Palladyne AI Corp

Previous wording

our ability to successfully pivot our business pursuant to our strategy to focus on the development of our full-stack, closed-loop autonomy software platform (“AI/ML Software Platform”);

Current wording

our ability to successfully pivot our business pursuant to our strategy to focus on the development of our full-stack, closed-loop autonomy software platform (“AI/ML Software Platform”) and related products;

Previous wording

our ability to develop and sell our AI/ML Software Platform and the capabilities and functionality of our AI/ML Software Platform;

Current wording

our ability to develop and sell our AI/ML Software Platform and related products and the capabilities and functionality of our AI/ML Software Platform and related products

Previous wording

competition from existing or future businesses and technologies;

Current wording

competition from existing or future businesses and technologies and the potential advantages of our products as compared to competitors;

Previous wording

our ability to comply with laws and regulations applicable to our business;

Current wording

our ability to comply with evolving laws and regulations applicable to our business;

Previous wording

Our mission is to deliver software to our customers that enhances the utility and functionality of third-party stationary and mobile robotic systems by enabling these systems to quickly observe, learn, reason and act in structured and unstructured environments. Our AI/ML Software Platform is being designed with artificial intelligence (AI) and machine learning (ML) technologies to enable robotic systems to perceive their environment and quickly adapt to changing circumstances by generalizing (i.e., learning) from their past experience using dynamic real-time operations “on the edge” (i.e., on the robotic system) without extensive programming and with minimal robot training. We believe this “human-like” ability to learn and adapt will be a key differentiator in helping our customers maintain optimal productivity in dynamic or unstructured environments, where new situations and unexpected challenges are more likely to cause delays and costly downtime. Our value proposition is further enhanced relative to other competitive solutions because robotic systems using our AI/ML Software Platform are not required to be continuously connected to the cloud for our software to function, thereby reducing the performance issues associated with poor connectivity and latency typically associated with processing in the cloud. Our approach also reduces the expense typically associated with transmitting large amounts of data to and from the cloud.

Current wording

Our mission is to deliver software to our customers that enhances the utility and functionality of third-party stationary and mobile robotic systems by enabling these systems to quickly observe, learn, reason and act in structured and unstructured environments. Our AI/ML Software Platform is designed with artificial intelligence, or AI, and machine learning, or ML, technologies to enable robotic systems to perceive their environment and quickly adapt to changing circumstances by generalizing (i.e., learning) from their past experience using dynamic real-time operations “on the edge” (i.e., on the robotic system) without extensive programming and with minimal robot training. We believe this “human-like” ability to learn and adapt will be a key differentiator in helping our customers maintain optimal productivity in dynamic or unstructured environments, where new situations and unexpected challenges are more likely to cause delays and costly downtime. Our value proposition is further enhanced relative to other competitive solutions because robotic systems using our AI/ML Software Platform are not required to be continuously connected to the cloud for our software to function, thereby reducing the performance issues associated with poor connectivity and latency typically associated with processing in the cloud. Our approach also reduces the expense typically associated with transmitting large amounts of data to and from the cloud.

Previous wording

As a pioneer in the robotic systems industry, we benefit from both experiences and lessons gained from our 30-plus years, as well as significant investment in our internal research and development efforts. Software has been an integral part of our development efforts over the years. Our vision for our AI/ML Software Platform began in 2017 as a foundational technology to enhance training for the autonomous operation of our own internally developed hardware solutions and progressed to our first contract with the U.S. Department of Defense to develop our CYTAR (Cybernetic Training for Autonomous Robots) AI/ML platform in 2019. We have since continued to develop our AI/ML software both for the U.S. Department of Defense and in connection with our development of commercial robotic systems.

