Palladyne AI Corp.

Previous wording

We are a U.S.-based technology company developing and offering embodied artificial intelligence ("AI") software and collaborative autonomy solutions, advanced avionics, unmanned aerial vehicles ("UAVs"), advanced UAV engineering services and precision-manufactured components for defense and commercial/industrial markets. Our core AI software offerings, Palladyne IQ, SwarmOS and Palladyne Pilot, consist of full-stack, closed-loop autonomy software that is intended to enhance the functionality and operational effectiveness of third-party robotic systems across a range of applications and our proprietary UAVs. These products are designed to be hardware agnostic, enabling integration across a wide range of robotic platforms, whether third-party or our own proprietary platforms, including industrial robots, collaborative robots ("cobots"), UAVs, unmanned ground vehicles ("UGVs"), and remotely operated vehicles ("ROVs") across multiple domains.

Current wording

We are a U.S.-based technology company developing and offering embodied artificial intelligence ("AI") software and collaborative autonomy solutions, advanced avionics, unmanned aerial vehicles ("UAVs"), advanced UAV engineering services and precision-manufactured components for aerospace, defense and commercial/industrial markets. Our core AI software offerings, Palladyne IQ and SwarmOS/Palladyne Pilot, consist of full-stack, closed-loop autonomy software that is intended to enhance the functionality and operational effectiveness of third-party robotic systems across a range of applications and our proprietary UAVs. These products are designed to be hardware agnostic, enabling integration across a wide range of robotic platforms, whether third-party or our own proprietary platforms, including industrial robots, collaborative robots ("cobots"), UAVs, unmanned ground vehicles ("UGVs"), and remotely operated vehicles ("ROVs") across multiple domains.

Previous wording

We are positioning our defense business as a mid-tier U.S. technology prime defense contractor aiming to combine innovative autonomy, practical engineering and American production to bring intelligent systems into active service faster, safer and more cost-effectively than legacy approaches. We seek to harness our advanced, ethical embodied AI to provide cost-effective lethality and precision harm mitigation through rapidly delivering scalable, low-cost, intelligent and collaborative attritable weapons, including by developing proprietary, UAVs incorporating our avionics and AI technologies. We support these efforts and those of other defense contractors and commercial customers through our vertically integrated aircraft engineering design services, enhanced avionics compute hardware and machining and fabrication services. Palladyne SwarmOS is designed for unmanned platforms and includes advanced autonomy and coordination capabilities that enable multiple UAVs to swarm, collaborate and execute complex missions through distributed tasking and edge-native orchestration. Our embodied AI is designed to operate in complex, contested and high-risk environments, enabling distributed tasking, human-on-the-loop oversight, degraded-communications resilience, multi-domain coordination and real-time responsiveness. Our platform-agnostic autonomy stack combines real-time sensor fusion, adaptive AI models, and edge-native orchestration to support autonomous and collaborative systems across air, ground, maritime and industrial domains where performance, resilience, trust and mission assurance are critical to operational outcomes. These capabilities are intended to meet the performance and reliability requirements of military and defense customers, particularly in applications where it is essential to conduct coordinated multi-vehicle operations in contested environments with degraded communications.

Current wording

We are positioning our defense business as a mid-tier U.S. technology prime defense contractor aiming to combine innovative autonomy, practical engineering and American production to bring intelligent systems into active service faster, safer and more cost-effectively than legacy approaches. We seek to harness our advanced, ethical embodied AI to provide cost-effective lethality and precision harm mitigation through rapidly delivering scalable, low-cost, intelligent and collaborative attritable weapons, including by developing proprietary, UAVs incorporating our avionics and AI technologies. We support these efforts and those of other defense contractors and commercial customers through our vertically integrated aerospace engineering design services, enhanced avionics compute hardware and machining and fabrication services. Palladyne SwarmOS is designed for unmanned platforms and includes advanced autonomy and coordination capabilities that enable multiple UAVs to swarm, collaborate and execute complex missions through distributed tasking and edge-native orchestration. Our embodied AI is designed to operate in complex, contested and high-risk environments, enabling distributed tasking, human-on-the-loop oversight, degraded-communications resilience, multi-domain coordination and real-time responsiveness. Our platform-agnostic autonomy stack combines real-time sensor fusion, adaptive AI models, and edge-native orchestration to support autonomous and collaborative systems across air, ground, maritime and industrial domains where performance, resilience, trust and mission assurance are critical to operational outcomes. These capabilities are intended to meet the performance and reliability requirements of military and defense customers, particularly in applications where it is essential to conduct coordinated multi-vehicle operations in contested environments with degraded communications.

