Palladyne AI Corp.(PDYN) - 2024 Q3 - Quarterly Report

Summary Risk Factors 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] - 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] - The company has no prior experience in commercializing software products and was unsuccessful in its previous efforts to commercialize its hardware technologies[4] - Future revenues are expected to be primarily derived from licensing the AI/ML Software Platform[4] - 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] - 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][5] PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This section presents unaudited consolidated financial statements, detailing financial position, performance, and cash flows Condensed Consolidated Balance Sheets 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 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 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 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] - 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][24] - 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][87] - 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][72][73] Management's Discussion and Analysis of Financial Condition and Results of Operations 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][97] - 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 Q1 2025[99] 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][121] - 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] - 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] Quantitative and Qualitative Disclosures About Market Risk 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] Controls and Procedures 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] - There were no material changes to the company's internal control over financial reporting during the third quarter of 2024[158] PART II. OTHER INFORMATION Legal Proceedings 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] Risk Factors 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] - 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][166] - 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][241][242] - 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][202] - Real or perceived defects in the AI/ML software could lead to personal injury, property damage, reputational harm, and product liability claims[210][211] - 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][252] - 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][339][340] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during the last fiscal quarter - None[359] Defaults Upon Senior Securities This item is not applicable to the company - Not Applicable[359] Mine Safety Disclosures This item is not applicable to the company - Not applicable[359] Other Information 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] - 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] Exhibits This section lists all exhibits filed with the Form 10-Q, including corporate documents, legal opinions, and certifications