Current wording

As a pioneer in the robotic systems industry, we benefit from lessons learned over 30-plus years, as well as significant investment in our internal research and development efforts. Software has been an integral part of our development efforts over the years. Our vision for our AI/ML Software Platform began in 2017 as a foundational technology to enhance training for the autonomous operation of our own internally developed hardware solutions and progressed to our first contract with the U.S. Department of Defense to develop our CYTAR (Cybernetic Training for Autonomous Robots) AI/ML platform in 2019. We have since continued to develop our AI/ML software both for the U.S. Department of Defense and in connection with our development of commercial robotic systems.

Previous wording

We are designing our AI/ML Software Platform to be hardware agnostic in order to be compatible with most industrial robots being sold today and to support specific types of commercially available robots with additional development and the necessary application programming interface (API). The AI/ML Software Platform is expected to enable robotic systems to perform tasks that involve variations in the environment and the objects being manipulated by the robot. Specifically, we expect our AI/ML Software Platform to incorporate internal and external environmental inputs that allow robots to comprehend their environment, determine reasonable behavior given these inputs and to act in real time to achieve the expected task. Each newly learned task will then be incorporated and used to perform future tasks. We believe this closed-loop autonomy approach is the key to how our software can expedite robot training, expand the tasks that a robot can perform, reduce costly workflow stoppages, mitigate downtimes and reduce human labor requirements.

Current wording

We designed our AI/ML Software Platform to be hardware agnostic in order to be compatible with most industrial robots being sold today and to support specific types of commercially available robots with additional development and the necessary application programming interface (API). The AI/ML Software Platform is designed to enable robotic systems to perform tasks that involve variations in the environment and the objects being manipulated by the robot. Specifically, our AI/ML Software Platform incorporates internal and external environmental inputs that allow robots to comprehend their environment, determine reasonable behavior given these inputs and to act in real time to achieve the expected task. Each newly learned task will then be incorporated and used to perform future tasks. We believe this closed-loop autonomy approach is the key to how our software can expedite robot training, expand the tasks that a robot can perform, reduce costly workflow stoppages, mitigate downtimes and reduce human labor requirements.

Previous wording

We are developing two products based on our AI/ML Software Platform. The first, Palladyne IQ, is being developed for use with both stationary industrial robots and cobots, and the second, Palladyne Pilot, is being developed for use with mobile robotic platforms such as drones and unmanned ground vehicles. We have developed a minimal viable product (MVP) version (i.e., a version of the product that is capable of performing the minimal functions necessary but that does not have all the features of and has not been fully tested, debugged or refined into our planned product for general commercial release) of Palladyne IQ for customer evaluation and trials, and we are now in the process of testing, fixing bugs and adding additional features and capabilities in advance of the expected commercial launch of the product during the second half of 2024. We are regularly providing customer demos of our Palladyne IQ product at our facilities and, in June 2024, we had our first trial of Palladyne IQ at a customer location. We have recently begun another onsite trial at a major automotive manufacturer. We expect to continue customer trials throughout the second half of 2024 and to begin generating revenues from commercial customers in 2025.

Current wording

We released the initial commercial version of our Palladyne IQ product on October 1, 2024 on schedule, and expect to release the initial commercial version of Palladyne Pilot by the end of the first quarter of 2025. The initial commercial version of our Palladyne IQ product continues to undergo reliability testing, debugging and other stabilizing improvements as we continue internal testing and learn from customer trials. We have conducted and continue to conduct customer trials of Palladyne IQ, and we expect more trials to begin throughout the remainder of 2024. We expect to begin generating revenues from commercial customers of Palladyne IQ in 2025. We expect to have the MVP version (i.e., a version of the product that is capable of performing the minimal functions necessary but that does not have all the features of and has not been fully tested, debugged or refined into our planned product for general commercial release) of Palladyne Pilot ready for customer trials by the end of 2024 and a commercial product ready for release by the end of the first quarter of 2025. We recently completed a customer trial of an early version of Palladyne Pilot on stationary devices.

Previous wording

Although to date we have met our key AI/ML Software Platform product development timelines and government contract milestones on schedule, we may not be able to do so in the future and our current expectations regarding the timing or success of customer trials, product release, revenues, features and related matters may be delayed or may not occur. Please see Part II Item 1A Risk Factors for a discussion of the risks related to these activities, in particular those discussed under “Risks Related to our Business”.