Previous wording

We derive revenue from multiple sources, including the sale of both software and hardware products, product development contracts with the Department of War, and engineering services. We accordingly classify our revenue into three primary streams: product revenue, product development contract revenue and engineering services revenue, with product revenue further disaggregated into software and hardware categories. Software product revenue is comprised of the sale of our proprietary AI software products based on our AI Foundational Technology (i.e., Palladyne IQ, SwarmOS and Palladyne Pilot). Hardware product revenue consists of the sale of our hardware products, including our advanced avionics compute hardware (BRAIN) and our UAV products under development (i.e., Gremlin-X and SwarmStrike). We also classify as hardware product revenue sales of our precision machined and fabricated components and structures. Product development contract revenue consists of contracts with customers that support our software and hardware products under development. Engineering services revenue are derived from aerospace and defense customers focused on developing high-performance unmanned systems.

Current wording

We derive revenue from multiple sources, including the sale of both software and hardware products, product development contracts with the Department of War, and engineering services. We accordingly classify our revenue into three primary streams: product revenue, product development contract revenue and engineering services revenue, with product revenue further disaggregated into software and hardware categories. Software product revenue is comprised of the sale of our proprietary AI software products based on our AI Foundational Technology (i.e., Palladyne IQ, SwarmOS and Palladyne Pilot). Hardware product revenue consists of the sale of our hardware products, including our advanced avionics compute hardware (BRAIN) and our UAV products under development (i.e., Gremlin-X and SwarmStrike). We also classify as hardware product revenue sales of our precision machined and fabricated components and structures. Product development contract revenue consists of contracts to develop, design and modify our technology and related products. Engineering services revenue are derived from aerospace and defense customers focused on developing high-performance unmanned systems.

Previous wording

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

Current wording

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

Previous wording

We have taken and continue to take numerous steps to manage our use of cash. For example, in 2023 we suspended our legacy hardware product development efforts and focused our product development efforts on our AI/ML Foundational Technology and related products, and terminated our operations in Pittsburgh, Pennsylvania in early 2024. Beginning in the fourth quarter of 2024 and through March 31, 2026 we raised approximately $75.6 million in gross proceeds from the sale of our Common Stock and warrants. For further information on our financing activities, see "Liquidity and Capital Resources."

Current wording

We have taken and continue to take numerous steps to manage our use of cash. For example, in 2023 we suspended our legacy hardware product development efforts and focused our product development efforts on our AI/ML Foundational Technology and related products, and terminated our operations in Pittsburgh, Pennsylvania in early 2024. Beginning in the fourth quarter of 2024 and through June 30, 2026 we raised approximately $86.8 million in gross proceeds from the sale of our Common Stock and warrants. For further information on our financing activities, see "Liquidity and Capital Resources."

Previous wording

We believe we have sufficient liquidity to operate for at least the next 12 months without the need to raise additional capital. However, we may decide 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 sales of our products and services will negatively impact our ability to generate revenue, our profitability, our cash flows, our overall operating performance and our ability to continue operations and may result in the need to raise additional capital. We will continue to carefully evaluate our use of cash and liquidity.

Current wording

We believe we have sufficient liquidity to operate for at least the next 12 months without the need to raise additional capital. However, we may decide to seek additional financing during that time to bolster our cash reserves, increase our ability to continue to pursue our business objectives and to support partnership efforts and investments as opportunities materialize. 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 or when we otherwise deem it to be necessary or advisable. Any delays in the sales of our products and services will negatively impact our ability to generate revenue, our profitability, our cash flows, our overall operating performance and our ability to continue operations and may result in the need to raise additional capital. We will continue to carefully evaluate our use of cash and liquidity.

Previous wording

Revenue increased by $1.8 million, or 107%, from $1.7 million for the three months ended March 31, 2025, to $3.5 million for the three months ended March 31, 2026, as explained below.

Current wording

Revenue increased $4.8 million or 470%, from $1.0 million for the three months ended June 30, 2025, to $5.8 million for the three months ended June 30, 2026, as explained below.

