Palladyne AI Corp.

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

For the quarterly period ended September 30,2025

OR

For the transition period from _______ to _______

Commission File Number:001-39897

Palladyne AI Corp.

(Exact Name of Registrant as Specified in its Charter)

Registrant’s telephone number, including area code: (888)927-7296

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No☒

As of October 28, 2025 the registrant had 42,037,410 shares of Common Stock, $0.0001 par value per share, outstanding.

Table of Contents

Summary Risk Factors.

Our business is subject to numerous risks and uncertainties, including those highlighted in Part II, Item 1A Risk Factors of this report. The following is a summary of the principal risks we face:

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We are an early stage company with a history of losses, and expect to incur significant losses for the foreseeable future.

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Our operating and financial projections rely on management assumptions and analyses. If these assumptions or analyses prove to be incorrect, as they often have in the past, our actual operating results may be materially different from our expected or forecasted results.

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We have yet to achieve positive operating cash flow and our ability to generate positive cash flow is uncertain.

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We have no previous history or experience with commercializing software products and may not be able to do so efficiently, effectively or at all. We were unsuccessful in our efforts to commercialize the hardware technologies that we and our predecessor companies developed over the past several decades.

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Successful commercialization of our AI/ML Foundational Technology and related products may be delayed beyond our current expectations and therefore product availability to customers, customer acquisition and receipt of product revenue could be delayed.

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Our anticipated revenues are expected to be primarily derived from the licensing of our AI/ML software products for the foreseeable future.

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Any issues in the development and use of our AI/ML Foundational Technology or related products, or issues in products developed by others, may result in reputational harm or liability.

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Our AI/ML Foundational Technology and related products are new technologies and the timing and magnitude of revenues from customers is uncertain. If we cannot successfully commercialize our AI/ML Foundational Technology and related products on our expected schedule, if our technology does not offer our potential customers the features, functionality and return on investment that they expect and/or if potential customers are not willing to pay for our software products at the license rates that we currently expect, our ability to generate material revenues will be materially impaired.

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If we are not able to generate material revenues from our software products before we exhaust our financial resources, we may need to cease business operations.

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We may fail to attract or retain customers at sufficient rates or in sufficient numbers or at all.

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We have no previous history with our licensing sales model.

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Important assumptions about market demand, pricing, adoption rates and sales cycles for our software products may be inaccurate.

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The products related to our AI/ML Foundational Technology require certain limited hardware components, and we are dependent on our suppliers, some of which are currently single, sole or limited source suppliers. Any inability of these suppliers to deliver necessary components of our products at prices, volumes, performance, timing and specifications acceptable to us, could have a material adverse effect on our business, prospects, financial condition and operating results.

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We operate in a competitive industry that is subject to rapid technological change, and we expect competition to increase. Our products may not be competitive with other alternatives.

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We may not be able to successfully enhance our product offerings through our research and development efforts.

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Real or perceived design flaws, errors, defects, glitches, bugs or malfunctions in our AI/ML Foundational Technology and related products, failure of our software products to perform as expected, connectivity issues or user errors can result in lower than expected return on investment for customers, personal injury or property damage and significant security or safety concerns, each of which could materially and adversely affect our results of operations, financial condition or reputation.

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We use "open source" software, which could negatively affect our ability to offer our AI/ML Foundational Technology and related products and subject us to possible litigation.

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Our business and prospects depend significantly on our ability to build our brand. We may not succeed in establishing, maintaining and strengthening an effective brand, and our brand and reputation could be harmed by negative publicity regarding us or our AI/ML Foundational Technology and related products. We believe that our previous inability to successfully commercialize our legacy hardware products, and our resulting financial performance, damaged our prior brand. As a result, in March 2024 we changed our name to Palladyne AI Corp. and have branded our AI/ML software products accordingly.

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Our management team has broad discretion in making strategic decisions to execute our growth plans, and our management's decisions have not always led to the desired result. Current and future decisions may not be successful in achieving our business objectives or may have unintended consequences that negatively impact our growth prospects.

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If we fail to effectively manage our business, we may not be able to develop, market and commercialize our software products successfully.

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We may be unable to adequately control the costs associated with our operations in order to achieve profitability.

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We expect to incur substantial research and development costs and devote significant resources to developing and commercializing our AI/ML Foundational Technology and related products, and we may never reach profitability and/or achieve significant or any licensing revenue.

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Our business plans require a significant amount of capital. We may sell additional equity or debt securities to meet capital needs or as we may otherwise determine to be advisable that may dilute our stockholders or introduce covenants that may restrict our operations or our ability to pay dividends. If we require additional capital and are not able to secure new funding, we may not be able to continue our business operations.

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Our financial results may vary significantly from period to period due to fluctuations in our operating costs, revenues, product demand and other factors.

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We are highly dependent on the services of our senior management and other key employees and, if we are unable to attract, integrate and retain a sufficient number of qualified employees, our ability to design and commercialize our AI/ML Foundational Technology and related products, operate our business and compete could be harmed.

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If we fail to maintain and strengthen effective systems of disclosure controls and procedures and internal control over financial reporting, our ability to produce timely and accurate financial statements or comply with applicable regulations could be adversely affected.

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We have been and may in the future be subject to risks associated with strategic relationships, acquisitions or transactions and may not identify or form desired strategic relationships in the future.

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We may become subject to new or changing governmental regulations relating to the development, marketing, licensing, distribution or use of our AI/ML Foundational Technology and related products or to the providing of customer service, and a failure to comply with such regulations could lead to delays in launching our software products and/or withdrawal of our software products from the market, delay our projected revenues, increase costs and/or make our business unviable if we are unable to modify our software products to comply.