[Filing Information](index=1&type=section&id=Filing%20Information) This section provides essential corporate identification, securities registration details, and regulatory status for Palladyne AI Corp [Registrant Details](index=1&type=section&id=Registrant%20Details) This section provides the core identification details for Palladyne AI Corp., including its incorporation state, SEC file number, IRS ID, principal executive offices address, and contact telephone number - Registrant Name: **Palladyne AI Corp.**[2](index=2&type=chunk) - Jurisdiction of Incorporation: **Delaware**[2](index=2&type=chunk) - Commission File Number: **001-39897**[2](index=2&type=chunk) - Principal Executive Offices: **650 South 500 West, Suite 150, Salt Lake City, Utah 84101**[2](index=2&type=chunk) - Telephone Number: **(888) 927-7296**[2](index=2&type=chunk) [Securities Information](index=1&type=section&id=Securities%20Information) This section details the company's registered securities, including common stock and redeemable warrants, traded on The Nasdaq Stock Market LLC, and confirms its status as an emerging growth company Registered Securities | Title of each class | Trading Symbol(s) | Name of each exchange on which registered | | :------------------ | :---------------- | :---------------------------------------- | | Common Stock, par value $0.0001 per share | PDYN | The Nasdaq Stock Market LLC | | Redeemable warrants, exercisable for shares of Common Stock at an exercise price of $69.00 per share | PDYNW | The Nasdaq Stock Market LLC | - Emerging Growth Company Status: **Yes**[5](index=5&type=chunk) - Election not to use extended transition period for new accounting standards: **No**[6](index=6&type=chunk) [Disclosures](index=3&type=section&id=Disclosures) This section details the company's financial results disclosure, public information dissemination channels, and a list of accompanying exhibits [Item 2.02 Results of Operations and Financial Condition](index=3&type=section&id=Item%202.02%20Results%20of%20Operations%20and%20Financial%20Condition) Palladyne AI Corp. issued a press release on February 20, 2025, containing financial information for the year ended December 31, 2024. This information is furnished as an exhibit but is not deemed "filed" for certain legal purposes under the Exchange Act - Event Date: **February 20, 2025**[7](index=7&type=chunk) - Content: Press release includes financial information for the year ended **December 31, 2024**[7](index=7&type=chunk) - Filing Status: Information furnished as **Exhibit 99.1** is not deemed "filed" under Section 18 of the Securities Exchange Act of 1934[7](index=7&type=chunk) [Item 7.01 Regulation FD Disclosure](index=3&type=section&id=Item%207.01%20Regulation%20FD%20Disclosure) The company outlines its various channels for public dissemination of material information, including SEC filings, its corporate website, investor relations site, news site, and social media platforms like X and LinkedIn, encouraging stakeholders to review these sources for important updates - Information Dissemination Channels: Information is disseminated via **SEC filings**, **public conference calls**, the **company website**, **investor relations website**, **news site**, **X (@palladyneai)**, and **LinkedIn**[8](index=8&type=chunk) - Purpose: Channels are used to communicate **material news and developments** regarding the company and its products[8](index=8&type=chunk) [Item 9.01 Financial Statements and Exhibits](index=3&type=section&id=Item%209.01%20Financial%20Statements%20and%20Exhibits) This section lists the exhibits accompanying the 8-K filing, specifically a press release dated February 20, 2025, and the interactive data file for the cover page Exhibits Filed | Exhibit Number | Description | | :------------- | :---------- | | 99.1 | Press Release dated February 20, 2025 | | 104 | Cover Page Interactive Data File (formatted as Inline XBRL) | [Signatures](index=4&type=section&id=Signatures) This section formally concludes the report with the authorized signatory and filing date for Palladyne AI Corp [Report Signatures](index=4&type=section&id=Report%20Signatures) The report is duly signed on behalf of Palladyne AI Corp. by Stephen Sonne, Chief Legal Officer & Secretary, confirming its authorization and the filing date of February 20, 2025 - Signatory: **Stephen Sonne**[14](index=14&type=chunk) - Title: **Chief Legal Officer & Secretary**[14](index=14&type=chunk) - Date: **February 20, 2025**[14](index=14&type=chunk)

Core Insights - Palladyne (NASDAQ: PDYN) is recognized as a leading provider of AI/ML software platforms tailored for various robotic applications, featuring two main products: Palladyne IQ and Palladyne Pilot. The growth prospects for these products are considered promising [1]. Company Analysis - The analysis conducted by HedgeMix emphasizes the growth potential of Palladyne's software offerings, indicating a positive outlook for the company's future performance [1]. - The valuation approach utilized includes the Discounted Cash Flow (DCF) model, which provides insights into cash flow generation across different business models [1].

Core Insights - The article discusses the transformative impact of artificial intelligence (AI) on various sectors, particularly focusing on robotics and its investment potential [1][13]. Group 1: AI and Market Dynamics - The 2022 bear market saw a significant downturn in stocks, with inflation at 40-year highs and the Federal Reserve increasing interest rates, leading to uncertainty about future growth [1]. - The launch of OpenAI's ChatGPT, in partnership with Microsoft, marked a pivotal moment, leading to a rebound in tech stocks, particularly benefiting Nvidia, which has seen triple-digit earnings growth for six consecutive quarters [2]. Group 2: Robotics Companies to Watch - Serve Robotics is highlighted for its AI-powered delivery robots, which have completed tens of thousands of deliveries and are seen as a disruptive force in the food delivery market [3][4]. - Analysts predict a 51.35% earnings increase for Serve Robotics in the next quarter and a 38.01% increase for the full year of 2025 [4][6]. - Palladyne AI, formerly Sarcos Robotics, focuses on AI software for robots, aiming to enhance safety and productivity across various industries, although it is considered a speculative investment [7][8]. - Tesla's Optimus robot is positioned as a leader in real-world AI training, with plans for mass production in 2025 and potential revenue exceeding $10 trillion, according to CEO Elon Musk [10][11][12]. Group 3: Future Investment Opportunities - The article emphasizes that as AI technology advances, investments in real-world AI and robotics will likely yield significant returns by increasing efficiency and disrupting traditional business models [13].

Core Viewpoint - The rise of autonomous drone stocks, particularly Red Cat and Palladyne AI, is driven by recent military contracts and technological advancements, leading to significant stock price increases of 268% and 503% respectively over the past three months as of January 2 [1] Group 1: Red Cat - Red Cat has experienced a substantial stock surge due to multiple military contracts, including a $2.5 million deal with NATO members and approximately $4.5 million in awards from the U.S. government [2] - The company's stock skyrocketed after being selected by the U.S. Army for the Short-Range Reconnaissance (SRR) Program, requiring the production of nearly 1,200 drones annually to meet a five-year target of 5,880 systems [3] - Red Cat is projecting $100 million in revenue for calendar year 2025, which is over six times its revenue from the last 12 months, indicating a significant operational challenge [3] - The company is collaborating with Palantir to utilize its Visual Navigation software in drones, enhancing navigation capabilities in electronic warfare environments [4] - Red Cat will also implement Palantir's Warp Speed manufacturing software to optimize production and improve margins, which is crucial for meeting its ambitious production goals [5] Group 2: Palladyne AI - Palladyne AI's stock has surged following the announcement of the SRR deal with Red Cat, as the two companies expanded their partnership [6] - The integration of Palladyne's Pilot AI software into Red Cat's drones enhances their autonomous capabilities, allowing for persistent detection and tracking of objects of interest [6] - The software facilitates shared situational awareness among drones, improving resource allocation and data collection efficiency [7] - Palladyne demonstrated its technology's effectiveness with a successful autonomous flight that tracked and followed a target, further boosting investor confidence [8] Group 3: Future Outlook - Both Red Cat and Palladyne AI's future prospects heavily depend on the successful execution of the SRR deal, which is critical for justifying their increased valuations [9] - Red Cat is seeking to raise capital to support its production needs, with plans to pursue Department of Defense loans as a preferable option to issuing new shares [9]

[Summary Risk Factors](index=3&type=section&id=Summary%20Risk%20Factors) This section summarizes key risks: early-stage status, AI/ML software pivot, and substantial capital needs - The company is an **early-stage entity** with a **history of losses** and expects to incur **significant losses** for the **foreseeable future**[4](index=4&type=chunk) - In late **2023**, the company **pivoted its strategy** to focus on its **AI/ML Software Platform** and **suspended the development** and **commercialization of its hardware products** due to **limited resources** and **failure to properly estimate time and expense**[4](index=4&type=chunk) - The company has **no prior experience** in **commercializing software products** and was **unsuccessful in its previous efforts** to **commercialize its hardware technologies**[4](index=4&type=chunk) - **Future revenues** are expected to be **primarily derived from licensing** the **AI/ML Software Platform**[4](index=4&type=chunk) - In March **2024**, the company **changed its name** from **Sarcos Technology and Robotics Corporation** to **Palladyne AI Corp** to reflect its **new strategic focus** on **AI/ML software**[5](index=5&type=chunk) - The company's **business plans require substantial capital**, and if it **cannot generate revenue** or **secure new funding**, it may have to **cease operations**[4](index=4&type=chunk)[5](index=5&type=chunk) [PART I. FINANCIAL INFORMATION](index=5&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements (Unaudited)](index=5&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section presents unaudited consolidated financial statements, detailing financial position, performance, and cash flows [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The balance sheet shows decreased assets and equity from reduced cash and marketable securities, reflecting the net loss Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | Sep 30, 2024 | Dec 31, 2023 | | :------------------------- | :----------- | :----------- | | Cash and cash equivalents | $21,328 | $23,139 | | Marketable securities | $0 | $15,947 | | Total Assets | $38,738 | $60,426 | | Total Liabilities | $15,317 | $19,521 | | Total Stockholders' Equity | $23,421 | $40,905 | [Condensed Consolidated Statements of Operations](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) The company reported significantly reduced net losses for Q3 and nine-month periods due to substantial operating expense cuts Statement of Operations Summary (in thousands, except per share data) | Metric (Unaudited) | Q3 2024 | Q3 2023 | Nine Months 2024 | Nine Months 2023 | | :------------------------------------------- | :----------- | :----------- | :--------------- | :--------------- | | **Revenue, net** | $871 | $1,827 | $7,025 | $5,400 | | **Total operating expenses** | $8,170 | $32,581 | $27,464 | $89,301 | | **Loss from operations** | $(7,299) | $(30,754) | $(20,439) | $(83,901) | | **Net loss** | $(7,096) | $(28,981) | $(19,648) | $(79,117) | | **Net loss per share (Basic and diluted)** | $(0.27) | $(1.13) | $(0.76) | $(3.09) | [Condensed Consolidated Statements of Cash Flows](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash used in operating activities decreased significantly, with investing activities providing cash, resulting in a net cash decrease Cash Flow Summary (Nine Months Ended Sep 30, in thousands) | Activity | 2024 | 2023 | | :---------------------------------------- | :---------- | :---------- | | Net cash used in operating activities | $(17,531) | $(60,123) | | Net cash provided by investing activities | $15,783 | $60,345 | | Net cash used in financing activities | $(63) | $(71) | | **Net decrease in cash** | **$(1,811)** | **$151** | | **Cash at end of period** | **$21,328** | **$35,310** | [Notes to Unaudited Condensed Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) These notes detail the company's strategic shift to AI/ML software, liquidity, and subsequent capital raises - The company **changed its name** from **Sarcos Technology and Robotics Corporation** to **Palladyne AI Corp** in March **2024** to reflect its transition from a hardware-focused to a software-focused company[16](index=16&type=chunk) - As of September **30**, **2024**, the company had **cash, cash equivalents, and marketable securities** of **$21.3 million**. **Management believes** it has **sufficient financial resources** for **at least the next 12 months**[23](index=23&type=chunk)[24](index=24&type=chunk) - On October **31**, **2024**, the company entered into agreements for a **registered offering** and **private placements** to **sell common stock and warrants**, raising approximately **$7 million** in **gross proceeds**[86](index=86&type=chunk)[87](index=87&type=chunk) - On April **17**, **2024**, the company **repriced options** to **purchase 773,551 shares** of common stock, **reducing the exercise price** to **$1.59 per share**. This resulted in an **incremental fair value** of **$0.2 million** to be recognized as **stock-based compensation**[71](index=71&type=chunk)[72](index=72&type=chunk)[73](index=73&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=22&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the strategic pivot to AI/ML software, cost reductions, and liquidity bolstered by recent capital raises - The company's strategy is now focused on its **AI/ML Software Platform**, which is designed to be **hardware-agnostic** and **enable robots to learn and adapt** in **dynamic environments**[95](index=95&type=chunk)[97](index=97&type=chunk) - The **initial commercial version** of the **Palladyne IQ product** was released on October **1**, **2024**. The **Palladyne Pilot product** is **expected to be released** by the end of Q**1** **2025**[99](index=99&type=chunk) Q3 2024 vs Q3 2023 Results (in thousands) | Metric | Q3 2024 | Q3 2023 | % Change | | :------------------------- | :------ | :------ | :------- | | Revenue, net | $871 | $1,827 | (52)% | | Total operating expenses | $8,170 | $32,581 | (75)% | Nine Months 2024 vs 2023 Results (in thousands) | Metric | Nine Months 2024 | Nine Months 2023 | % Change | | :------------------------- | :--------------- | :--------------- | :------- | | Revenue, net | $7,025 | $5,400 | 30% | | Total operating expenses | $27,464 | $89,301 | (69)% | - The **significant decrease in operating expenses** is primarily due to **reduced labor and related costs** following the **reductions in force (RIFs)** conducted in July and November **2023**[120](index=120&type=chunk)[121](index=121&type=chunk) - As of September **30**, **2024**, the company's **backlog** was **$3.7 million**. Its **total estimated contract value**, including **unexercised options**, was **$10.6 million**[139](index=139&type=chunk) - The company believes its **cash on hand** (**$21.3M** as of Sep **30**, **2024**), supplemented by a subsequent **$7M capital raise**, is **sufficient to fund operations** for **at least the next 12 months**[140](index=140&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=32&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As a smaller reporting company, Palladyne AI is not required to provide market risk disclosures - As a **smaller reporting company**, **Palladyne AI** is **not required to provide quantitative and qualitative disclosures about market risk**[155](index=155&type=chunk) [Controls and Procedures](index=32&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded disclosure controls were effective, with no material changes to internal controls - The company's **management**, including the **Certifying Officers (CEO and CFO)**, concluded that **disclosure controls and procedures** were **effective** as of September **30**, **2024**[156](index=156&type=chunk) - There were **no material changes** to the company's **internal control over financial reporting** during the third quarter of **2024**[158](index=158&type=chunk) [PART II. OTHER INFORMATION](index=33&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Legal Proceedings](index=33&type=section&id=Item%201.