Previous wording

Product revenue was $1.7 million for the three months ended March 31, 2026. All of our product revenue during the three months ended March 31, 2026, was from the sale of precision machined parts and components by our Palladyne Manufacturing business, comprised of Warnke Precision Machining and MKR Fabricators, both of which were acquired in November 2025.

Current wording

Product revenue was $2.7 million for the three months ended June 30, 2026. Our product revenue during the three months ended June 30, 2026, was derived mainly from the companies that we acquired in November 2025. It includes revenue from the sale of precision machined parts and components from our manufacturing business and from the sale of our BRAIN avionics product.

Previous wording

Product development contract revenue decreased by $1.6 million, or 96%, from $1.7 million for the three months ended March 31, 2025, to $0.1 million for the three months ended March 31, 2026. The decrease was primarily due to a decrease in remaining available funding on outstanding contracts during the current year compared to the prior year period. We expect future revenue from contracts to fluctuate due to the timing of new contracts signed, contract options being exercised, and the completion of existing contracts. We intend to take on only those product development contracts that we believe support and contribute to our product development efforts. As a result, there may be fewer opportunities to replace completed product development contracts in the future.

Current wording

Product development contract revenue increased by $0.2 million, or 17%, from $1.0 million for the three months ended June 30, 2025 to $1.2 million for the three months ended June 30, 2026. The increase was primarily due to new product development contracts that started during the current year period, partially offset by contracts that were completed during the prior year. We expect future revenue from contracts to fluctuate due to the timing of new contracts signed, contract options being exercised, and the completion of existing contracts. We intend to take on only those product development contracts that we believe support and contribute to our product development efforts. As a result, there may be fewer opportunities to replace completed product development contracts in the future.

Previous wording

The following table presents our operating expenses for the three months ended March 31, 2026 and 2025:

Current wording

The following table presents our operating expenses for the three months ended June 30, 2026 and 2025, respectively:

Previous wording

Research and development expenses increased by $1.0 million, or 36% from $2.9 million for the three months ended March 31, 2025, to $3.9 million for the three months ended March 31, 2026. Research and development costs during the three months ended March 31, 2026 increased due primarily to labor and labor related expenses associated with product design, testing, debugging, stabilization and enhancements of our software and UAV products in development.

Current wording

Research and development expenses increased by $1.2 million, or 38% from $3.1 million for the three months ended June 30, 2025, to $4.3 million for the three months ended June 30, 2026. Research and development costs during the three months ended June 30, 2026 increased due primarily to labor and labor related expenses associated with product design, testing, debugging, stabilization and enhancements of our UAV products and software in development.

Previous wording

General and administrative expense increased by $2.7 million, or 64%, from $4.2 million for the three months ended March 31, 2025, to $6.9 million for the three months ended March 31, 2026. General and administrative expense increased primarily due to legal, and other administrative expenses related to increased levels of activity driven by the acquisitions completed in November 2025.

Current wording

General and administrative expense increased by $4.0 million, or 95%, from $4.2 million for the three months ended June 30, 2025, to $8.1 million for the three months ended June 30, 2026. General and administrative expense increased primarily due to increased labor and labor related expenses associated with increases in headcount from the November 2025 acquisitions and hiring to support our new business activities. Stock compensation expenses also increased during the current year period driven primarily by the increased headcount and the 2025 Executive RSU awards that were granted in June 2026.

Previous wording

Sales and marketing expense increased by $0.6 million, or 52%, from $1.2 million for the three months ended March 31, 2025, to $1.8 million for the three months ended March 31, 2026. This increase was driven by increased marketing program costs for our products and services as we continue our initial sales development and outreach activities.

Current wording

Sales and marketing expense increased by $0.9 million, or 70%, from $1.3 million for the three months ended June 30, 2025, to $2.3 million for the three months ended June 30, 2026. This increase was driven by increased labor and labor related expenses as we have increased headcount to support our sales, business development and marketing efforts as we continue our initial sales development and outreach activities.

Previous wording

Other loss increased by $30.4 million from a gain of $29.7 million for the three months ended March 31, 2025, to a loss of $0.7 million for the three months ended March 31, 2026. Other loss increased almost entirely as a result of changes in the fair value of our outstanding warrants. Additionally, interest income from our investments in marketable securities decreased primarily due to a decrease in invested funds.