Current wording

Although to date we have met our key AI/ML Software Platform and related products' product development timelines and government contract milestones on schedule, we may not be able to do so in the future and our current expectations regarding the timing or success of customer trials, product release, revenues, features and related matters may be delayed or may not occur. Please see Part II Item 1A Risk Factors for a discussion of the risks related to these activities, in particular those discussed under “Risks Related to our Business”.

Previous wording

As a result of our refined strategy, we reorganized our operations to focus on this AI/ML Software Platform opportunity and are taking or have taken actions to reduce costs, including our 2023 RIFs (as defined below) and winding down substantially all of our operations in Pittsburgh, Pennsylvania. For additional information around the risks associated with our strategic decision-making see Part II Item 1A Risk Factors “Due to our limited resources and access to capital, and our failure to properly estimate the time and expense required to commercialize our hardware-centric industrial robotics solutions, we made the decision to focus on our AI/ML Software Platform product and to suspend the development and commercialization of our hardware products. These and future decisions about how to use our limited resources may prove to be wrong and may adversely affect our business.”

Current wording

As a result of our business evaluation and refined product strategy announced in 2023, we reorganized our operations to focus on this AI/ML Software Platform opportunity and are taking or have taken actions to reduce costs, including our 2023 RIFs (as defined below) and winding down substantially all of our operations in Pittsburgh, Pennsylvania. For additional information around the risks associated with our strategic decision-making see Part II Item 1A Risk Factors “Due to our limited resources and access to capital, and our failure to properly estimate the time and expense required to commercialize our hardware-centric industrial robotics solutions, we made the decision to focus on our AI/ML Software Platform and related products and to suspend the development and commercialization of our hardware products. These and future decisions about how to use our limited resources may prove to be wrong and may adversely affect our business.”

Previous wording

We currently expect to derive commercial licensing revenues from Palladyne IQ and Palladyne Pilot beginning in 2025. We expect to continue commercialization efforts, internal testing and customer trials for both products throughout the second half of 2024. Whether we are successful in these efforts depends on many factors, including those discussed under Part II Item 1A Risk Factors. Such risks may result in delay of the anticipated commercial launch of one or both of our products, which would adversely affect our financial condition and operating results.

Current wording

We currently expect to derive commercial licensing revenues from Palladyne IQ and Palladyne Pilot beginning in 2025. We expect to continue commercialization efforts, internal testing and customer trials for both products for the remainder of 2024. Whether we are successful in these efforts depends on many factors, including those discussed under Part II Item 1A Risk Factors. Such risks may result in delay in achieving product revenues, which would adversely affect our financial condition and operating results.

Previous wording

Prior to commercialization, we must complete the development and testing of our AI/ML Software Platform. As a result, we will use our cash on hand to develop our software platform and fund operations as we seek to commercialize and achieve revenue from our products. The amount and timing of our future funding requirements will depend on many factors, including the pace and results of our product development efforts, our ability to sell our software products and thereby recognize associated revenue, capital and human capital requirements to develop a commercial version of our software platform prior to receiving payments sufficient to cover our costs and our ability to lower product costs as volumes increase. In addition, we have taken and continue to take numerous steps to manage our use of cash. For example, on July 12, 2023 (the “July 2023 RIF”), and on November 14, 2023 (the “November 2023 RIF,” and together with the July 2023 RIF, the “2023 RIFs”), we announced reductions in force intended to further conserve our cash resources and manage operating expenses. The majority of the cash payments related to the expenses from the July 2023 RIF were paid out during the third quarter of 2023. The majority of the cash payments related to the November 2023 RIF were paid out during the fourth quarter of 2023 and the first quarter of 2024. The November 2023 RIF was substantially completed in the first quarter of 2024. We continued to incur expenses associated with winding down our hardware-centric business in the second quarter of 2024. We believe we have sufficient liquidity to operate for at least the next twelve months without the need to raise additional capital. However, we may need to seek additional financing during that time to bolster our cash reserves and increase our ability to continue to pursue our business objectives. As a result, we intend to continue monitoring our liquidity, financial and business results and outlook and market conditions, and may be opportunistic and raise capital when we consider market conditions are good or a favorable opportunity exists. Any delays in the successful commercialization and sales of our AI/ML Software Platform will negatively impact our ability to generate revenue, our profitability, our cash flows, our overall operating performance and our ability to continue operations and result in the need to raise additional capital sooner than expected. We will continue to carefully evaluate our use of cash as we pursue our AI/ML Software Platform opportunity.