%20Legal%20Proceedings) The company is not currently a party to any legal proceedings with a material adverse effect - The company is **not currently a party** to any proceedings that it believes will have a **material adverse effect** on its business[158](index=158&type=chunk) [Risk Factors](index=33&type=section&id=Item%201A.%20Risk%20Factors) This section outlines significant risks: historical losses, unproven AI/ML software strategy, capital needs, competition, and potential delisting - The company is an **early-stage company** with a **history of significant losses**, an **accumulated deficit** of **$437.9 million** as of September **30**, **2024**, and may **never achieve profitability**[160](index=160&type=chunk) - The **strategic pivot** to focus on the **AI/ML Software Platform** is a **new direction**, and the company has **no prior experience commercializing software products**, which may **not be successful**[164](index=164&type=chunk)[166](index=166&type=chunk) - The business **requires significant capital**, and if **additional funding is not secured**, the company may have to **curtail or cease operations**. **Market conditions** may make **raising capital difficult or dilutive to stockholders**[240](index=240&type=chunk)[241](index=241&type=chunk)[242](index=242&type=chunk) - The company faces **competition from established and emerging companies** in the **AI and robotics industries**, which may have **greater resources** and **established customer relationships**[201](index=201&type=chunk)[202](index=202&type=chunk) - **Real or perceived defects** in the **AI/ML software** could lead to **personal injury**, **property damage**, **reputational harm**, and **product liability claims**[210](index=210&type=chunk)[211](index=211&type=chunk) - The company is **highly dependent on its senior management**, particularly its **Chief Technology Officer, Dr. Denis Garagic**, and the **loss of key personnel** could **significantly harm development efforts**[251](index=251&type=chunk)[252](index=252&type=chunk) - The company's **common stock is subject to potential delisting** from **The Nasdaq Global Market** if it **fails to meet continued listing requirements**, such as the **$1.00 minimum bid price**, which it has **failed to meet in the past**[337](index=337&type=chunk)[339](index=339&type=chunk)[340](index=340&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=60&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company reported no unregistered sales of equity securities during the last fiscal quarter - **None**[359](index=359&type=chunk) [Defaults Upon Senior Securities](index=60&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This item is not applicable to the company - **Not Applicable**[359](index=359&type=chunk) [Mine Safety Disclosures](index=60&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - **Not applicable**[359](index=359&type=chunk) [Other Information](index=60&type=section&id=Item%205.%20Other%20Information) The company established an 'at the market offering' program with Jefferies LLC for common stock sales, with a 3% commission - On November **13**, **2024**, the company entered into an **Open Market Sale Agreement** with **Jefferies LLC** to **sell shares of its Common Stock** through an "**at the market offering**" program[359](index=359&type=chunk) - **Jefferies** will act as the **sales agent** and will be **paid a commission** of **3%** of the aggregate **gross proceeds** from each sale of shares[361](index=361&type=chunk) [Exhibits](index=61&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including corporate documents, legal opinions, and certifications

Revenue and Financial Performance - The Company generated $0.2 million and $0.9 million in revenue from international customers during the three and six months ended June 30, 2023, respectively, indicating a strong reliance on U.S. customers[74]. - Revenue for the three months ended June 30, 2024, increased by $1.4 million, or 112%, to $2.7 million compared to $1.3 million for the same period in 2023[95]. - Revenue for the six months ended June 30, 2024, increased by $2.6 million, or 72%, to $6.2 million compared to $3.6 million for the same period in 2023[107]. - Product revenue for the six months ended June 30, 2024, increased significantly by $2.6 million, or 85,200%, from $3 in 2023[109]. - Other income decreased by $2.4 million to $588,000 for the six months ended June 30, 2024, primarily due to a 64% decline in interest income from investments in marketable securities[117]. Operating Expenses and Cost Management - Total operating expenses decreased by $22.7 million, or 73%, from $31.2 million in Q2 2023 to $8.5 million in Q2 2024[99]. - Research and development expenses dropped by $9.4 million, or 80%, from $11.7 million in Q2 2023 to $2.3 million in Q2 2024, primarily due to reduced labor costs[101]. - General and administrative expenses decreased by $4.0 million, or 48%, from $8.3 million in Q2 2023 to $4.3 million in Q2 2024[102]. - Sales and marketing expenses fell by $3.0 million, or 69%, from $4.4 million in Q2 2023 to $1.4 million in Q2 2024[103]. - Total operating expenses for the six months ended June 30, 2024, decreased by $37.4 million, or 66%, from $56.7 million in 2023 to $19.3 million[110]. - Cost of revenue for the six months ended June 30, 2024, decreased by $0.3 million, or 10%, from $2.7 million in 2023 to $2.5 million[111]. Product Development and Market Strategy - The Company is developing two products: Palladyne IQ for stationary industrial robots and Palladyne Pilot for mobile robotic platforms, with expected commercial launches in the second half of 2024 and first quarter of 2025, respectively[83][84]. - Customer trials for Palladyne IQ began in June 2024, with ongoing trials expected to continue throughout the second half of 2024, aiming to generate revenue from commercial customers in 2025[83]. - The Company expects to derive commercial licensing revenues from its products starting in 2025, with ongoing commercialization efforts and customer trials throughout 2024[89]. - The market demand for AI/ML platforms remains unproven, and the Company is dependent on customer adoption and implementation of new technologies[92]. - The AI/ML Software Platform is expected to enable robotic systems to perform tasks in dynamic environments, enhancing productivity and reducing downtime[80]. Liquidity and Financing - The Company believes it has sufficient liquidity to operate for at least the next twelve months without raising additional capital, but may seek financing to bolster cash reserves[91]. - Cash, cash equivalents, and marketable securities totaled $25.8 million as of June 30, 2024, expected to support operations for at least the next 12 months[120]. - The company may need to seek additional financing if cash reserves are insufficient to support working capital or acquisitions[122]. - The company plans to monitor liquidity and may opportunistically raise capital when market conditions are favorable[123]. Government Contracts and Development Milestones - The Company has met all development milestones for U.S. government contracts related to its AI/ML Software Platform and products, recognizing revenue based on completed work[85]. Tax and Accounting - The effective tax rate for the six months ended June 30, 2024, was impacted by net losses and a full valuation allowance on deferred tax assets[118]. - The company is classified as an emerging growth company and has elected to take advantage of the extended transition period for new accounting standards[130]. Other Financial Metrics - Net cash used in operating activities decreased by 67% to $13.0 million for the six months ended June 30, 2024, driven by a $37.6 million decrease in net loss[126]. - Net cash provided by investing activities decreased by $14.7 million, primarily due to a reduction in maturities of marketable securities[127]. - The backlog as of June 30, 2024, was $1.5 million, with $0.4 million funded and $1.1 million unfunded, while the total estimated contract value was $11.4 million[119]. - The company recorded a 4,500% loss on warrant liability, resulting in a loss of $132,000 for the six months ended June 30, 2024[117].

[FORM 8-K Filing Information](index=1&type=section&id=FORM%208-K%20Filing%20Information) This section provides an overview of the Form 8-K filing, detailing its purpose and key disclosures [General Information](index=1&type=section&id=General%20Information) This section provides the foundational details of the Form 8-K filing, including the registrant's identification, trading symbols, and its status as an emerging growth company - **Palladyne AI Corp. (PDYN)** is registered in Delaware, trading Common Stock and Redeemable Warrants on The Nasdaq Stock Market LLC[1](index=1&type=chunk)[2](index=2&type=chunk) - The registrant is an **emerging growth company**[3](index=3&type=chunk) [Item 2.02 Results of Operations and Financial Condition](index=1&type=section&id=Item%202.02%20Results%20of%20Operations%20and%20Financial%20Condition) This item reports the issuance of a press release detailing the company's financial performance for the three and six months ended June 30, 2024 - On August 7, 2024, Palladyne AI Corp. issued a press release announcing financial information for the three and six months ended **June 30, 2024**[3](index=3&type=chunk) - The press release is furnished as **Exhibit 99.1** and incorporated by reference into this item[3](index=3&type=chunk) [Item 7.01 Regulation FD Disclosure](index=3&type=section&id=Item%207.01%20Regulation%20FD%20Disclosure) This section discloses the public availability of an investor presentation and outlines the company's various channels for disseminating material information, while clarifying the legal status of the furnished information - An investor presentation (**Exhibit 99.2**) was posted on the company's investor relations website on **August 7, 2024**, for future investor presentations[4](index=4&type=chunk) - The company disseminates material information via SEC filings, its official website (palladyneai.com), investor relations website (investor.palladyneai.com), news site (palladyneai.com/press/), and social media platforms (X: @PalladyneAI, LinkedIn: /company/palladyneaicorp/)[5](index=5&type=chunk) - Information in Items 2.02 and 7.01, and Exhibits 99.1 and 99.2, is furnished and not deemed 'filed' under Section 18 of the Exchange Act, unless explicitly stated otherwise[6](index=6&type=chunk) [Item 9.01 Financial Statements and Exhibits](index=3&type=section&id=Item%209.01%20Financial%20Statements%20and%20Exhibits) This item lists the specific documents attached as exhibits to the Form 8-K filing Exhibit List | Exhibit Number | Description | | :------------- | :------------------------------------------------ | | 99.1 | Press Release dated August 7, 2024 | | 99.2 | Investor Presentation | [Signatures](index=4&type=section&id=SIGNATURES) This section formally concludes the report with the required signatures, confirming its authorization and submission - The report was signed on **August 7, 2024**, by **Stephen Sonne**, Chief Legal Officer & Secretary of Palladyne AI Corp[8](index=8&type=chunk)

Financial Performance - For the three months ended March 31, 2024, net revenue was $3,441,000, representing a 50% increase from $2,296,000 in the same period of 2023[93] - Revenue increased by $1.1 million, or 50%, from $2.3 million for the three months ended March 31, 2023, to $3.4 million for the three months ended March 31, 2024[94] - Product development contract revenue decreased by 62% from $2,296,000 in Q1 2023 to $882,000 in Q1 2024[93] - Product development contract revenue decreased by $1.4 million, or 62%, from $2.3 million for the three months ended March 31, 2023, to $0.9 million for the three months ended March 31, 2024[95] - Total operating expenses decreased by $14.7 million, or 58%, from $25.5 million for the three months ended March 31, 2023, to $10.8 million for the three months ended March 31, 2024[97] - Research and development expense decreased by $6.5 million, or 69%, from $9.4 million for the three months ended March 31, 2023, to $2.9 million for the three months ended March 31, 2024[99] - General and administrative expense decreased by $4.6 million, or 47%, from $9.7 million for the three months ended March 31, 2023, to $5.1 million for the three months ended March 31, 2024[100] - Net cash used in operating activities decreased by $12.9 million to $7.2 million from $20.1 million during the same period in 2023[111] - As of March 31, 2024, the company had $31.8 million in cash, cash equivalents, and marketable securities[105] - Other income decreased by $1.6 million for the three months ended March 31, 2024, primarily due to decreased interest income from investments in marketable securities[102] Operational Changes - The company has implemented reductions in force in July and November 2023 to conserve cash resources and manage operating expenses[88] - The majority of cash payments related to the July 2023 RIF were made in Q3 2023, while payments for the November 2023 RIF were completed in early 2024[88] - The company believes it has sufficient liquidity to operate for at least the next twelve months without needing additional capital[88] Product Development - The AI/ML Software Platform is expected to be ready for initial customer testing by June 2024, with revenue generation anticipated to begin in 2025[84] - The AI/ML Software Platform is designed to be hardware agnostic, compatible with most industrial robots, and aims to enhance robotic systems' adaptability in dynamic environments[84] - The company is focusing on the development of its AI/ML Software Platform, suspending the commercialization of hardware products due to limited resources[85] Market Conditions - Customer demand for AI/ML platforms is evolving, and the company is dependent on customers adopting new technologies[89] - Geopolitical and macroeconomic factors, such as inflation and international conflicts, may significantly impact the company's business and operating results[92] Backlog and Contracts - The backlog as of March 31, 2024, was $4.2 million, with $2.8 million funded and $1.4 million unfunded[104] - Total estimated contract value, including backlog and estimated potential contract value, was $14.1 million as of March 31, 2024[104] Compliance and Controls - The company is classified as a smaller reporting company and is not required to provide certain disclosures under the Exchange Act[119] - Disclosure controls and procedures were evaluated by the Certifying Officers and deemed effective as of March 31, 2024[119] - There were no changes in internal control over financial reporting during the fiscal quarter ended March 31, 2024, that materially affected internal controls[121] - The company is not currently involved in any legal proceedings that could materially impact its business or financial condition[122]