Current wording

Other income decreased by $29.9 million from a gain of $30.3 million for the six months ended June 30, 2025, to a gain of $0.4 million for the six months ended June 30, 2026. Other income decreased almost entirely as a result of changes in the fair value of our outstanding warrants as well as decreased interest income primarily due to a decrease in invested funds.

Previous wording

Our backlog, as of March 31, 2026, was $17.3 million, $17.0 million of which was funded and $0.3 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 $23.4 million as of March 31, 2026.

Current wording

Our backlog, as of June 30, 2026, was $24.6 million, $21.2 million of which was funded and $3.4 million of which was unfunded. Our backlog, as of December 31, 2025, was $13.9 million, $13.5 million of which was funded and $0.4 million of which was unfunded. Our backlog is equal to our remaining performance obligations under contracts or the total value of committed customer contracts and purchase orders, 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 $30.9 million as of June 30, 2026 and $20.0 million as of December 31, 2025.

Previous wording

Cash, cash equivalents and marketable securities were $43.7 million as of March 31, 2026, compared to $47.1 million as of December 31, 2025. We have incurred losses from operations and negative cash flows from operations since inception and are likely to continue to incur losses from operations and negative cash flows from operations in the near term. As of March 31, 2026, we had an accumulated deficit of approximately $493.4 million and working capital of $43.9 million.

Current wording

Cash, cash equivalents and marketable securities were $43.7 million as of June 30, 2026, compared to $47.1 million as of December 31, 2025. We have incurred losses from operations and negative cash flows from operations since inception and are likely to continue to incur losses from operations and negative cash flows from operations in the near term. As of June 30, 2026, we had an accumulated deficit of approximately $505.7 million and working capital of $43.8 million.

Previous wording

On November 13, 2024, we entered into an open market sale agreement (the "Sales Agreement") with Jefferies LLC to sell shares of our Common Stock from time to time through an "at-the-market" equity offering program under which Jefferies is acting as our sales agent and on November 13, 2024, we filed a prospectus supplement with the SEC in connection with the offer and sale of up to $18.0 million of shares of our Common Stock pursuant to the Sales Agreement. As of December 31, 2024, we sold all of the shares offered pursuant to this prospectus supplement. On December 31, 2024 we filed a prospectus supplement in connection with offering for sale an additional $30.0 million of shares pursuant to the Sales Agreement. During the six months ended June 30, 2025, we sold all of the shares offered pursuant to this prospectus supplement. On August 6, 2025 we filed a prospectus supplement in connection with offering for sale an additional $50.0 million of shares pursuant to the Sales Agreement (the “August 2025 Prospectus Supplement”). As of December 31, 2025, we sold a total of 1,307,852 shares offered pursuant to the August 2025 Prospectus Supplement for gross sales proceeds of approximately $7.5 million. During the three months ended March 31, 2026, we sold a total of 889,258 shares offered pursuant to the August 2025 Prospectus Supplement for gross sales proceeds of approximately $6.7 million, before deducting commission and other expenses.

Current wording

On November 13, 2024, we entered into an open market sale agreement (the "Sales Agreement") with Jefferies LLC to sell shares of our Common Stock from time to time through an "at-the-market" equity offering program (the "ATM Program"), under which Jefferies is acting as our sales agent. During the six months ended June 30, 2026, we sold a total of 2,531,336 shares pursuant to the ATM program, for gross sales proceeds of approximately $17.8 million, before deducting commission and other expenses. To date, we have sold a total of 10,653,920 shares pursuant to the ATM program, for gross sales proceeds of approximately $73.3 million, before deducting commission and other expenses.