Current wording

We intend to use our cash on hand to continue to enhance our software platform and products, conduct product development activities, pursue marketing and sales opportunities and fund operations as we seek to commercialize and achieve revenue from our products. The amount and timing of our future funding requirements will depend on many factors, including the pace and results of our product development efforts, our ability to sell our software products and thereby recognize associated revenue, capital and human capital requirements to develop and sell products prior to receiving payments sufficient to cover our costs and our ability to lower product costs as volumes increase.

Previous wording

Although demand for AI/ML platforms and applications has grown in recent years, the market for these platforms and applications continues to evolve. The market demand for our software platform is unproven, and important assumptions about the characteristics of targeted markets, pricing and sales cycles may be inaccurate. While we believe that our AI/ML Software Platform will provide significant benefits and return on investment to customers, we are dependent on customers who are willing to adopt, purchase, and implement new technologies and products. If customer demand does not develop as expected or we do not accurately forecast pricing, adoption rates and sales cycles for our AI/ML Software Platform, our business, results of operations and financial condition will be adversely affected.

Current wording

Although demand for AI/ML platforms and applications has grown in recent years, the market for these platforms and applications continues to evolve. The market demand for our software products is unproven, and important assumptions about the characteristics of targeted markets, pricing and sales cycles may be inaccurate. While we believe that our AI/ML Software Platform and related products will provide significant benefits and return on investment to customers, we are dependent on customers who are willing to adopt, purchase, and implement new technologies and products. If customer demand does not develop as expected or we do not accurately forecast pricing, adoption rates and sales cycles for our products, our business, results of operations and financial condition will be adversely affected.

Previous wording

We are a pioneer in the robotic systems industry and benefit from lessons learned over 30-plus years and significant investment in research and development in our proprietary technologies. Through our previous hardware development efforts, we developed a significant amount of advanced technology that we are leveraging to develop our AI/ML Software Platform. We believe our financial performance is dependent on our ability to successfully develop and commercialize our advanced AI/ML technologies. It is important that we continually identify and respond to rapidly evolving customer requirements and competitive threats, develop and introduce innovative products, enhance our products and generate active market demand for our products. If we fail to do this, our market position and revenue may be adversely affected, and our investments in these technologies will not be recovered.

Current wording

We are a pioneer in the robotic systems industry and benefit from lessons learned over 30-plus years and significant investment in research and development in our proprietary technologies. Through our previous hardware development efforts, we developed a significant amount of advanced technology that we are leveraging to develop our AI/ML Software Platform and related products. We believe our financial performance is dependent on our ability to successfully develop and commercialize our advanced AI/ML technologies and related products. It is important that we continually identify and respond to rapidly evolving customer requirements and competitive threats, develop and introduce innovative products, enhance our products and generate active market demand for and sell our products. If we fail to do this, our market and financial position and revenue may be adversely affected, and our investments in these technologies will not be recovered.

Previous wording

Geopolitical and macro-economic factors, such as inflation, interest rates, oil prices, unemployment rates, international conflicts, such as the wars between Israel and Hamas and between Russia and Ukraine, volatility in the stock market and political or social unrest, can have significant impacts on economic activity, which in turn could affect demand for our AI/ML Software Platform or our ability to cost-effectively develop and sell our software platform. Among other things, these and similar factors can affect our ability to hire or retain qualified personnel, our labor and materials costs, the prices we charge for our software platform and the budgets of our customers and their expected return-on-investment from the purchase of a license for our software platform. Many of these factors are outside of our control but can have a significant impact on our business success and operating results. If we are unable to manage our business successfully in response to any such factors, our business and results of operations would be adversely affected.