PART I [Item 1. Business](index=8&type=section&id=Item%201.%20Business) Sarcos pivots to an AI/ML Software Platform for third-party robots, enabling 'on the edge' learning and adaptation - Sarcos' mission is to deliver **AI/ML software** that enhances third-party stationary and mobile robotic systems, enabling them to **observe, learn, reason, and act** in diverse environments without extensive programming[22](index=22&type=chunk) - In **November 2023**, Sarcos **suspended hardware product development** to focus on commercializing its **AI/ML Software Platform**, aiming for a broader market reach and better cash resource utilization[23](index=23&type=chunk)[76](index=76&type=chunk) - The AI/ML Software Platform is designed to be **hardware agnostic**, compatible with most industrial robots, and capable of real-time, **'on the edge' decision-making**, reducing reliance on continuous cloud connectivity and associated costs[24](index=24&type=chunk)[33](index=33&type=chunk) [Overview](index=8&type=section&id=Overview) Sarcos is shifting its focus to an AI/ML Software Platform for robotic systems, suspending most hardware development - Sarcos' AI/ML Software Platform is designed to enable robotic systems to perceive, adapt, and learn from experience in real-time, **'on the edge,'** reducing reliance on cloud connectivity and extensive programming[22](index=22&type=chunk) - The company pivoted in **November 2023** to focus on commercializing its AI/ML Software Platform, suspending most hardware development to target a broader market and optimize cash resources[23](index=23&type=chunk) [Industry Background](index=9&type=section&id=Industry%20Background) Traditional industrial robots face limitations in dynamic environments, while current AI solutions incur high cloud costs - Traditional industrial robots are typically fixed, perform repetitive tasks, and require costly, time-consuming reprogramming for dynamic environments or production changes[27](index=27&type=chunk)[28](index=28&type=chunk) - Current AI solutions for dynamic environments often rely on extensive cloud-based databases and LLMs, leading to increased costs and latency due to persistent connectivity requirements[29](index=29&type=chunk) [Our Solution](index=9&type=section&id=Our%20Solution) Sarcos' AI/ML Software Platform enables industrial robots to learn, reason, and make real-time decisions 'on the edge' - Sarcos' AI/ML Software Platform aims to enable industrial robots to be quickly programmed/reprogrammed, observe and assess environments, learn tasks with minimal data, reason dynamically, and make real-time decisions **'on the edge'** without cloud dependency[30](index=30&type=chunk)[31](index=31&type=chunk)[32](index=32&type=chunk) - The platform's **'on the edge' operation** and **closed-loop autonomy** are key differentiators, allowing robots to adapt to new circumstances efficiently and fuse multi-sensor data for improved situational awareness[33](index=33&type=chunk) [The AI/ML Software Platform](index=10&type=section&id=The%20AI%2FML%20Software%20Platform) The AI/ML Software Platform enables robots to observe, learn from demonstrations, reason, and act adaptively in real-time - The AI/ML Software Platform enables robots to observe (using various sensors), learn (from **1-5 human demonstrations**, creating a 'Task Library'), reason (using probabilistic ML), and act (adapting in real-time to complete tasks despite disruptions)[35](index=35&type=chunk)[36](index=36&type=chunk) - The platform will be provided with baseline edge computing and training hardware, including a controller, sensor package, and human/machine interface, alongside a cloud-based customer portal for software management and support[38](index=38&type=chunk)[39](index=39&type=chunk) [Market Opportunity](index=11&type=section&id=Market%20Opportunity) The AI/ML software market for industrial robotics is growing, offering Sarcos opportunities to augment existing solutions - The market for AI/ML software in industrial robotics is expected to grow significantly, driven by the need for more efficient and flexible manufacturing processes[40](index=40&type=chunk) - Sarcos' AI/ML Software Platform is expected to augment existing robotic hardware and AI solutions from companies like ABB, Fanuc, and KUKA, and has potential applicability in cobots, UAV, ROV, and UGV markets[41](index=41&type=chunk)[42](index=42&type=chunk) - Initial target customers include innovators and early adopters in industrial manufacturing, warehousing, logistics, defense, infrastructure maintenance, energy, and aerospace/aviation[43](index=43&type=chunk) [Commercialization & Growth Strategy](index=12&type=section&id=Commercialization%20%26%20Growth%20Strategy) Sarcos plans to offer its AI/ML Software Platform in packages, pursue R&D, and collaborate with development customers - Sarcos plans to offer its AI/ML Software Platform in packages, with or without teleoperation devices, and will continue R&D to improve the platform and develop additional functionalities[44](index=44&type=chunk)[45](index=45&type=chunk) - The company intends to collaborate with development customers to validate the platform's benefits, fund development, and build relationships, accelerating brand awareness and product refinement[46](index=46&type=chunk)[47](index=47&type=chunk) [Competitive Strengths](index=13&type=section&id=Competitive%20Strengths) Sarcos leverages extensive robotics experience, R&D investment, early customer engagements, and an experienced management team - Sarcos leverages over **30 years of robotics experience** and significant R&D investment, including previous innovations in hardware and related software, to develop its hardware-agnostic AI/ML Software Platform[48](index=48&type=chunk)[49](index=49&type=chunk) - The company benefits from early customer engagements and an experienced management team, including CEO Benjamin Wolff and CTO Dr. Denis Garagic (**25+ years in AI/ML**), to drive its commercialization efforts[50](index=50&type=chunk)[51](index=51&type=chunk) [Competition](index=13&type=section&id=Competition) Sarcos competes with automation software companies and faces potential competition from industrial robotics manufacturers - Sarcos competes with companies focused on automation-enhancing software capabilities, such as Bright Machines, C3.ai, and Dexterity, many of whom have commercially available products or significant resources[52](index=52&type=chunk)[54](index=54&type=chunk)[56](index=56&type=chunk) - Industrial robotics manufacturers and system integrators (e.g., Fanuc, KUKA) are potential customers/partners but could also become formidable competitors through internal development or acquisitions[53](index=53&type=chunk) [Customers and Partners](index=14&type=section&id=Customers%20and%20Partners) Historically, Sarcos served development customers like the U.S. Department of Defense, and anticipates initial commercial customers in various industrial sectors - Historically, Sarcos' customers have been development customers, including the U.S. Department of Defense, which contributed to the AI/ML Software Platform's development[57](index=57&type=chunk) - The company currently has no commercial customers for its AI/ML Software Platform but anticipates initial customers in industrial manufacturing, warehousing, logistics, defense, and other sectors[57](index=57&type=chunk) [Intellectual Property](index=14&type=section&id=Intellectual%20Property) Sarcos protects its IP through various means but is culling its patent portfolio to reduce costs and focus on essential assets - Sarcos protects its intellectual property through patents, copyrights, trade secrets, trademarks, and non-disclosure agreements[58](index=58&type=chunk) - The company is seeking patent protection for its AI/ML Software Platform but is also culling its extensive patent portfolio to reduce maintenance costs and focus on essential assets[59](index=59&type=chunk) [Sales and Marketing](index=14&type=section&id=Sales%20and%20Marketing) Sarcos is engaging potential customers, leveraging existing relationships, and plans to invest in sales and marketing for its licensing model - Sarcos is actively engaging potential customers for its AI/ML Software Platform, leveraging existing relationships from previous hardware efforts, and plans to invest in sales and marketing[61](index=61&type=chunk) - The company intends to pursue strategic relationships with system integrators, technology partners, distributors, and consulting firms to expand market reach and customer base[62](index=62&type=chunk) - The AI/ML Software Platform is expected to be offered through a term-based licensing model for recurring revenue, with potential add-on functionalities and upfront fees for teleoperation devices[64](index=64&type=chunk) [Suppliers](index=15&type=section&id=Suppliers) Sarcos relies on a limited set of U.S.-based, single or sole-source suppliers for minimal hardware components, posing supply chain risks - Sarcos relies on a limited set of U.S.-based suppliers for minimal hardware components, some of which are sole or single-source, posing supply chain risks[65](index=65&type=chunk) [Government Regulation](index=15&type=section&id=Government%20Regulation) Sarcos is subject to various U.S. federal, state, and local laws, including occupational health and safety, export controls, and government procurement regulations - Sarcos is subject to various U.S. federal, state, and local laws, including occupational health and safety, export controls, FCC rules for sensors, and government procurement regulations (FAR, DFARS)[66](index=66&type=chunk)[67](index=67&type=chunk)[68](index=68&type=chunk)[69](index=69&type=chunk) [Legal Proceedings](index=16&type=section&id=Legal%20Proceedings) Sarcos is not currently involved in any legal proceedings expected to materially adversely affect its business or financial condition - Sarcos is not currently a party to any legal proceedings expected to have a material adverse effect on its business, financial condition, or results of operations[71](index=71&type=chunk) [Human Capital](index=16&type=section&id=Human%20Capital) Sarcos conducted significant workforce reductions in 2023 due to its strategic pivot, with approximately 70 employees as of February 2024 - Sarcos conducted two reductions in force (RIFs) in 2023, affecting approximately **24% (July)** and **70% (November)** of its workforce, as a result of shifting its strategy to focus on the AI/ML Software Platform[72](index=72&type=chunk) - As of **February 1, 2024**, the company had approximately **70 full-time and part-time employees**, with about **65% in engineering functions**[73](index=73&type=chunk) [Facilities](index=16&type=section&id=Facilities) Sarcos operates a primary corporate and manufacturing facility in Salt Lake City, Utah, and is winding down its Pittsburgh office - Sarcos operates a primary corporate and manufacturing facility in Salt Lake City, Utah (**61,000 sq ft**, lease expires **May 2033**) and is winding down operations in its Pittsburgh, Pennsylvania office[74](index=74&type=chunk) [History, Corporate Information and Website](index=16&type=section&id=History%2C%20Corporate%20Information%20and%20Website) Sarcos has a long history in robotics, including acquisitions and a recent strategic pivot to AI/ML software in November 2023 - Sarcos originated from a University of Utah spin-out in **1983**, was acquired by Raytheon in **2007**, and re-established as Sarcos Corp. in **2014**. It merged with Rotor Acquisition Corp. in **2021** and acquired RE2, Inc. in **2022**[75](index=75&type=chunk) - On **November 14, 2023**, the company announced a strategic pivot to prioritize its commercial AI/ML Software Platform and suspend hardware commercialization efforts[76](index=76&type=chunk) [Item 1A. Risk Factors](index=18&type=section&id=Item%201A.%20Risk%20Factors) Sarcos faces significant risks as an early-stage company with a history of losses and uncertain software commercialization - Sarcos is an early-stage company with a history of significant net losses (**$115.6 million in 2023**, **$157.1 million in 2022**) and expects to incur further losses, with profitability dependent on successful AI/ML Software Platform commercialization and cost reduction[82](index=82&type=chunk)[84](index=84&type=chunk) - The company's pivot to AI/ML software, after unsuccessful hardware commercialization, is a complex, long-term initiative with uncertain market acceptance and potential delays due to hiring challenges, increased costs, and lack of prior software commercialization experience[86](index=86&type=chunk)[87](index=87&type=chunk)[92](index=92&type=chunk)[95](index=95&type=chunk) - Key risks include potential software defects leading to property damage or injury, dependence on single/sole source hardware suppliers, intense competition in a rapidly changing industry, and the need for significant capital that may dilute stockholders[130](index=130&type=chunk)[152](index=152&type=chunk)[119](index=119&type=chunk)[158](index=158&type=chunk) - The company faces cybersecurity risks, evolving data privacy regulations (e.g., CCPA, GDPR), and legal liabilities as a government contractor, alongside challenges in protecting its intellectual property in a complex technological landscape[205](index=205&type=chunk)[201](index=201&type=chunk)[213](index=213&type=chunk)[225](index=225&type=chunk) - The price of Sarcos' Common Stock has been volatile and may decline due to factors like fluctuating financial results, market expectations, and potential delisting from Nasdaq if minimum bid price or market value requirements are not met[248](index=248&type=chunk)[249](index=249&type=chunk)[251](index=251&type=chunk)[252](index=252&type=chunk) [Summary Risk Factors](index=4&type=section&id=Summary%20Risk%20Factors) Sarcos faces risks as an early-stage company with a history of losses, unproven software commercialization, and intense competition - Sarcos is an early-stage company with a history of losses and expects significant future losses, having suspended hardware development due to limited resources and misestimated commercialization costs[4](index=4&type=chunk)[5](index=5&type=chunk) - The company has no prior experience commercializing software products, and the AI/ML Software Platform's commercialization may be delayed, with anticipated revenues primarily derived from its licensing[6](index=6&type=chunk)[7](index=7&type=chunk) - Key risks include potential failure to attract customers, inaccurate market demand assumptions, dependence on single-source hardware suppliers, intense competition, and the possibility of product flaws or reputational harm[8](index=8&type=chunk)[9](index=9&type=chunk)[10](index=10&type=chunk)[11](index=11&type=chunk) [Risks Related to Our Business and Industry](index=18&type=section&id=Risks%20Related%20to%20Our%20Business%20and%20Industry) Sarcos faces risks from its history of losses, unproven software commercialization, and intense competition in a rapidly changing industry - Sarcos has a history of losses, including **$115.6 million in 2023** and **$157.1 million in 2022**, and expects continued operating and net losses as it develops and commercializes its AI/ML Software Platform[82](index=82&type=chunk)[84](index=84&type=chunk) - The company's pivot to AI/ML software, after unsuccessful hardware commercialization, is a complex, long-term initiative with uncertain market acceptance and potential delays due to hiring challenges and increased costs[86](index=86&type=chunk)[87](index=87&type=chunk)[95](index=95&type=chunk) - Sarcos has no prior experience commercializing software products and faces risks that its AI/ML Software Platform may not meet customer expectations, leading to delayed or no revenue, and potential reputational harm from development issues[92](index=92&type=chunk)[97](index=97&type=chunk)[98](index=98&type=chunk)[99](index=99&type=chunk) - The company operates in a rapidly changing and competitive AI/ML and robotics industry, with risks that its products may not keep pace with technological advancements or compete effectively against well-resourced competitors[119](index=119&type=chunk)[120](index=120&type=chunk)[124](index=124&type=chunk) [Risks Related to Our Operations & Growth](index=25&type=section&id=Risks%20Related%20to%20Our%20Operations%20%26%20Growth) Operational risks include software defects, open-source software use, reputational harm, dependence on