Previous wording

We currently primarily use cash from equity financings to fund operations and capital expenditures and meet working capital requirements. If additional funds are required to support our working capital requirements, for acquisitions or for other purposes, we may seek to raise funds through additional debt or equity financings or from other sources. We intend to continue monitoring our liquidity, financial and business results and outlook and market conditions, and may be opportunistic and raise capital when market conditions are good or a favorable opportunity exists including under our "at-the-market" equity offering programs. Any delays in the successful further commercialization and sales of our products and services will negatively impact our ability to generate revenue, our profitability and our overall operating performance and result in the need to raise additional capital sooner than expected. If we raise additional funds through the issuance of equity or convertible debt securities, the percentage ownership of our equity holders could be significantly diluted and these newly issued securities may have rights, preferences or privileges senior to those of existing equity holders. If we raise additional funds by obtaining loans from third parties, the terms of those financing arrangements may include negative covenants or other restrictions on our business that could impair our operating flexibility and would also require us to incur additional interest expense. Additional financing may not be available at all or, if available, may not be available on terms favorable to us or that we find acceptable. For additional information around the risks associated with our capital needs see Part II Item 1A Risk Factors “Our business plans require a significant amount of capital. 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.”

Current wording

We currently primarily use cash from equity financings to fund operations and capital expenditures and meet working capital requirements. If additional funds are required to support our working capital requirements, for acquisitions, support for our partnerships or for other purposes, we may seek to raise funds through additional debt or equity financings or from other sources. We intend to continue monitoring our liquidity, financial and business results and outlook and market conditions, and may be opportunistic and raise capital when market conditions are good or a favorable opportunity exists or we otherwise determine it to be necessary or advisable, including under our "at-the-market" equity offering programs. Any delays in the successful further commercialization and sales of our products and services will negatively impact our ability to generate revenue, our profitability and our overall operating performance and result in the need to raise additional capital sooner than expected. If we raise additional funds through the issuance of equity or convertible debt securities, the percentage ownership of our equity holders could be significantly diluted and these newly issued securities may have rights, preferences or privileges senior to those of existing equity holders. If we raise additional funds by obtaining loans from third parties, the terms of those financing arrangements may include negative covenants or other restrictions on our business that could impair our operating flexibility and would also require us to incur additional interest expense. Additional financing may not be available at all or, if available, may not be available on terms favorable to us or that we find acceptable. For additional information around the risks associated with our capital needs see Part II Item 1A Risk Factors “Our business plans require a significant amount of capital. 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.”

Previous wording

Cash flows used in operating activities during the three months ended March 31, 2026 increased by $2.7 million to $10.2 million from $7.5 million during the same period in 2025. The increase to net cash used in operating activities was primarily attributable to changes in net (loss) income, adjusted for non-cash items.

Current wording

Cash flows used in operating activities during the six months ended June 30, 2026 increased by $7.6 million to $20.4 million from $12.8 million during the same period in 2025. The increase to net cash used in operating activities was primarily attributable to changes in net (loss) income, net of the impact from non-cash items such as stock-based compensation, depreciation of property and equipment, amortization of intangible assets, changes in fair value of warrant liabilities and contingent consideration, loss on disposal of assets, and amortization of investment discount, and cash used by changes in operating assets and liabilities.

Previous wording

Our net cash provided by investing activities during the three months ended March 31, 2026 increased by $30.9 million as compared to the same period in 2025. The increase in cash provided by investing activities is almost entirely due to $3.2 million of maturities, net of purchases, of marketable securities during the three months ended March 31, 2026, as compared to $27.5 million of purchases of marketable securities during the three months ended March 31, 2025.

Current wording

Our net cash provided by investing activities during the six months ended June 30, 2026 increased by $51.6 million as compared to the same period in 2025. The increase in cash provided by investing activities is almost entirely due to $19.3 million of maturities, net of purchases, of marketable securities during the six months ended June 30, 2026, as compared to $33.0 million of purchases net of maturities, of marketable securities during the six months ended June 30, 2025.

Previous wording

Our net cash provided by financing activities during the three months ended March 31, 2026 decreased by $7.4 million as compared to the prior year period. This decrease was primarily attributable to $6.5 million, after deducting transaction costs, in net proceeds from the sale of our Common Stock during the three months ended March 31, 2026, as compared to $13.9 million, after deducting transaction costs, in net proceeds from the sale of our Common Stock during the three months ended March 31, 2025.

Current wording

Our net cash provided by financing activities decreased by $17.5 million during the six months ended June 30, 2026, compared to the prior year period. This decrease was primarily attributable to lower net proceeds from equity issuances; specifically, we received $17.3 million, after deducting transaction costs, in net proceeds from the sale of our Common Stock during the six months ended June 30, 2026, compared to $34.9 million, after deducting transaction costs, in net proceeds from the sale of our Common Stock and warrants during the six months ended June 30, 2025.