Current wording

Geopolitical and macro-economic factors, such as inflation, interest rates, oil prices, unemployment rates, international conflicts, such as the current wars between Russia and Ukraine and in the middle east, volatility in the stock market and political or social unrest, can have significant impacts on economic activity, which in turn could affect demand for our products or our ability to cost-effectively develop and sell our products. Among other things, these and similar factors can affect our ability to hire or retain qualified personnel, our labor and materials costs, the prices we charge for our software products and the budgets of our customers and their expected return-on-investment from the purchase of a license for our software product. Many of these factors are outside of our control but can have a significant impact on our business success and operating results. If we are unable to manage our business successfully in response to any such factors, our business and results of operations would be adversely affected.

Previous wording

Revenue increased by $1.4 million, or 112%, from $1.3 million for the three months ended June 30, 2023, to $2.7 million for the three months ended June 30, 2024, as explained below.

Current wording

Revenue decreased by $1.0 million, or 52%, from $1.8 million for the three months ended September 30, 2023, to $0.9 million for the three months ended September 30, 2024, as explained below.

Previous wording

Product development contract revenue was flat for the six months ended June 30, 2024 and 2023. We expect future revenue from product development contracts to fluctuate due to the timing of additional development contracts signed and the completion of existing contracts. For the time being, we intend to take on only those development contracts that we believe support and contribute to our AI/ML Software Platform development efforts under our refined sales and product development strategy. As a result, there may be fewer opportunities to replace completed contracts.

Current wording

Product development contract revenue decreased by $0.3 million, or 27%, from $1.0 million for the three months ended September 30, 2023, to $0.8 million for the three months ended September 30, 2024. The decrease was primarily due to the completion of certain product development contracts during 2023 that have not yet been replaced with new contracts. We expect future revenue from product development contracts to fluctuate due to the timing of additional development contracts signed and the completion of existing contracts. For the time being, we intend to take on only those development contracts that we believe support and contribute to our AI/ML Software Platform development efforts. As a result, there may be fewer opportunities to replace completed contracts.

Previous wording

Revenue derived from product sales was not significant for the three months ended June 30, 2023 or the three months ended June 30, 2024.

Current wording

Revenue derived from product sales decreased by $0.7 million, or 86%, from $0.8 million for the three months ended September 30, 2023, to $0.1 million for the three months ended September 30, 2024. The decrease was due to fluctuations in legacy hardware product sales.

Previous wording

Cost of revenue decreased by $0.4 million, or 40%, from $0.9 million for the three months ended June 30, 2023, to $0.6 million for the three months ended June 30, 2024. Cost of revenue decreased mainly due to decreased labor and material expenses charged to product development due to contract mix during the three months ended June 30, 2024 as compared to the prior year period.

Current wording

Cost of revenue decreased by $0.7 million, or 61%, from $1.2 million for the three months ended September 30, 2023, to $0.5 million for the three months ended September 30, 2024. Cost of revenue decreased mainly due to decreased labor and material expenses charged to product development contracts due to contract mix during the three months ended September 30, 2024 as compared to the prior year period.

Previous wording

Research and development expense decreased by $9.4 million, or 80% from $11.7 million for the three months ended June 30, 2023, to $2.3 million for the three months ended June 30, 2024. The decrease was driven primarily by reduced labor and labor related expenses due to the 2023 RIFs.

Current wording

Research and development expense decreased by $7.4 million, or 74% from $10.0 million for the three months ended September 30, 2023, to $2.6 million for the three months ended September 30, 2024. The decrease was driven primarily by reduced labor and labor related expenses due to the 2023 RIFs.