key personnel, and single-source suppliers - Defects, connectivity issues, or user errors in the AI/ML Software Platform could lead to lower customer ROI, property damage, personal injury, and significant safety concerns, adversely affecting operations and reputation[130](index=130&type=chunk)[131](index=131&type=chunk)[133](index=133&type=chunk) - The use of 'open source' software in the AI/ML platform could negatively impact commercialization, potentially requiring the release of proprietary source code or leading to costly litigation[137](index=137&type=chunk)[138](index=138&type=chunk)[139](index=139&type=chunk) - Sarcos' brand and reputation could be harmed by negative publicity, especially given past unsuccessful hardware commercialization, and the company plans a costly re-branding effort[141](index=141&type=chunk)[142](index=142&type=chunk) - The company is highly dependent on its senior management and key employees, particularly its CTO, Dr. Denis Garagic, for AI/ML Software Platform development, and their loss could severely harm the business[168](index=168&type=chunk)[169](index=169&type=chunk) - Sarcos relies on a limited set of single or sole-source suppliers for minimal hardware components, posing risks of supply chain disruptions, increased costs, and inability to meet product specifications[152](index=152&type=chunk)[153](index=153&type=chunk) [Risks Related to Our Finances](index=29&type=section&id=Risks%20Related%20to%20Our%20Finances) Sarcos' financial risks include significant capital needs, potential equity dilution, and volatile financial results due to workforce reductions - Sarcos' business plans require significant capital, and while it believes it has sufficient funds for **12 months**, additional financing may be needed, potentially leading to equity dilution or restrictive debt covenants[158](index=158&type=chunk)[159](index=159&type=chunk)[161](index=161&type=chunk) - Recent workforce reductions (RIFs) in **July and November 2023**, affecting **24%** and **70%** of staff respectively, aim to improve cost structure but may not yield anticipated savings, could incur higher-than-expected costs, and disrupt business operations[164](index=164&type=chunk)[165](index=165&type=chunk) - The company's financial results are expected to vary significantly period-to-period due to fluctuations in operating costs, revenue from development contracts, and product demand, making quarter-to-quarter comparisons unreliable[166](index=166&type=chunk)[167](index=167&type=chunk) [Risks Related to Claims, Legal and Regulatory Compliance](index=31&type=section&id=Risks%20Related%20to%20Claims%2C%20Legal%20and%20Regulatory%20Compliance) Sarcos faces risks from evolving AI/ML regulations, data privacy laws, cybersecurity threats, and government contract compliance - The evolving regulatory landscape for AI/ML technologies, including new laws like the EU AI Act and U.S. Executive Orders, could impose onerous obligations, increase costs, limit functionality, and expose Sarcos to litigation or reputational harm[189](index=189&type=chunk)[190](index=190&type=chunk)[191](index=191&type=chunk) - Sarcos is subject to various U.S. and international laws and regulations, including data privacy (CCPA, GDPR), cybersecurity, export controls, and anti-corruption laws, with non-compliance potentially leading to significant fines, penalties, and business disruption[194](index=194&type=chunk)[195](index=195&type=chunk)[199](index=199&type=chunk)[201](index=201&type=chunk)[202](index=202&type=chunk)[215](index=215&type=chunk)[216](index=216&type=chunk)[219](index=219&type=chunk)[220](index=220&type=chunk) - As a government contractor, Sarcos faces increased risks from audits, investigations, and potential termination of contracts for non-compliance with specific government procurement laws and regulations[213](index=213&type=chunk)[214](index=214&type=chunk) - Cybersecurity risks, including sophisticated attacks, data breaches, and system outages, could disrupt operations, lead to loss of intellectual property or sensitive data, harm reputation, and result in significant legal and financial exposure[205](index=205&type=chunk)[206](index=206&type=chunk)[207](index=207&type=chunk)[208](index=208&type=chunk)[212](index=212&type=chunk) [Risks Related to Our Intellectual Property](index=41&type=section&id=Risks%20Related%20to%20Our%20Intellectual%20Property) Sarcos' success depends on IP protection, but patent litigation is costly, foreign protection is difficult, and government funding may limit rights - Sarcos' success depends on its ability to obtain and maintain intellectual property protection (patents, trademarks, trade secrets), which is challenging due to the complex and evolving nature of robotics software and AI[225](index=225&type=chunk)[226](index=226&type=chunk)[227](index=227&type=chunk) - Patent litigation is costly and uncertain, potentially leading to invalidation or narrow interpretation of patents, and the company plans to reduce resources on new patent filings and maintenance to cut operational expenses[227](index=227&type=chunk)[228](index=228&type=chunk) - Protecting IP in foreign markets is expensive and difficult, especially in countries with weaker IP laws, potentially allowing competitors to use Sarcos' technologies without authorization[233](index=233&type=chunk) - Intellectual property developed with U.S. government funding may be subject to 'march-in' rights, reporting requirements, and a preference for U.S.-based manufacturing, potentially limiting exclusive rights and manufacturing options[241](index=241&type=chunk)[242](index=242&type=chunk) [Risks Related to Ownership of our Securities](index=44&type=section&id=Risks%20Related%20to%20Ownership%20of%20our%20Securities) Sarcos' stock price faces volatility, potential delisting from Nasdaq, and warrant expiration risks - The price of Sarcos' Common Stock could decline due to large sales from employee equity awards, especially during concentrated vesting periods or 'sell-to-cover' transactions for tax obligations[245](index=245&type=chunk)[246](index=246&type=chunk)[247](index=247&type=chunk) - The markets for Sarcos' Common Stock and Warrants have been volatile and may continue to fluctuate significantly due to various factors, including financial results, market expectations, competition, and changes in laws[248](index=248&type=chunk)[249](index=249&type=chunk) - Sarcos' Common Stock is likely to be delisted from The Nasdaq Global Market due to non-compliance with minimum bid price (**$1.00**) and market value (**$15 million**) requirements, which would impair liquidity and reduce investor interest[251](index=251&type=chunk)[252](index=252&type=chunk)[253](index=253&type=chunk)[254](index=254&type=chunk)[256](index=256&type=chunk) - Warrants may expire worthless as their exercise price (**$11.50 per share**, adjusted **1-for-6** for reverse stock split) is higher than typical, and Sarcos may redeem unexpired warrants at a disadvantageous time for holders[260](index=260&type=chunk)[261](index=261&type=chunk) [Item 1B. Unresolved Staff Comments](index=52&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) Sarcos Technology and Robotics Corporation has no unresolved staff comments from the SEC - The company has no unresolved staff comments[276](index=276&type=chunk) [Item 1C. Cybersecurity](index=52&type=section&id=Item%201C.%20Cybersecurity) Sarcos maintains a risk-based cybersecurity program, led by its VP of Information Systems, with external audits and no material incidents to date - Sarcos implements a risk-based cybersecurity program aligned with industry standards, including technical, administrative, and physical controls like encryption, firewalls, and anti-virus systems[277](index=277&type=chunk) - The Vice President of Information Systems leads the IT team, reports directly to the CEO, and provides regular cybersecurity updates to the Audit Committee of the Board of Directors[277](index=277&type=chunk) - Sarcos engages external cybersecurity experts for audits, threat assessments, and consultations, and has established processes for overseeing third-party service provider risks, including ongoing monitoring[277](index=277&type=chunk)[278](index=278&type=chunk) - To date, Sarcos has not encountered cybersecurity challenges that have materially impaired its business strategy, results of operations, or financial condition[279](index=279&type=chunk) [Item 2. Properties](index=52&type=section&id=Item%202.%20Properties) Sarcos' primary corporate and manufacturing facility is a 61,000 square foot leased space in Salt Lake City, Utah, expiring in May 2033 - Sarcos' primary facility is a **61,000 square foot** leased corporate and manufacturing space in Salt Lake City, Utah[280](index=280&type=chunk) - The lease for the Salt Lake City facility expires in **May 2033** and includes two options for three-year extensions[280](index=280&type=chunk) [Item 3. Legal Proceedings](index=52&type=section&id=Item%203.%20Legal%20Proceedings) Sarcos is not currently involved in any material legal proceedings, though litigation can negatively impact the company - Sarcos is not currently a party to or aware of any legal proceedings that are believed to have a material adverse effect on its business, financial condition, or results of operations[281](index=281&type=chunk) - Litigation can adversely impact the company due to defense and settlement costs, as well as the diversion of management resources[281](index=281&type=chunk) [Item 4. Mine Safety Disclosures](index=52&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to Sarcos Technology and Robotics Corporation - This item is not applicable[282](index=282&type=chunk) PART II [Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=53&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Sarcos' Common Stock and Warrants trade on Nasdaq, with no anticipated cash dividends as earnings are retained for growth - Sarcos' Common Stock and Warrants are traded on The Nasdaq Stock Market under symbols **"STRC"** and **"STRCW"**[283](index=283&type=chunk) - As of **February 14, 2024**, there were **429 stockholders of record** for Common Stock and **29 for warrants**[283](index=283&type=chunk) - The company intends to retain all available funds and future earnings for business growth and does not plan to pay cash dividends in the foreseeable future[284](index=284&type=chunk) [Item 6. [Reserved]](index=53&type=section&id=Item%206.%20%5BReserved%5D) This item is reserved and contains no information [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=53&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Sarcos transitions to AI/ML software, optimizing cash and accelerating licensing revenue, reporting a **$115.6 million net loss** in 2023 - Sarcos' mission is to deliver AI/ML software to enhance third-party robotic systems, enabling them to observe, learn, reason, and act in structured and unstructured environments[286](index=286&type=chunk) - In **November 2023**, Sarcos suspended hardware product development to focus on commercializing its AI/ML Software Platform, optimizing its organization and reducing costs through recent RIFs and consolidating operations to Salt Lake City[287](index=287&type=chunk)[289](index=289&type=chunk) - The company's future success depends on the development, testing, and commercial launch of its AI/ML Software Platform, securing financing, generating customer demand, and continuous innovation in a volatile geopolitical and macroeconomic environment[291](index=291&type=chunk)[292](index=292&type=chunk)[293](index=293&type=chunk)[294](index=294&type=chunk)[295](index=295&type=chunk) [Overview](index=54&type=section&id=Overview) Sarcos is focusing on its AI/ML Software Platform, suspending hardware development to optimize cash and consolidate operations - Sarcos is focusing on its AI/ML Software Platform to enhance third-party robotic systems, enabling them to learn and adapt in real-time **'on the edge'** without continuous cloud connectivity[286](index=286&type=chunk) - The company suspended hardware development in **November 2023** to prioritize AI/ML software commercialization, aiming for a broader market and efficient use of cash resources[287](index=287&type=chunk) - This strategic shift includes optimizing the organization, reducing costs through RIFs, and consolidating operations to Salt Lake City, Utah[289](index=289&type=chunk) [Key Factors Affecting Operating Results](index=55&type=section&id=Key%20Factors%20Affecting%20Operating%20Results) Sarcos' future success depends on its AI/ML Software Platform's development, market acceptance, financing, and cost management - Sarcos' future success hinges on the timely and successful development, testing, and commercial launch of its AI/ML Software Platform, which is currently in its development phase[291](index=291&type=chunk) - The company relies on existing cash and may seek additional financing to fund operations and product development, with recent RIFs (**July and November 2023**) aimed at conserving cash and managing expenses[292](index=292&type=chunk) - Customer demand for the unproven AI/ML Software Platform is critical, and the company's financial performance is dependent on its ability to innovate, respond to evolving customer needs, and manage geopolitical and macroeconomic factors[293](index=293&type=chunk)[294](index=294&type=chunk)[295](index=295&type=chunk) [Basis of Presentation](index=56&type=section&id=Basis%20of%20Presentation) Sarcos operates as a single segment, with all long-lived assets and losses attributable to the United States - Sarcos conducts business through a single operating segment, with all long-lived assets and losses attributable to the United States[296](index=296&type=chunk) [Components of Results of Operations](index=56&type=section&id=Components%20of%20Results%20of%20Operations) Future revenue is expected from AI/ML Software Platform licensing, while operating expenses include R&D, G&A, and asset write-downs - Historically, revenue came from product development contracts and product sales; future revenue is expected primarily from AI/ML Software Platform licensing fees, with no licensing revenue recognized yet[297](index=297&type=chunk)[298](index=298&type=chunk) - Operating expenses include cost of revenue, R&D, G&A, sales & marketing, intangible amortization, asset write-down & restructuring, and goodwill impairment[302](index=302&type=chunk)[303](index=303&type=chunk)[304](index=304&type=chunk)[305](index=305&type=chunk)[307](index=307&type=chunk)[308](index=308&type=chunk) - Other income (loss) components include interest income, gain/loss on warrant liability, and other miscellaneous non-operating items[310](index=310&type=chunk)[311](index=311&type=chunk) [Results of Operations](index=59&type=section&id=Results%20of%20Operations) Sarcos reported a net loss of **$115.6 million** in 2023, an improvement from **$157.1 million** in 2022, driven by reduced G&A and no goodwill impairment Revenue, Net (2023 vs. 2022) | (In thousands) | 2023 | 2022 | Change | % Change | |:---------------|:-----|:-----|:-------|:---------| | Product Development Contract Revenue | $5,256 | $14,239 | $(8,983) | (63)% | | Product Revenue | $890 | $330 | $560 | 170% | | **Revenue, net** | **$6,146** | **$14,569** | **$(8,423)** | **(58)%** | - Product Development Contract Revenue decreased by **$9.0 million (63%)** due to the completion of certain contracts not yet replaced. Product Revenue increased by **$0.6 million (170%)** primarily from the sale of two Guardian Sea Class systems[315](index=315&type=chunk)[316](index=316&type=chunk) Operating Expenses (2023 vs. 2022) | (In thousands) | 2023 | 2022 | Change | % Change | |:---------------|:-----|:-----|:-------|:---------| | Cost of revenue | $5,041 | $11,614 | $(6,573) | (57)% | | Research and development | $39,012 | $34,144 | $4,868 | 14% | | General and administrative | $31,454 | $63,480 | $(32,026) | (50)% | | Sales and marketing | $10,828 | $9,949 | $879 | 9% | | Intangible amortization expense | $2,821 | $2,184 | $637 | 29% | | Asset write-down and restructuring | $37,946 | $— | $37,946 | *NM | | Goodwill impairment | $— | $70,236 | $(70,236) | (100)% | | **Total operating expenses** | **$127,102** | **$191,607** | **$(64,505)** | **(34)%** | - General and administrative expenses decreased by **$32.0 million (50%)** primarily due to reduced stock-based compensation and lower legal/insurance fees. Asset write-down and restructuring expenses were **$37.9 million** in 2023, including inventory write-downs and accelerated amortization of intangibles due to product development reprioritization[320](index=320&type=chunk)[323](index=323&type=chunk) - Goodwill impairment was **$0** in 2023, down from **$70.2 million** in 2022, as goodwill was fully impaired in the prior year due to sustained decreases in share price and market capitalization[324](index=324&type=chunk) Other Income (Loss) (2023 vs. 2022) | (In thousands) | 2023 | 2022 | Change | % Change | |:---------------|:-----|:-----|:-------|:---------| | Interest income, net | $3,294 | $1,831 | $1,463 | 80% | | Gain on warrant liability | $162 | $13,442 | $(13,280) | (99)% | | Other income, net | $1,914 | $743 | $1,171 | 158% | | **Total other income** | **$5,370** | **$16,016** | **$(10,646)** | **(66)%** | [Backlog and Total Estimated Contract Value](index=63&type=section&id=Backlog%20and%20Total%20Estimated%20Contract%20Value) Sarcos' backlog was **$8.1 million** as of December 31, 2023, with a total estimated contract value of **$18.1 million** - As of **December 31, 2023**, Sarcos' backlog (remaining performance obligations) was **$8.1 million**, with **$6.5 million funded** and **$1.6 million unfunded**, mostly expected to be recognized within **12 months**[327](index=327&type=chunk) - Total estimated contract value, including backlog and unexercised options, was **$18.1 million** as of **December 31, 2023**[327](index=327&type=chunk) [Liquidity and Capital Resources](index=63&type=section&id=Liquidity%20and%20Capital%20Resources) Sarcos had **$39.1 million** in cash as of December 31, 2023, sufficient for **12 months**, but future funding may be needed - As of **December 31, 2023**, Sarcos had **$39.1 million** in cash, cash equivalents, and marketable securities, which it believes is sufficient to support operations for at least the next **12 months**[328](index=328&type=chunk) - Future funding requirements depend on product development, commercialization success, and capital needs. Delays in software commercialization will negatively impact revenue and profitability, potentially requiring additional capital sooner[329](index=329&type=chunk)[330](index=330&type=chunk) - The company may opportunistically raise additional equity or debt financing, which could dilute existing stockholders or impose restrictive covenants[331](index=331&type=chunk) [Cash Flows](index=64&type=section&id=Cash%20Flows) Net cash used in operating activities increased by **$11.2 million** in 2023, while investing activities provided **$173.7 million** more cash Cash Flow Data (2023 vs. 2022) | (In thousands) | 2023 | 2022 | Change | % Change | |:---------------|:-----|:-----|:-------|:---------| | Net cash used in operating activities | $(76,620) | $(65,391) | $(11,229) | 17% | | Net cash provided by (used in) investing activities | $64,682 | $(109,045) | $173,727 | (159)% | | Net cash used in financing activities | $(82) | $(7,519) | $7,437 | (99)% | | **Net decrease in cash, cash equivalents** | **$(12,020)** | **$(181,955)** | **$169,935** | **(93)%** | - Net cash used in operating activities increased by **$11.2 million** to **$76.6 million** in 2023, primarily due to a decrease in non-cash expenses (goodwill impairment, stock-based compensation) partially offset by a decrease in net loss[334](index=334&type=chunk) - Net cash provided by investing activities increased by **$173.7 million**, mainly due to **$65.5 million** in marketable securities maturities (net of purchases) in 2023, compared to **$77.9 million** in purchases and **$29.7 million** for the RE2 acquisition in 2022[335](index=335&type=chunk) - Net cash used in financing activities decreased by **$7.4 million**, primarily due to an **$8.0 million** decrease in funds used for tax withholdings upon equity award vesting[336](index=336&type=chunk) [Emerging Growth Company Status](index=64&type=section&id=Emerging%20Growth%20Company%20Status) Sarcos is an "emerging growth company" under the JOBS Act, allowing for an extended transition period for accounting standards - Sarcos is an **"emerging growth company" (EGC)** under the JOBS Act and has elected to use the extended transition period for new or revised financial accounting standards[337](index=337&type=chunk)[338](index=338&type=chunk) - This EGC status allows Sarcos to delay adopting certain accounting standards until private companies are required to comply, potentially making financial comparisons with non-EGCs difficult[338](index=338&type=chunk) [Critical Accounting Policies and Estimates](index=66&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) Critical accounting policies include revenue recognition for long-term contracts and stock-based compensation fair value estimation - Critical accounting policies and estimates include revenue recognition (especially for long-term product development contracts using cost-to-cost method) and stock-based compensation (fair value estimation using Black-Scholes model)[339](index=339&type=chunk)[340](index=340&type=chunk)[342](index=342&type=chunk) - Estimates for revenue recognition, such as total expected costs, are reviewed at least quarterly, and changes are recognized on a cumulative catch-up basis[340](index=340&type=chunk)[341](index=341&type=chunk) [Recent Accounting Pronouncements](index=66&type=section&id=Recent%20Accounting%20Pronouncements) Sarcos adopted ASU 2016-13 with no material impact and expects no material impact from ASU 2023-09 in 2026 - Sarcos adopted ASU 2016-13 (Financial Instruments—Credit Losses) on **January 1, 2023**, with no material impact on its financial statements[403](index=403&type=chunk) - ASU 2023-09 (Income Taxes) issued in **December 2023**, requiring improved income tax disclosures, will be effective for Sarcos in annual periods beginning **January 1, 2026**, and is not expected to have a material impact[404](index=404&type=chunk) [Item 7A. Quantitative and Qualitative Disclosures About Market Risk](index=66&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Sarcos is a smaller reporting company and is therefore not required to provide market risk disclosures - Sarcos is a smaller reporting company and is exempt from providing quantitative and qualitative disclosures about market risk[344](index=344&type=chunk) [Item 8. Financial Statements and Supplementary Data](index=67&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) Presents audited consolidated financial statements for 2023 and 2022, reflecting the AI/ML pivot and a **$115.6 million net loss** - The consolidated financial statements for Sarcos Technology and Robotics Corporation as of **December 31, 2023 and 2022**, and for the two years then ended, have been audited by Ernst & Young LLP and present fairly the financial position, results of operations, and cash flows in conformity with U.S. GAAP[346](index=346&type=chunk) Consolidated Balance Sheet Highlights (in thousands) | Metric | December 31, 2023 | December 31, 2022 | |:-------|:------------------|:------------------| | Cash and cash equivalents | $23,139 | $35,159 | | Marketable securities | $15,947 | $79,337 | | Total current assets | $45,063 | $129,099 | | Total assets | $60,426 | $167,625 | | Total liabilities | $19,521 | $23,175 | | Total stockholders' equity | $40,905 | $144,450 | | Accumulated deficit | $(418,214) | $(302,621) | Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | Year Ended Dec 31, 2023 | Year Ended Dec 31, 2022 | |:-------|:------------------------|:------------------------| | Revenue, net | $6,146 | $14,569 | | Total operating expenses | $127,102 | $191,607 | | Loss from operations | $(120,956) | $(177,038) | | Net loss | $(115,593) | $(157,130) | | Basic and diluted net loss per share | $(4.51) | $(6.42) | Consolidated Statements of Cash Flows Highlights (in thousands) | Metric | Year Ended Dec 31, 2023 | Year Ended Dec 31, 2022 | |:-------|:------------------------|:------------------------| | Net cash used in operating activities | $(76,620) | $(65,391) | | Net cash provided by (used in) investing activities | $64,682 | $(109,045) | | Net cash used in financing activities | $(82) | $(7,519) | | Net decrease in cash, cash equivalents | $(12,020) | $(181,955) | [Report of Independent Registered Public Accounting Firm](index=68&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) Ernst & Young LLP issued an unqualified opinion on Sarcos' 2023 and 2022 consolidated financial statements, affirming GAAP conformity - Ernst & Young LLP audited Sarcos' consolidated financial statements for **2023 and 2022**, expressing an unqualified opinion that they present fairly, in all material respects, the financial position and results of operations in conformity with U.S. GAAP[346](index=346&type=chunk) - The audit was conducted in accordance with PCAOB standards, assessing risks of material misstatement and evaluating accounting principles and estimates[348](index=348&type=chunk)[349](index=349&type=chunk) [Consolidated Balance Sheets](index=69&type=section&id=Consolidated%20Balance%20Sheets) Consolidated Balance Sheet (in thousands) | Assets | Dec 31, 2023 | Dec 31, 2022 | |:-------|:-------------|:-------------| | Cash and cash equivalents | $23,139 | $35,159 | | Marketable securities | $15,947 | $79,337 | | Accounts receivable | $555 | $1,866 | | Unbilled receivables | $2,034 | $4,160 | | Inventories | $1,065 | $3,562 | | Prepaid expenses and other current assets | $2,323 | $5,015 | | **Total current assets** | **$45,063** | **$129,099** | | Property and equipment, net | $4,842 | $7,640 | | Intangible assets, net | $— | $19,116 | | Operating lease assets | $10,092 | $11,283 | | Other non-current assets | $429 | $487 | | **Total assets** | **$60,426** | **$167,625** | | Liabilities | | | | Accounts payable | $1,291 | $3,620 | | Accrued liabilities | $5,805 | $6,025 | | Current operating lease liabilities | $1,360 | $887 | | **Total current liabilities** | **$8,456** | **$10,532** | | Operating lease liabilities | $11,036 | $12,387 | | Other non-current liabilities | $29 | $256 | | **Total liabilities** | **$19,521** | **$23,175** | | Stockholders' Equity | | | | Additional paid-in capital | $459,113 | $447,085 | | Accumulated other comprehensive income (loss) | $3 | $(17) | | Accumulated deficit | $(418,214) | $(302,621) | | **Total stockholders' equity** | **$40,905** | **$144,450** | | **Total liabilities and stockholders' equity** | **$60,426** | **$167,625** | [Consolidated Statements of Operations](index=70&type=section&id=Consolidated%20Statements%20of%20Operations) Consolidated Statements of Operations (in thousands, except per share data) | Metric | Year Ended Dec 31, 2023 | Year Ended Dec 31, 2022 | |:-------|:------------------------|:------------------------| | Revenue, net | $6,146 | $14,569 | | Operating expenses: | | | | Cost of revenue | $5,041 | $11,614 | | Research and development | $39,012 | $34,144 | | General and administrative | $31,454 | $63,480 | | Sales and marketing | $10,828 | $9,949 | | Intangible amortization expense | $2,821 | $2,184 | | Asset write-down and restructuring | $37,946 | $— | | Goodwill impairment | $— | $70,236 | | Total operating expenses | $127,102 | $191,607 | | Loss from operations | $(120,956) | $(177,038) | | Interest income, net | $3,294 | $1,831 | | Gain on warrant liability | $162 | $13,442 | | Other income, net | $1,914 | $743 | | Loss before income tax (expense) benefit | $(115,586) | $(161,022) | | Income tax (expense) benefit | $(7) | $3,892 | | **Net loss** | **$(115,593)** | **$(157,130)** | | Net loss per share (Basic and diluted) | $(4.51) | $(6.42) | | Weighted-average shares used in computing net loss per share (Basic and diluted) | 25,639,270 | 24,473,212 | [Consolidated Statements of Comprehensive Loss](index=71&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Loss) Consolidated Statements of Comprehensive Loss (in thousands) | Metric | Year Ended Dec 31, 2023 | Year Ended Dec 31, 2022 | |:-------|:------------------------|:------------------------| | Net loss | $(115,593) | $(157,130) | | Change in unrealized gain (loss) on available-for-sale investments | $20 | $(17) | | **Total other comprehensive income (loss)** | **$20** | **$(17)** | | **Comprehensive loss** | **$(115,573)** | **$(157,147)** | [Consolidated Statements of Cash Flows](index=71&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Consolidated Statements of Cash Flows (in thousands) | Cash flows from operating activities: | Year Ended Dec 31, 2023 | Year Ended Dec 31, 2022 | |:--------------------------------------|:------------------------|:------------------------| | Net loss | $(115,593) | $(157,130) | | Stock-based compensation | $12,043 | $35,645 | | Depreciation of property and equipment | $1,554 | $1,409 | | Amortization of intangible assets | $2,821 | $2,184 | | Change in fair value of warrant liability | $(162) | $(13,442) | | Asset write-down | $30,101 | $— | | Goodwill impairment | $— | $70,236 | | Changes in operating assets and liabilities (net) | $(6,330) | $2,042 | | **Net cash used in operating activities** | **$(76,620)** | **$(65,391)** | | Cash flows from investing activities: | | | | Purchases of property and equipment | $(782) | $(1,498) | | Acquisition of a business, net of cash acquired | $— | $(29,687) | | Purchases of marketable securities | $(64,536) | $(177,860) | | Maturities of marketable securities | $130,000 | $100,000 | | **Net cash provided by (used in) investing activities** | **$64,682** | **$(109,045)** | | Cash flows from financing activities: | | | | Proceeds from exercise of stock options | $— | $683 | | Shares repurchased for payment of tax withholdings | $(78) | $(8,107) | | Payment of obligations under capital leases | $(4) | $(95) | | **Net cash used in financing activities** | **$(82)** | **$(7,519)** | | **Net decrease in cash, cash equivalents** | **$(12,020)** | **$(181,955)** | | Cash and cash equivalents at end of period | $23,139 | $35,159 | [Consolidated Statements of Stockholders' Equity](index=73&type=section&id=Consolidated%20Statements%20of%20Stockholders'%20Equity) Consolidated Statements of Stockholders' Equity (in thousands, except share data) | Metric | Dec 31, 2023 | Dec 31, 2022 | |:-------|:-------------|:-------------| | Class A Shares | 25,877,865 | 25,708,519 | | Additional Paid-In Capital | $459,113 | $447,085 | | Accumulated Other Comprehensive Income (Loss) | $3 | $(17) | | Accumulated Deficit | $(418,214) | $(302,621) | | **Total Stockholders' Equity** | **$40,905** | **$144,450** | [Notes to Consolidated Financial Statements](index=74&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) [1. Basis of Presentation and Summary of Significant Accounting Policies](index=74&type=section&id=1.%20Basis%20of%20Presentation%20and%20Summary%20of%20Significant%20Accounting%20Policies) Sarcos' financial statements reflect its pivot to AI/ML software, significant restructuring charges, and sufficient liquidity for **12 months** - Sarcos' mission is to deliver AI/ML software to enhance third-party robotic systems, enabling them to observe, learn, reason, and act in structured and unstructured environments[361](index=361&type=chunk) - The company completed a business combination with Rotor Acquisition Corp. in **September 2021** and acquired RE2, Inc. in **April 2022**. A **1-for-6 reverse stock split** was effected on **July 5, 2023**[363](index=363&type=chunk)[364](index=364&type=chunk)[365](index=365&type=chunk) - In **2023**, Sarcos announced two restructuring efforts (**July and November**) to pivot its strategy to focus on the AI/ML Software Platform, resulting in total charges of **$37.9 million**, including inventory write-downs, accelerated intangible amortization, and severance[366](index=366&type=chunk)[367](index=367&type=chunk) - As of **December 31, 2023**, cash, cash equivalents, and marketable securities totaled **$39.1 million**, with an accumulated deficit of **$418.2 million**. The company believes it has sufficient liquidity for at least the next **12 months**[369](index=369&type=chunk)[370](index=370&type=chunk) - Sarcos' revenue is primarily from product development contracts and product sales, with future revenue expected from AI/ML Software Platform licensing. Revenue recognition for contracts is generally over time using a cost-to-cost input method[389](index=389&type=chunk)[390](index=390&type=chunk)[392](index=392&type=chunk) [2. Fair Value Measurements](index=83&type=section&id=2.