination of the Sale Agreement by Jefferies or by us, as permitted therein.
The foregoing description of the Sale Agreement is not complete and is qualified in its entirety by reference to the full text of such agreement, a copy of which is filed herewith as Exhibit 10.2 to this Quarterly Report on Form 10-Q and is incorporated herein by reference.
The legal opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation, relating to the Shares being offered in connection with the November Prospectus Supplement is filed as Exhibit 5.1 to this Quarterly Report on Form 10-Q.
(b)
None.
(c)
During our last fiscal quarter,
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Item 6. Exhibits.
Exhibit Number |
|
Description |
3.1 |
|
|
3.2 |
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|
3.3 |
|
|
3.4 |
|
|
5.1* |
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|
10.1+* |
|
Palladyne AI Corp. Amended and Restated 2021 Employee Stock Purchase Plan |
10.2* |
|
Open Market Sale AgreementSM, dated November 13, 2024, by and between the Company and Jefferies LLC |
23.1* |
|
Consent of Wilson Sonsini Goodrich & Rosati, P.C. (included in Exhibit 5.1 hereto) |
31.1* |
|
|
31.2* |
|
|
32.1** |
|
|
32.2** |
|
|
101.INS |
|
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document. |
101.SCH |
|
Inline XBRL Taxonomy Extension Schema With Embedded Linkbase Documents |
104 |
|
Cover Page Interactive Data File (embedded within the Inline XBRL document) |
+ Indicates management contract or compensatory plan.
* Filed herewith.
** The Certifications attached as Exhibits 32.1 and 32.2 that accompany this Quarterly Report on Form 10-Q are not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of Palladyne AI Corp. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Form 10-Q, irrespective of any general incorporation language contained in such filing.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
|
|
PALLADYNE AI CORP. |
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|
|
|
|
Date: November 13, 2024 |
|
By: |
/s/ Benjamin G. Wolff |
|
|
|
Benjamin G. Wolff |
|
|
|
President and Chief Executive Officer (Principal Executive Officer) |
|
|
|
|
Date: November 13, 2024 |
|
By: |
/s/ Trevor Thatcher |
|
|
|
Trevor Thatcher |
|
|
|
Chief Financial Officer (Principal Financial and Accounting Officer) |
62