Previous wording

General and administrative expense decreased by $4.0 million, or 48%, from $8.3 million for the three months ended June 30, 2023, to $4.3 million for the three months ended June 30, 2024. General and administrative expense decreased primarily due to reduced labor and labor related expenses, including stock-based compensation, due to the 2023 RIFs.

Current wording

General and administrative expense decreased by $3.6 million, or 48%, from $7.6 million for the three months ended September 30, 2023, to $4.0 million for the three months ended September 30, 2024. General and administrative expense decreased primarily due to reduced labor and labor related expenses, including stock-based compensation, due to the 2023 RIFs.

Previous wording

Sales and marketing expense decreased by $3.0 million, or 69%, from $4.4 million for the three months ended June 30, 2023, to $1.4 million for the three months ended June 30, 2024. This decrease was driven by a decrease in professional service fees related to third-party platform expense utilized in data management of our products and services and decreased events and public relations expenses.

Current wording

Sales and marketing expense decreased by $0.4 million, or 24%, from $1.8 million for the three months ended September 30, 2023, to $1.3 million for the three months ended September 30, 2024. This decrease was driven by a decrease in professional service fees related to third-party platform expense utilized in data management of our products and services and decreased events and public relations expenses.

Previous wording

Asset write-down and restructuring expenses were $5.1 million for the three months ended June 30, 2023, as a result of the prior year product development reprioritization. There were no significant asset write-down and restructuring costs for the three months ended June 30, 2024.

Current wording

Asset write-down and restructuring expenses were $11.2 million for the three months ended September 30, 2023, as a result of the prior year product development reprioritization and the 2023 RIFs. There were no significant asset write-down and restructuring costs for the three months ended September 30, 2024.

Previous wording

Other income decreased by $0.8 million for the three months ended June 30, 2024 as compared to the prior year period, primarily as a result of decreased interest income from our investments in marketable securities due to the reduction in invested funds during the current year period and the decrease in unrealized mark-to-market gain on our outstanding private placement warrants.

Current wording

Other income decreased by $1.6 million for the three months ended September 30, 2024 as compared to the prior year period, primarily as a result of decreased other income related to the employee retention credit refund received during the prior year period and decreased interest income from our investments in marketable securities due to the reduction in invested funds during the current year period.

Previous wording

The following table presents our revenue for the six months ended June 30, 2024 and 2023, respectively:

Current wording

The following table presents our revenue for the nine months ended September 30, 2024 and 2023, respectively:

Previous wording

Revenue increased by $2.6 million, or 72%, from $3.6 million for the six months ended June 30, 2023, to $6.2 million for the six months ended June 30, 2024, as explained below.

Current wording

Revenue increased by $1.6 million, or 30%, from $5.4 million for the nine months ended September 30, 2023, to $7.0 million for the nine months ended September 30, 2024, as explained below.

Previous wording

Product development contract revenue increased by $1.4 million, or 113%, from $1.3 million for the three months ended June 30, 2023, to $2.7 million for the three months ended June 30, 2024. The increase was primarily due to the progress made on and completion of certain milestones within our product development contracts during the current period. We expect future revenue from product development contracts to fluctuate due to the timing of additional development contracts signed and the completion of existing contracts.

Current wording

Product development contract revenue decreased by $0.3 million, or 6%, from $4.6 million for the nine months ended September 30, 2023, to $4.4 million for the nine months ended September 30, 2024. The decrease was primarily due to the completion of certain product development contracts during 2023 that have not yet been replaced with new contracts. We expect future revenue from product development contracts to fluctuate due to the timing of additional development contracts signed and the completion of existing contracts. For the time being, we intend to take on only those development contracts that we believe support and contribute to our AI/ML Software Platform development efforts. As a result, there may be fewer opportunities to replace completed contracts.

Previous wording

Revenue derived from product sales increased by $2.6 million, from the six months ended June 30, 2023. The increase was primarily due to legacy product sales during the six months ended June 30, 2024.