%20Fair%20Value%20Measurements) Sarcos measures financial assets and liabilities at fair value using a three-level hierarchy, with warrants transferred to Level 2 in Q1 2022 - Sarcos measures certain financial assets and liabilities at fair value on a recurring basis, categorizing them into a three-level hierarchy based on observable inputs[405](index=405&type=chunk)[406](index=406&type=chunk)[407](index=407&type=chunk) Financial Assets and Liabilities Measured at Fair Value (in thousands) | Category | December 31, 2023 | December 31, 2022 | |:---------|:------------------|:------------------| | **Assets:** | | | | U.S. Treasury securities (Cash equivalents) | $4,973 (Level 1) | $— | | U.S. Treasury securities (Marketable securities) | $15,947 (Level 1) | $79,337 (Level 1) | | **Total assets** | **$20,920** | **$79,337** | | **Liabilities:** | | | | Warrant liability | $29 (Level 2) | $253 (Level 2) | | **Total liabilities** | **$29** | **$253** | - In **Q1 2022**, the fair value measurement of private placement warrants was transferred from Level 3 to Level 2 due to the availability of public warrant trading prices[408](index=408&type=chunk) [3. Balance Sheet Components](index=85&type=section&id=3.%20Balance%20Sheet%20Components) Sarcos' inventories decreased significantly in 2023, and property and equipment, net, also declined due to depreciation Inventories, Net (in thousands) | Category | December 31, 2023 | December 31, 2022 | |:---------|:------------------|:------------------| | Raw materials | $— | $2,081 | | Work-in-process | $— | $180 | | Finished goods, net | $1,065 | $1,301 | | **Total inventories** | **$1,065** | **$3,562** | Property and Equipment, Net (in thousands) | Category | December 31, 2023 | December 31, 2022 | |:---------|:------------------|:------------------| | Robotics and manufacturing equipment | $1,841 | $1,610 | | Leasehold improvements | $4,458 | $4,442 | | Computer equipment | $1,729 | $1,719 | | Financed leased computer equipment | $19 | $271 | | Software | $44 | $389 | | Furniture and fixtures, and other fixed assets | $1,018 | $1,835 | | Property and equipment, gross | $9,109 | $10,266 | | Accumulated depreciation | $(4,267) | $(2,626) | | **Property and equipment, net** | **$4,842** | **$7,640** | - Depreciation expenses were **$2.8 million** in 2023, including **$1.2 million** of accelerated depreciation related to shutting down Pittsburgh facilities, compared to **$1.4 million** in 2022[411](index=411&type=chunk) [4. Leases](index=87&type=section&id=4.%20Leases) Sarcos leases office space with a weighted-average remaining lease term of **9.0 years** and total future minimum payments of **$15.6 million** - Sarcos leases real estate for office space under operating leases expiring through **2033**. Lease costs for operating leases were **$1.86 million** in 2023 and **$1.64 million** in 2022[414](index=414&type=chunk)[415](index=415&type=chunk) - The weighted-average remaining lease term for operating leases was **9.0 years** as of **December 31, 2023**, with a weighted-average discount rate of **5.4%**[416](index=416&type=chunk) Undiscounted Future Minimum Lease Payments (in thousands) | Year | Operating Leases | |:-----|:-----------------| | 2024 | $1,968 | | 2025 | $1,619 | | 2026 | $1,488 | | 2027 | $1,529 | | 2028 | $1,571 | | 2029 and thereafter | $7,465 | | **Total lease payments** | **$15,640** | | Less interest | $3,244 | | **Present value of lease liabilities** | **$12,396** | [5. Acquisition](index=88&type=section&id=5.%20Acquisition) Sarcos acquired RE2, Inc. in **April 2022** for **$90.1 million**, recognizing **$70.2 million** in goodwill and **$21.3 million** in intangible assets - On **April 25, 2022**, Sarcos acquired RE2, Inc., a developer of mobile robotic systems, for an aggregate consideration of **$90.1 million**, comprising **$30.7 million in cash**, **$44.0 million in common stock**, and **$15.4 million in assumed options**[420](index=420&type=chunk) - The acquisition resulted in the recognition of **$70.2 million in goodwill** and **$21.3 million in identifiable intangible assets**, including trade names, developed technology, and customer relationships[422](index=422&type=chunk)[423](index=423&type=chunk) Identifiable Intangible Assets Acquired (in thousands) | Category | Amounts | Useful Life (in years) | |:---------|:--------|:-----------------------| | Trade name and trademarks | $1,000 | 6 | | Developed technology | $9,600 | 5 | | Customer relationships | $10,700 | 9 | | **Total intangible assets** | **$21,300** | **7** | [6. Goodwill and Intangible Assets](index=90&type=section&id=6.%20Goodwill%20and%20Intangible%20Assets) Sarcos fully impaired its goodwill in 2022 and recorded **$16.3 million** in accelerated intangible asset amortization in 2023 - Sarcos fully impaired its goodwill, recording a non-cash goodwill impairment of **$70.2 million** as of **December 31, 2022**, due to sustained decreases in its publicly quoted share price and market capitalization[425](index=425&type=chunk) Acquired Intangible Assets, Net (in thousands) | Category | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | |:---------|:----------------------|:-------------------------|:--------------------| | **December 31, 2023** | | | | | Trade name and trademarks | $1,000 | $1,000 | $— | | Developed technology | $9,600 | $9,600 | $— | | Customer relationships | $10,700 | $10,700 | $— | | **Total** | **$21,300** | **$21,300** | **$—** | | **December 31, 2022** | | | | | Trade name and trademarks | $1,000 | $111 | $889 | | Developed technology | $9,600 | $1,280 | $8,320 | | Customer relationships | $10,700 | $793 | $9,907 | | **Total** | **$21,300** | **$2,184** | **$19,116** | - In **2023**, Sarcos recorded **$16.3 million** of accelerated amortization expense for intangible assets due to its product development reprioritization, resulting in a net carrying amount of **$0** for all acquired intangible assets by year-end[427](index=427&type=chunk) [7. Earn-Out Shares](index=91&type=section&id=7.%20Earn-Out%20Shares) Holders of Old Sarcos capital stock are entitled to up to **4,687,500 Earn-Out Shares** if specific common stock price thresholds are met - Holders of Old Sarcos capital stock are entitled to up to **4,687,500 Earn-Out Shares**, payable if the company's common stock closing price meets specific thresholds (**$90.00 or $120.00**) within defined periods post-Business Combination[428](index=428&type=chunk) - These Earn-Out Shares are treated as equity-linked instruments and are not included in shares outstanding on the consolidated balance sheets[429](index=429&type=chunk) [8. Warrants](index=91&type=section&id=8.%20Warrants) Sarcos has **20,549,453 Warrants** outstanding as of December 31, 2023, each for one-sixth of a share at **$11.50**, expiring September 24, 2026 - Sarcos has Public Warrants and Private Placement Warrants outstanding, each entitling the holder to purchase **one-sixth of a Common Stock share at $11.50**, expiring **September 24, 2026**[430](index=430&type=chunk)[431](index=431&type=chunk) - As of **December 31, 2023**, there were **20,549,453 Warrants** outstanding[431](index=431&type=chunk) - The company may redeem outstanding Warrants if the Common Stock price equals or exceeds **$108.00** (at **$0.01 per Warrant**) or **$60.00** (at **$0.10 per Warrant**, with cashless exercise option), subject to certain conditions[435](index=435&type=chunk)[437](index=437&type=chunk) [9. Stock-based Compensation](index=92&type=section&id=9.%20Stock-based%20Compensation) Sarcos' 2021 Equity Incentive Plan had **2.7 million shares** available for grant as of December 31, 2023, with **$10.4 million** in unrecognized compensation cost - Sarcos' 2021 Equity Incentive Plan allows for stock options, RSUs, RSAs, and performance awards, with **2.7 million shares** available for grant as of **December 31, 2023**[438](index=438&type=chunk) Stock Option Activity (2023 vs. 2022) | Metric | Number of Shares (2023) | Weighted Average Exercise Price (2023) | Number of Shares (2022) | Weighted Average Exercise Price (2022) | |:-------|:------------------------|:---------------------------------------|:------------------------|:---------------------------------------| | Outstanding – Dec 31 | 2,845,084 | $9.82 | 2,377,503 | $16.80 | | Granted | 1,859,200 | $2.78 | 1,255,904 | $12.31 | | Cancelled | (1,391,619) | $12.35 | (233,953) | $33.08 | Stock-Based Compensation Expense (in thousands) | Category | Year Ended Dec 31, 2023 | Year Ended Dec 31, 2022 | |:---------|:------------------------|:------------------------| | Cost of revenue | $107 | $87 | | Research and development | $1,127 | $712 | | Sales and marketing | $808 | $863 | | General and administrative | $5,606 | $33,983 | | Asset write-down and restructuring | $4,395 | $— | | **Total stock-based compensation expense** | **$12,043** | **$35,645** | - As of **December 31, 2023**, unrecognized stock-based compensation cost was approximately **$10.4 million**, expected to be recognized over a weighted average period of **2.5 years**[448](index=448&type=chunk) [10. Net loss per Share](index=97&type=section&id=10.%20Net%20loss%20per%20Share) Sarcos reported a basic and diluted net loss per share of **$(4.51)** in 2023 and **$(6.42)** in 2022 Net Loss Per Share (Basic and Diluted) | Metric | Year Ended Dec 31, 2023 | Year Ended Dec 31, 2022 | |:-------|:------------------------|:------------------------| | Net loss (in thousands) | $(115,593) | $(157,130) | | Weighted average shares outstanding | 25,639,270 | 24,473,212 | | **Basic and diluted net loss per share** | **$(4.51)** | **$(6.42)** | - Basic and diluted net loss per share were the same for both periods as the inclusion of potential common stock shares would have been anti-dilutive[449](index=449&type=chunk) [11. Income taxes](index=97&type=section&id=11.%20Income%20taxes) Sarcos recorded a **$7 thousand** income tax expense in 2023, with a full valuation allowance against deferred tax assets Income Tax Benefit (Expense) (in thousands) | Category | Year Ended Dec 31, 2023 | Year Ended Dec 31, 2022 | |:---------|:------------------------|:------------------------| | Current | $(7) | $(3) | | Deferred | $0 | $3,895 | | **Total income tax benefit (expense)** | **$(7)** | **$3,892** | - Sarcos recorded a **$7 thousand** income tax expense in 2023, a decrease from a **$3.9 million** benefit in 2022, which was due to the removal of a valuation allowance on deferred tax assets from the RE2 acquisition[326](index=326&type=chunk)[450](index=450&type=chunk) - As of **December 31, 2023**, Sarcos had cumulative federal net operating losses of **$201.5 million** (mostly with indefinite carryforward) and state net operating losses of **$145.5 million**[454](index=454&type=chunk)[456](index=456&type=chunk) - A full valuation allowance of **$78.6 million** was recorded against deferred tax assets as of **December 31, 2023**, due to cumulative losses, indicating uncertainty of future realization[453](index=453&type=chunk) [12. Commitments and Contingencies](index=101&type=section&id=12.%20Commitments%20and%20Contingencies) Sarcos has no material loss contingencies from legal proceedings and has not accrued liabilities for indemnifications - Sarcos may be involved in various claims and lawsuits in the normal course of business but has not recorded any material loss contingency related to legal proceedings as of **December 31, 2023 and 2022**[461](index=461&type=chunk) - The company provides indemnifications to investors, directors, officers, employees, customers, or vendors, but has not accrued a liability for these obligations as the likelihood of material payment is not probable or estimable[462](index=462&type=chunk) [13. Segment information](index=101&type=section&id=13.%20Segment%20information) Sarcos operates as a single reportable segment, with most revenue and all long-lived assets attributable to the U.S - Sarcos operates as a single reportable segment, with the CEO acting as the Chief Operating Decision Maker (CODM) who allocates resources and makes operating decisions based on consolidated financial information[463](index=463&type=chunk) - The majority of Sarcos' revenue is derived from U.S. customers, with **$1.9 million** from non-U.S. customers in 2023 and **$2.8 million** in 2022. All long-lived assets and losses are attributable to operations within the United States[464](index=464&type=chunk) [14. Employee Benefits](index=101&type=section&id=14.%20Employee%20Benefits) Sarcos offers 401(k) plans with matching contributions, which increased to **$1.5 million** in 2023 - Sarcos offers defined contribution 401(k) plans to substantially all employees, with matching contributions beginning in **April 2022**[465](index=465&type=chunk) - The company recognized **$1.5 million** in 401(k) matching contributions expense in 2023, an increase from **$0.9 million** in 2022[465](index=465&type=chunk) [Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=102&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) Sarcos Technology and Robotics Corporation reports no changes in or disagreements with its accountants on accounting and financial disclosure matters - There have been no changes in or disagreements with accountants on accounting and financial disclosure[466](index=466&type=chunk) [Item 9A. Controls and Procedures](index=102&type=section&id=Item%209A.%20Controls%20and%20Procedures) Sarcos' management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2023 - Sarcos' management, including its Certifying Officers, concluded that disclosure controls and procedures were effective as of **December 31, 2023**[467](index=467&type=chunk) - Management also concluded that internal control over financial reporting was effective as of **December 31, 2023**, based on the COSO framework[469](index=469&type=chunk) - No material changes in internal control over financial reporting occurred during the fiscal quarter ended **December 31, 2023**[470](index=470&type=chunk) [Item 9B. Other Information](index=102&type=section&id=Item%209B

PART I. FINANCIAL INFORMATION [Item 1. Financial Statements (Unaudited)](index=5&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section presents the unaudited condensed consolidated financial statements for Sarcos Technology and Robotics Corporation, including the balance sheets, statements of operations, comprehensive loss, stockholders' equity, and cash flows, along with detailed notes explaining the basis of presentation, significant accounting policies, and specific balance sheet components [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) | Metric | September 30, 2023 (Unaudited) (in thousands) | December 31, 2022 (in thousands) | | :-------------------------------- | :-------------------------------------------- | :------------------------------- | | Total current assets | $61,390 | $129,099 | | Total assets | $95,583 | $167,625 | | Total current liabilities | $7,947 | $10,532 | | Total liabilities | $19,428 | $23,175 | | Total stockholders' equity | $76,155 | $144,450 | | Accumulated deficit | $(381,738) | $(302,621) | [Condensed Consolidated Statements of Operations](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) | Metric | Three Months Ended September 30, 2023 (in thousands) | Three Months Ended September 30, 2022 (in thousands) | Nine Months Ended September 30, 2023 (in thousands) | Nine Months Ended September 30, 2022 (in thousands) | | :----------------------------------- | :--------------------------------------------------- | :--------------------------------------------------- | :-------------------------------------------------- | :-------------------------------------------------- | | Revenue, net | $1,827 | $4,667 | $5,400 | $8,448 | | Loss from operations | $(30,754) | $(27,250) | $(83,901) | $(81,862) | | Net loss | $(28,981) | $(22,499) | $(79,117) | $(64,819) | | Net loss per share (Basic and diluted) | $(1.13) | $(0.89) | $(3.09) | $(2.68) | [Condensed Consolidated Statements of Comprehensive Loss](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Loss) | Metric | Three Months Ended September 30, 2023 (in thousands) | Three Months Ended September 30, 2022 (in thousands) | Nine Months Ended September 30, 2023 (in thousands) | Nine Months Ended September 30, 2022 (in thousands) | | :------------------- | :--------------------------------------------------- | :--------------------------------------------------- | :-------------------------------------------------- | :-------------------------------------------------- | | Comprehensive loss | $(28,967) | $(22,633) | $(79,098) | $(64,953) | [Condensed Consolidated Statements of Stockholders' Equity](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) | Metric | December 31, 2022 (in thousands) | September 30, 2023 (in thousands) | | :-------------------------- | :------------------------------- | :-------------------------------- | | Total Stockholders' Equity | $144,450 | $76,155 | | Accumulated Deficit | $(302,621) | $(381,738) | | Stock-based compensation (9M) | N/A | $10,808 | [Condensed Consolidated Statements of Cash Flows](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) | Metric | Nine Months Ended September 30, 2023 (in thousands) | Nine Months Ended September 30, 2022 (in thousands) | | :------------------------------------------ | :-------------------------------------------------- | :-------------------------------------------------- | | Net cash used in operating activities | $(60,123) | $(44,448) | | Net cash provided by (used in) investing activities | $60,345 | $(149,429) | | Net cash used in financing activities | $(71) | $(7,108) | | Net increase (decrease) in cash, cash equivalents | $151 | $(200,985) | | Cash and cash equivalents at end of period | $35,310 | $16,129 | [Notes to Unaudited Condensed Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) [1. Basis of Presentation and Summary of Significant Accounting Policies](index=11&type=section&id=1.%20Basis%20of%20Presentation%20and%20Summary%20of%20Significant%20Accounting%20Policies) - Sarcos is a leader in advanced robotic technology, focusing on AI/ML software for generalizable autonomy in challenging, dynamic environments[16](index=16&type=chunk) - The company completed a **1-for-6 reverse stock split** on July 5, 2023, retroactively adjusting all share and per share amounts[26](index=26&type=chunk) - In July 2023, the company refined its sales strategy to focus on products with near-term revenue potential, including its commercial AI/ML software platform, leading to **$5.5 million** in restructuring charges for Q3 2023 and **$10.6 million** for the nine months ended September 30, 2023[27](index=27&type=chunk) - Subsequent to September 30, 2023, the company announced a decision to suspend commercialization efforts on subsea, aviation, and solar robotics hardware programs to focus on its commercial AI/ML software platform, anticipating an additional **$22 million** to **$24 million** in restructuring expenses in Q4 2023 and Q1 2024[28](index=28&type=chunk)[29](index=29&type=chunk) | Revenue Source | 3 Months Ended Sep 30, 2023 (in thousands) | 3 Months Ended Sep 30, 2022 (in thousands) | 9 Months Ended Sep 30, 2023 (in thousands) | 9 Months Ended Sep 30, 2022 (in thousands) | | :------------------------------- | :----------------------------------------- | :----------------------------------------- | :----------------------------------------- | :----------------------------------------- | | Product Development Contract Revenue | $1,044 | $4,488 | $4,614 | $8,203 | | Product Revenue | $783 | $179 | $786 | $245 | | **Total Revenue, net** | **$1,827** | **$4,667** | **$5,400** | **$8,448** | [2. Fair Value Measurements](index=15&type=section&id=2.%20Fair%20Value%20Measurements) | Asset/Liability | September 30, 2023 (in thousands) | December 31, 2022 (in thousands) | | :---------------------- | :-------------------------------- | :------------------------------- | | Total assets at fair value | $41,646 | $79,337 | | Warrant liability | $92 | $253 | [3. Balance Sheet Components](index=16&type=section&id=3.%20Balance%20Sheet%20Components) | Metric | September 30, 2023 (in thousands) | December 31, 2022 (in thousands) | | :-------------------------------- | :-------------------------------- | :------------------------------- | | Inventories, net | $1,108 | $3,562 | | Inventory reserves | $1,100 | $400 | | Prepaid expenses and other current assets | $2,146 | $5,015 | | Property and equipment, net | $6,693 | $7,640 | | Accrued liabilities | $4,580 | $6,025 | [4. Acquisitions](index=18&type=section&id=4.%20Acquisitions) - On April 25, 2022, Sarcos acquired RE2, Inc., a developer of autonomous and teleoperated mobile robotic systems, for an aggregate consideration of **$90.1 million**[58](index=58&type=chunk) | Acquired Intangible Asset | Amounts (in thousands) | Weighted Average Useful Life (in years) | | :------------------------ | :--------------------- | :-------------------------------------- | | Trade name and trademarks | $1,000 | 6 | | Developed technology | $9,600 | 5 | | Customer relationships | $10,700 | 9 | | **Total intangible assets** | **$21,300** | **7** | | Goodwill | $70,236 | N/A | [5. Goodwill and Intangible Assets](index=20&type=section&id=5.%20Goodwill%20and%20Intangible%20Assets) - Goodwill was **fully impaired** as of December 31, 2022, due to sustained decreases in the company's publicly quoted share price[63](index=63&type=chunk) | Acquired Intangible Asset | Net Carrying Amount (in thousands) as of Sep 30, 2023 | | :------------------------ | :---------------------------------------------------- | | Trade name and trademarks | $764 | | Developed technology | $6,880 | | Customer relationships | $9,016 | | **Total** | **$16,660** | | Period | Amortization Expense (in thousands) | | :----- | :---------------------------------- | | 3 Months Ended Sep 30, 2023 | $800 | | 3 Months Ended Sep 30, 2022 | $800 | | 9 Months Ended Sep 30, 2023 | $2,500 | | 9 Months Ended Sep 30, 2022 | $1,400 | [6. Reverse Recapitalization](index=21&type=section&id=6.%20Reverse%20Recapitalization) - The business combination was accounted for as a reverse recapitalization, with Old Sarcos deemed the accounting acquirer[66](index=66&type=chunk) - Earn-Out Shares of up to **4,687,500 common shares** are potentially issuable upon achievement of stock price milestones (**$90.00** and **$120.00** per share) and are treated as equity-linked instruments, not outstanding shares[67](index=67&type=chunk)[68](index=68&type=chunk) [7. Warrants](index=21&type=section&id=7.%20Warrants) - As of September 30, 2023, there were outstanding warrants to purchase **3,424,908 shares** of Common Stock at an exercise price of **$11.50** per warrant (adjusted for the reverse stock split), expiring on September 24, 2026[70](index=70&type=chunk) - The company may redeem outstanding warrants under certain conditions, including if the common stock price equals or exceeds **$108.00** or **$60.00** per share[74](index=74&type=chunk)[76](index=76&type=chunk) [8. Stock-based Compensation](index=22&type=section&id=8.%20Stock-based%20Compensation) - The 2021 Equity Incentive Plan has **2.5 million shares** available for grant as of September 30, 2023[78](index=78&type=chunk) | Stock Option Activity | September 30, 2023 | | :-------------------- | :----------------- | | Options Outstanding | 3,164,964 | | Weighted Average Exercise Price | $9.79 | | Exercisable Options | 1,358,810 | | Weighted Average Exercise Price (Exercisable) | $11.26 | | Restricted Stock Units Activity | September 30, 2023 | | :------------------------------ | :----------------- | | RSUs Outstanding | 1,196,605 | | Weighted-Average Grant-Date Fair Value | $5.67 | | Stock-based Compensation Expense (in thousands) | 3 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2023 | | :---------------------------------------------- | :-------------------------- | :-------------------------- | | Total stock-based compensation expense | $6,074 | $10,808 | [9. Net Loss Per Share](index=25&type=section&id=9.%20Net%20Loss%20Per%20Share) | Metric | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :----------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net loss | $(28,981) | $(22,499) | $(79,117) | $(64,819) | | Weighted average shares outstanding | 25,706,023 | 25,156,756 | 25,563,895 | 24,180,445 | | Basic and diluted net loss per share | $(1.13) | $(0.89) | $(3.09) | $(2.68) | - Anti-dilutive securities totaling **12,473,978** for the nine months ended September 30, 2023, were excluded from diluted share calculation due to net losses[84](index=84&type=chunk) [10. Income Taxes](index=25&type=section&id=10.%20Income%20Taxes) | Metric | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Income tax (expense) benefit | $0 | $2,465 | $(3) | $4,071 | - The company recorded a full valuation allowance on net deferred tax assets due to net losses, resulting in an effective tax rate differing from the U.S. federal statutory rate[86](index=86&type=chunk) [11. Commitments and Contingencies](index=25&type=section&id=11.%20Commitments%20and%20Contingencies) - The company is involved in various legal proceedings but has not recorded any **material loss contingency** as of September 30, 2023, or December 31, 2022[87](index=87&type=chunk) - No liability has been accrued for indemnification obligations as the likelihood of incurring a **material payment** is not probable or reasonably estimable[88](index=88&type=chunk) [12. Segment Information](index=26&type=section&id=12.%20Segment%20Information) - The company operates as a single reportable segment, with the CEO acting as the Chief Operating Decision Maker[89](index=89&type=chunk) | Revenue from Customers Outside US (in thousands) | 3 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2023 | | :----------------------------------------------- | :-------------------------- | :-------------------------- | | Revenue | $1,100 | $2,000 | [13. Employee Benefits](index=26&type=section&id=13.%20Employee%20Benefits) - The company offers a defined contribution 401(k) plan to substantially all employees, with matching contributions initiated in April 2022[92](index=92&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=26&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition and results of operations, highlighting the strategic pivot to focus on AI/ML software, the impact of restructuring efforts, and key factors affecting financial performance [Special Note Regarding Forward-Looking Statements](index=27&type=section&id=Special%20Note%20Regarding%20Forward-Looking%20Statements) - The report contains forward-looking statements regarding future financial performance, business strategies, and expectations, including the successful pivot to AI/ML software, development and sales capabilities, market size, product roadmap, competition, growth management, intellectual property, and compliance[93](index=93&type=chunk)[94](index=94&type=chunk) - These statements are based on current expectations and assumptions, involve risks and uncertainties, and should not be unduly relied upon, with no obligation to update them except as required by law[96](index=96&type=chunk)[97](index=97&type=chunk)[98](index=98&type=chunk) [Overview](index=28&type=section&id=Overview) - Sarcos is a leader in advanced robotic technology, specializing in AI/ML software for generalizable autonomy to enhance industrial robot intelligence, efficiency, and productivity[99](index=99&type=chunk) - On November 14, 2023, the company announced a **strategic pivot** to prioritize the development of its commercial AI/ML software platform, suspending commercialization efforts on subsea, aviation, and solar robotics hardware programs to reduce capital requirements and pursue near-term revenue[100](index=100&type=chunk) - The AI/ML software platform, initially conceived as CYTAR for internal hardware, is being de-coupled for application to a wide range of third-party robotics systems and will be offered through a software-as-a-service (SaaS) revenue model[102](index=102&type=chunk) [Continuing Impact of COVID-19](index=29&type=section&id=Continuing%20Impact%20of%20COVID-19) - The COVID-19 pandemic has caused disruptions in recruitment, retention of qualified employees, supply chains, and customer demand, adversely affecting the business, results of operations, and financial condition[104](index=104&type=chunk) [Key Factors Affecting Operating Results](index=29&type=section&id=Key%20Factors%20Affecting%20Operating%20Results) - The company's near- to mid-term financial success is dependent on the successful development, launch, and sale of its commercial AI/ML software platform, with potential delays impacting financial condition and operating results[106](index=106&type=chunk) - The company expects to launch its commercial AI/ML software platform in the first half of 2024 and begin recognizing revenue in the second half of 2024, with recent **workforce reductions** (RIFs) in July and November 2023 aimed at conserving cash and managing operating expenses[107](index=107&type=chunk)[108](index=108&type=chunk) - Customer demand for the AI/ML software platform is **unproven**, and inaccurate assumptions about market characteristics, pricing, and sales cycles could adversely affect the business[109](index=109&type=chunk) - Financial performance relies on continuous investment in R&D to adapt to evolving customer requirements and competitive threats, with geopolitical and macro-economic factors also influencing demand and costs[110](index=110&type=chunk)[111](index=111&type=chunk) [Results of Operations](index=30&type=section&id=Results%20of%20Operations) [Comparison of the Three Months Ended September 30, 2023, and 2022](index=30&type=section&id=Comparison%20of%20the%20Three%20Months%20Ended%20September%2030,%202023,%20and%202022) | Metric | 3 Months Ended Sep 30, 2023 (in thousands) | 3 Months Ended Sep 30, 2022 (in thousands) | Change (in thousands) | % Change | | :------------------------------- | :----------------------------------------- | :----------------------------------------- | :-------------------- | :------- | | Revenue, net | $1,827 | $4,667 | $(2,840) | (61)% | | Product Development Contract Revenue | $1,044 | $4,488 | $(3,444) | (77)% | | Product Revenue | $783 | $179 | $604 | 337% | - Product development contract revenue decreased due to the completion of contracts not yet replaced, while product revenue increased significantly due to the sale of two Guardian Sea Class systems[115](index=115&type=chunk)[116](index=116&type=chunk) | Operating Expense | 3 Months Ended Sep 30, 2023 (in thousands) | 3 Months Ended Sep 30, 2022 (in thousands) | Change (in thousands) | % Change | | :-------------------------- | :----------------------------------------- | :----------------------------------------- | :-------------------- | :------- | | Total operating expenses | $32,581 | $31,917 | $664 | 2% | | Cost of revenue | $1,222 | $3,578 | $(2,356) | (66)% | | Research and development | $10,011 | $10,497 | $(486) | (5)% | | General and administrative | $7,557 | $14,646 | $(7,089) | (48)% | | Sales and marketing | $1,750 | $2,405 | $(655) | (27)% | | Asset write-down and restructuring | $11,222 | $0 | $11,222 | *NM | - Asset write-down and restructuring expenses of **$11.2 million** were incurred, including severance, accelerated stock-based compensation, inventory write-down, and asset write-down, with additional expenses anticipated in Q4 2023 and Q1 2024[123](index=123&type=chunk) [Comparison of the Nine Months Ended September 30, 2023 and 2022](index=32&type=section&id=Comparison%20of%20the%20Nine%20Months%20Ended%20September%2030,%202023%20and%202022) | Metric | 9 Months Ended Sep 30, 2023 (in thousands) | 9 