Current wording

Revenue derived from product sales increased by $1.9 million, from the nine months ended September 30, 2023. The increase was primarily due to fluctuations in legacy hardware product sales.

Previous wording

The following table presents our operating expenses for the six months ended June 30, 2024 and 2023:

Current wording

The following table presents our operating expenses for the nine months ended September 30, 2024 and 2023:

Previous wording

Cost of revenue decreased by $0.3 million, or 10%, from $2.7 million for the six months ended June 30, 2023, to $2.5 million for the six months ended June 30, 2024. Cost of revenue decreased mainly due to decreased labor and material expenses charged to product development due to contract mix, partially offset by increased product costs associated with our product revenue during the six months ended June 30, 2024.

Current wording

Cost of revenue decreased by $1.0 million, or 26%, from $4.0 million for the nine months ended September 30, 2023, to $2.9 million for the nine months ended September 30, 2024. Cost of revenue decreased mainly due to decreased labor and material expenses charged to product development contracts due to contract mix, partially offset by increased product costs associated with our product revenue during the nine months ended September 30, 2024.

Previous wording

Research and development expense decreased by $15.9 million, or 75% from $21.1 million for the six months ended June 30, 2023, to $5.2 million for the six months ended June 30, 2024. The decrease was driven primarily by reduced labor and labor related expenses due to the 2023 RIFs.

Current wording

Research and development expense decreased by $23.3 million, or 75% from $31.1 million for the nine months ended September 30, 2023, to $7.8 million for the nine months ended September 30, 2024. The decrease was driven primarily by reduced labor and labor related expenses due to the 2023 RIFs.

Previous wording

General and administrative expense decreased by $8.6 million, or 48%, from $18.0 million for the six months ended June 30, 2023, to $9.4 million for the six months ended June 30, 2024. General and administrative expense decreased primarily due to reduced labor and labor related expenses, including stock-based compensation, due to the 2023 RIFs.

Current wording

General and administrative expense decreased by $12.2 million, or 48%, from $25.5 million for the nine months ended September 30, 2023, to $13.4 million for the nine months ended September 30, 2024. General and administrative expense decreased primarily due to reduced labor and labor related expenses, including stock-based compensation, due to the 2023 RIFs.

Previous wording

Sales and marketing expense decreased by $6.0 million, or 73%, from $8.2 million for the six months ended June 30, 2023, to $2.2 million for the six months ended June 30, 2024. This decrease was driven by a decrease in professional service fees related to third-party platform expense utilized in data management of our products and services, labor and labor related expenses due to the 2023 RIFs and decreased events and public relations expenses.

Current wording

Sales and marketing expense decreased by $6.4 million, or 64%, from $9.9 million for the nine months ended September 30, 2023, to $3.5 million for the nine months ended September 30, 2024. This decrease was driven by a decrease in professional service fees related to third-party platform expense utilized in data management of our products and services, labor and labor related expenses due to the 2023 RIFs and decreased events and public relations expenses.

Previous wording

Asset write-down and restructuring expenses were $5.1 million for the six months ended June 30, 2023, as a result of the prior year product development reprioritization. There were no significant asset write-down and restructuring costs for the six months ended June 30, 2024.

Current wording

Asset write-down and restructuring expenses were $16.3 million for the nine months ended September 30, 2023, as a result of the prior year product development reprioritization. There were no significant asset write-down and restructuring costs for the nine months ended September 30, 2024.

Previous wording

The following table presents other income for the six months ended June 30, 2024 and 2023, respectively:

Current wording

The following table presents other income for the nine months ended September 30, 2024 and 2023, respectively:

Previous wording

Other income decreased by $2.4 million for the six months ended June 30, 2024 as compared to the prior year period, primarily as a result of decreased interest income from our investments in marketable securities due to the reduction in invested funds during the current year period and employee retention credit refunds received in the prior year period.