Months Ended Sep 30, 2022 (in thousands) | Change (in thousands) | % Change | | :------------------------------- | :----------------------------------------- | :----------------------------------------- | :-------------------- | :------- | | Revenue, net | $5,400 | $8,448 | $(3,048) | (36)% | | Product Development Contract Revenue | $4,614 | $8,203 | $(3,589) | (44)% | | Product Revenue | $786 | $245 | $541 | 221% | - Product development contract revenue decreased due to contract completions, while product revenue increased significantly from Guardian Sea Class system sales[129](index=129&type=chunk)[130](index=130&type=chunk) | Operating Expense | 9 Months Ended Sep 30, 2023 (in thousands) | 9 Months Ended Sep 30, 2022 (in thousands) | Change (in thousands) | % Change | | :-------------------------- | :----------------------------------------- | :----------------------------------------- | :-------------------- | :------- | | Total operating expenses | $89,301 | $90,310 | $(1,009) | (1)% | | Cost of revenue | $3,951 | $7,212 | $(3,261) | (45)% | | Research and development | $31,120 | $23,947 | $7,173 | 30% | | General and administrative | $25,544 | $50,584 | $(25,040) | (50)% | | Sales and marketing | $9,901 | $7,202 | $2,699 | 37% | | Intangible amortization expense | $2,457 | $1,365 | $1,092 | 80% | | Asset write-down and restructuring | $16,328 | $0 | $16,328 | *NM | - R&D expenses increased due to headcount and focus on new product development, but are expected to decrease significantly due to RIFs and the AI/ML software pivot. G&A expenses decreased due to reduced stock-based compensation and legal fees, also expected to decrease further[133](index=133&type=chunk)[135](index=135&type=chunk) | Other Income (in thousands) | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | Change (in thousands) | % Change | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------- | :------- | | Total other income | $4,787 | $12,972 | $(8,185) | (63)% | - Other income decreased primarily due to a decrease in unrealized mark-to-market gain on warrant liability, partially offset by increased interest income and employee retention credit refunds[140](index=140&type=chunk) [Backlog and Total Estimated Contract Value](index=35&type=section&id=Backlog%20and%20Total%20Estimated%20Contract%20Value) | Metric | As of September 30, 2023 (in millions) | | :------------------------------ | :------------------------------------- | | Backlog | $9.2 | | Funded Backlog | $7.4 | | Unfunded Backlog | $1.8 | | Total Estimated Contract Value | $19.1 | [Liquidity and Capital Resources](index=35&type=section&id=Liquidity%20and%20Capital%20Resources) | Metric | As of September 30, 2023 (in millions) | | :------------------------------------ | :------------------------------------- | | Cash, cash equivalents and marketable securities | $55.1 | - The company believes it has **sufficient liquidity** to operate for at least the next **12 months** and well into 2025 without needing to raise additional capital, but may seek opportunistic financing[143](index=143&type=chunk)[146](index=146&type=chunk) - Future funding requirements depend on product development, commercialization success, and capital needs, with delays negatively impacting revenue and profitability[144](index=144&type=chunk) [Cash Flows](index=35&type=section&id=Cash%20Flows) | Cash Flow Activity | 9 Months Ended Sep 30, 2023 (in thousands) | 9 Months Ended Sep 30, 2022 (in thousands) | Change (in thousands) | % Change | | :------------------------------------------ | :----------------------------------------- | :----------------------------------------- | :-------------------- | :------- | | Net cash used in operating activities | $(60,123) | $(44,448) | $(15,675) | 35% | | Net cash provided by (used in) investing activities | $60,345 | $(149,429) | $209,774 | (140)% | | Net cash used in financing activities | $(71) | $(7,108) | $7,037 | (99)% | - The increase in cash used in operating activities was primarily due to a **$14.3 million** increase in net loss, a **$4.2 million** increase in non-cash expenses, and increased inventory purchases[148](index=148&type=chunk) - Net cash provided by investing activities increased significantly due to marketable securities maturities and the absence of a business acquisition (RE2) cash outflow seen in the prior year[149](index=149&type=chunk) - Net cash used in financing activities decreased due to a reduction in share repurchases for tax withholding obligations[150](index=150&type=chunk) [Emerging Growth Company Status](index=36&type=section&id=Emerging%20Growth%20Company%20Status) - The company is an 'emerging growth company' and has elected to use the extended transition period for new or revised financial accounting standards, which may affect comparability with other public companies[151](index=151&type=chunk)[152](index=152&type=chunk) [Critical Accounting Policies and Estimates](index=36&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) - There have been no **material changes** to the company's critical accounting policies or estimates as disclosed in its Annual Report on Form 10-K for the year ended December 31, 2022[154](index=154&type=chunk) [Recent Accounting Pronouncements](index=36&type=section&id=Recent%20Accounting%20Pronouncements) - Refer to Note 1 for information on recently adopted and recently issued accounting pronouncements not yet adopted[155](index=155&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=36&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As a smaller reporting company, Sarcos Technology and Robotics Corporation is **not required** to provide quantitative and qualitative disclosures about market risk - The company is a smaller reporting company and is **not required** to provide quantitative and qualitative disclosures about market risk[156](index=156&type=chunk) [Item 4. Controls and Procedures](index=36&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, with the participation of the Certifying Officers, evaluated the effectiveness of the company's disclosure controls and procedures as of September 30, 2023, concluding they were **deemed effective** - The company's disclosure controls and procedures were evaluated and **deemed effective** as of September 30, 2023[156](index=156&type=chunk) - **No material changes** in internal control over financial reporting occurred during the fiscal quarter ended September 30, 2023[158](index=158&type=chunk) PART II. OTHER INFORMATION [Item 1. Legal Proceedings](index=38&type=section&id=Item%201.%20Legal%20Proceedings) The company is **not currently involved** in any legal proceedings that are expected to have a **material adverse effect** on its business, financial condition, or results of operations, though litigation can still have an adverse impact - The company is **not currently involved** in any legal proceedings expected to have a **material adverse effect** on its business, financial condition, or results of operations[160](index=160&type=chunk) [Item 1A. Risk Factors](index=38&type=section&id=Item%201A.%20Risk%20Factors) This section outlines numerous risks and uncertainties that could materially harm the company's business, operating results, and financial condition, spanning across business operations, financial stability, legal and regulatory compliance, intellectual property, and ownership of securities, emphasizing the challenges of an **early-stage company** pivoting its strategy to focus on AI/ML software [Risks Related to Our Business](index=38&type=section&id=Risks%20Related%20to%20Our%20Business) - The company is an **early-stage company** with a **history of losses**, expecting to incur **significant expenses and losses** until at least 2025, primarily due to the development and commercialization of its AI/ML software platform[162](index=162&type=chunk)[163](index=163&type=chunk) - The **strategic pivot** to focus on the AI/ML software platform, suspending hardware commercialization, may not be effective and could be delayed beyond current expectations, impacting revenue and financial condition[165](index=165&type=chunk)[174](index=174&type=chunk) - Revenue will be concentrated in the AI/ML software platform for the foreseeable future, and customer trials may not result in binding subscriptions due to the platform still being under development and the company's lack of commercialization history with software products[176](index=176&type=chunk)[177](index=177&type=chunk)[178](index=178&type=chunk)[171](index=171&type=chunk) - The company operates in a competitive industry subject to rapid technological change, and failure to innovate or adapt to customer needs could harm its business[198](index=198&type=chunk)[185](index=185&type=chunk) [Risks Related to Our Operations & Growth](index=43&type=section&id=Risks%20Related%20to%20Our%20Operations%20%26%20Growth) - Design flaws, errors, or malfunctions in the AI/ML software platform could lead to lower customer ROI, property damage, personal injury, and **significant safety concerns**, adversely affecting reputation and financial results[207](index=207&type=chunk)[208](index=208&type=chunk) - The use of 'open source' software in the AI/ML platform could negatively affect the ability to offer the platform and subject the company to litigation or require proprietary source code release[214](index=214&type=chunk)[215](index=215&type=chunk)[216](index=216&type=chunk) - The company's business and prospects depend significantly on building and maintaining its brand, which could be harmed by negative publicity or failure to provide high-quality software[219](index=219&type=chunk)[220](index=220&type=chunk) - Failure to effectively manage growth, including expanding teams, commercializing the AI/ML platform, and integrating new employees, could materially and adversely affect the business[224](index=224&type=chunk)[227](index=227&type=chunk) [Risks Related to Our Finances](index=47&type=section&id=Risks%20Related%20to%20Our%20Finances) - The company's business plans require **significant capital**, and future needs may necessitate selling additional equity or debt securities, potentially **diluting stockholders** or restricting operations[235](index=235&type=chunk)[236](index=236&type=chunk) - Recent **workforce reductions** (RIFs) in July and November 2023, while intended to improve cost structure, may not result in anticipated savings, could incur greater-than-expected costs, and disrupt business operations[240](index=240&type=chunk)[241](index=241&type=chunk) - Financial results may vary significantly due to fluctuations in operating costs and product demand, making quarter-to-quarter comparisons **unreliable indicators** of future performance[242](index=242&type=chunk) - The company is **highly dependent** on senior management and key employees; inability to attract and retain qualified personnel, especially after RIFs, could harm product design, business operations, and competitiveness[243](index=243&type=chunk)[246](index=246&type=chunk) [Risks Related to Claims, Legal and Regulatory Compliance](index=53&type=section&id=Risks%20Related%20to%20Claims,%20Legal%20and%20Regulatory%20Compliance) - Prior **material weaknesses** in internal control over financial reporting and the **restatement of financial statements** expose the company to potential litigation or disputes[269](index=269&type=chunk)[270](index=270&type=chunk) - The company may become subject to new or changing governmental regulations related to AI/ML software, and non-compliance could lead to market withdrawal, revenue delays, increased costs, or make the business unviable[275](index=275&type=chunk)[276](index=276&type=chunk) - Evolving laws and regulations concerning data privacy and security, including CCPA, CPRA, and GDPR, could harm the company's reputation, lead to **significant fines**, and increase compliance costs[280](index=280&type=chunk)[284](index=284&type=chunk) - Issues in AI/ML development and an **uncertain regulatory environment** may result in reputational harm, liability, or adverse consequences, potentially limiting functionality or sales of the software platform[286](index=286&type=chunk)[287](index=287&type=chunk) [Risks Related to Our Intellectual Property](index=58&type=section&id=Risks%20Related%20to%20Our%20Intellectual%20Property) - Success depends on obtaining and maintaining protection for intellectual property (patents, trademarks, trade secrets), but patent positions are **uncertain**, and enforcement can be **expensive and time-consuming**[308](index=308&type=chunk)[309](index=309&type=chunk)[310](index=310&type=chunk) - Protecting intellectual property rights in all countries is **prohibitively expensive**, and foreign laws may not offer the same level of protection as in the U.S., potentially allowing competitors to use technologies without authorization[317](index=317&type=chunk) - The company may face intellectual property infringement or misappropriation claims, which could be costly, divert management attention, and limit the ability to commercialize software products[320](index=320&type=chunk)[323](index=323&type=chunk) [Risks Related to Ownership of our Securities](index=61&type=section&id=Risks%20Related%20to%20Ownership%20of%20our%20Securities) - Resales of a substantial number of Common Stock shares, including those from the Business Combination and RE2 acquisition, could **depress the market price** of the company's Common Stock[329](index=329&type=chunk)[330](index=330&type=chunk) - The markets for the company's Common Stock and Warrants have been **volatile** and may continue to fluctuate significantly due to various factors, including financial results, market expectations, and competition[337](index=337&type=chunk)[338](index=338&type=chunk) - The company's Common Stock may be **delisted** from The Nasdaq Global Market if it fails to satisfy continued listing requirements, such as the minimum bid price and market value of publicly held shares[344](index=344&type=chunk)[345](index=345&type=chunk) - The exercise price of the company's Warrants is higher than typical, and there is no guarantee they will ever be 'in the money,' potentially **expire worthless**[351](index=351&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=67&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section states that there were **no unregistered sales** of equity securities or use of proceeds to report for the period - **No unregistered sales** of equity securities or use of proceeds to report[369](index=369&type=chunk) [Item 3. Defaults Upon Senior Securities](index=67&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This section indicates that there were no defaults upon senior securities during the reporting period - **Not Applicable**[369](index=369&type=chunk) [Item 4. Mine Safety Disclosures](index=67&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section states that mine safety disclosures are **not applicable** to the company - **Not applicable**[369](index=369&type=chunk) [Item 5. Other Information](index=67&type=section&id=Item%205.%20Other%20Information) During the last fiscal quarter, **no director or officer adopted or terminated** a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement - **No director or officer adopted or terminated** a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the last fiscal quarter[370](index=370&type=chunk) [Item 6. Exhibits](index=68&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Quarterly Report on Form 10-Q, including organizational documents, separation agreements, certifications, and XBRL-related documents - The exhibits include the Second Amended and Restated Certificate of Incorporation, Amended and Restated Bylaws, Separation Agreements, Certifications of Principal Executive and Financial Officers, and Inline XBRL documents[372](index=372&type=chunk) [Signatures](index=69&type=section&id=Signatures) The report is duly signed on November 14, 2023, by Laura J. Peterson, President and Chief Executive Officer, and Andrew Hamer, Chief Financial Officer - The report was signed on November 14, 2023, by Laura J. Peterson (President and CEO) and Andrew Hamer (CFO)[375](index=375&type=chunk)