Current wording

Other income decreased by $4.0 million for the nine months ended September 30, 2024 as compared to the prior year period, primarily as a result of employee retention credit refunds received in the prior year period and decreased interest income from our investments in marketable securities due to the reduction in invested funds during the current year period.

Previous wording

We had no significant income tax expense for the six months ended June 30, 2024 and 2023. The provision for income taxes for the six months ended June 30, 2024 and 2023 is based on the Company’s estimated annualized effective tax rate for the fiscal years ending December 31, 2024 and 2023, respectively. For the six months ended June 30, 2024 and 2023, the Company’s recognized effective tax rate differs from the U.S. federal statutory rate as the Company recorded net losses during the period with a corresponding full valuation allowance on the net deferred tax assets created from the losses.

Current wording

We had no significant income tax expense for the nine months ended September 30, 2024 and 2023. The provision for income taxes for the nine months ended September 30, 2024 and 2023 is based on the Company’s estimated annualized effective tax rate for the fiscal years ending December 31, 2024 and 2023, respectively. For the nine months ended September 30, 2024 and 2023, the Company’s recognized effective tax rate differs from the U.S. federal statutory rate as the Company recorded net losses during the period with a corresponding full valuation allowance on the net deferred tax assets created from the losses.

Previous wording

Our backlog, as of June 30, 2024, was $1.5 million, $0.4 million of which was funded and $1.1 million of which was unfunded. Our backlog is equal to our remaining performance obligations under contracts or the expected value of exercised contracts, both funded and unfunded, less revenue recognized to date. Our total estimated contract value, which combines backlog with estimated potential contract value, including unexercised options from existing firm contracts, was $11.4 million as of June 30, 2024.

Current wording

Our backlog, as of September 30, 2024, was $3.7 million, $2.7 million of which was funded and $1.0 million of which was unfunded. Our backlog is equal to our remaining performance obligations under contracts or the expected value of exercised contracts, both funded and unfunded, less revenue recognized to date. Our total estimated contract value, which combines backlog with estimated potential contract value, including unexercised options from existing firm contracts, was $10.6 million as of September 30, 2024.

Previous wording

We currently use cash from equity financings to fund operations and capital expenditures and meet working capital requirements. As of June 30, 2024, we had $25.8 million in cash, cash equivalents and marketable securities. We believe that our cash, cash equivalents and marketable securities on hand will be sufficient to support operations, working capital and capital expenditure requirements for at least the next 12 months from the date of this Report.

Current wording

Cash, cash equivalents and marketable securities were $21.3 million as of September 30, 2024, compared to $39.1 million as of December 31, 2023. We have incurred losses and negative cash flows from operations since inception and are likely to continue to incur losses and negative cash flows from operations in the near term. As of September 30, 2024, we had an accumulated deficit of approximately $437.9 million and working capital of $19.8 million. On October 31, 2024, we announced that we raised approximately $7 million in gross proceeds from the sale of Common Stock and warrants through a registered offering and two separate private placements. We believe that our cash, cash equivalents and marketable securities on hand will be sufficient to support operations, working capital and capital expenditure requirements for at least the next 12 months from the date of this Report.

Previous wording

The amount and timing of our future funding requirements will depend on many factors, including the pace and results of our product development efforts, our ability to develop and deliver our commercial AI/ML Software Platform and thereby recognize associated revenue and capital requirements to develop our commercial AI/ML Software Platform prior to receiving payments sufficient to cover our costs. Any delays in the successful commercialization of our software products will negatively impact our ability to generate revenue, profitability, overall operating performance and ability to continue operations.

Current wording

The amount and timing of our future funding requirements will depend on many factors, including the pace and results of our product development efforts, our ability to release and license our commercial products and thereby recognize associated revenue and capital requirements to conduct marketing and sales activities prior to receiving payments sufficient to cover our costs. Any delays in the successful commercialization of our software products will negatively impact our ability to generate revenue, profitability, overall operating performance, financial condition and ability to continue operations. If we are unable to raise additional capital when desired or needed, our business, results of operations and financial condition would be materially and adversely affected.