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Item 1. Business

2025-02-20 compared with 2024-02-28 · 218 added, 184 removed, 75 unchanged (84% of the section changed)

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You should read Part I Item 1A Risk Factors and the section titled "Special Note Regarding Forward-Looking Statements" for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and throughout this Report.

We use the terms “Sarcos,” “the Company,” “we,” “us,” and “our” to refer to Sarcos Technology and Robotics Corporation.

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) techniques 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.

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 CYTAR (Cybernetic Training for Autonomous Robots) government project in 2019.

Significant design and development work began in 2020 when our Chief Technology Officer, Dr.

Denis Garagic, joined our team.

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.

As previously disclosed, in November 2023, we decided to suspend our hardware product development efforts to focus on commercializing our AI/ML Software Platform, although some de minimis hardware-related research and development efforts continue.

By de-coupling our AI/ML Software Platform from our own hardware systems and applying it to a wide range of third-party robotics systems, from industrial robots and cobots to mobile systems potentially including drones, autonomous mobile robots (AMR), autonomous underwater vehicles (AUV) and remotely operated vehicles (ROV), we believe we can reach a much broader market more quickly and better utilize our remaining cash resources.

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 other 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.

A variety of industries ranging from manufacturing to warehousing encounter lengthy and costly efforts to program, manage, and modify their robotic systems.

These industries also experience significant limitations with the tasks that existing robotic platforms can perform, resulting in more human labor required and a lower return on investment from robotic system deployments than what we believe will be possible when our software is deployed on these machines.

We are designing our AI/ML Software Platform to enable industrial robotic systems to function with human-like reasoning through flexible and adaptable learning capabilities such that an industrial robot can perform a variety of tasks without the need for costly

reprogramming efforts.

We believe that the AI/ML Software Platform will enable autonomous functionality to address challenging and dynamic environments for industries that can benefit from a high degree of adaptability and efficiency.

We use the terms "Palladyne AI," "the Company," "we," "us," and "our" to refer to Palladyne AI Corp.

Our mission is to deliver artificial intelligence software products that enable robotic and unmanned platforms, or robotic systems, in the industrial and defense sectors to perform complex tasks in arbitrary (i.e., unstructured and dynamic) human environments.

Our AI/ML Foundational Technology enhances the utility and functionality of third-party stationary and mobile robotic systems by allowing these systems to quickly observe, learn, reason and act in structured and unstructured environments.

Our AI/ML Foundational Technology is 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 and not in the cloud) without extensive programming, training or the latency associated with processing in the cloud.

We believe this "human-like" ability to learn, reason and adapt will be a key differentiator in assisting our customers to enhance productivity in dynamic or unstructured environments, where human reasoning has traditionally been required to complete the task.

We designed our AI/ML Foundational Technology to be hardware agnostic, meaning that our AI/ML software products are designed so that with a minimal integration effort they will be able to function on a wide variety of industrial robots, cobots, unmanned aerial vehicles ("UAV"), unmanned ground vehicles ("UGV") and other remotely operated vehicles ("ROV").

We believe that our AI/ML Foundational Technology will enable autonomous functionality in challenging and arbitrary environments for industries that can benefit from a high degree of adaptability and efficiency, such as manufacturing and the defense sector.

These industries typically encounter limitations on the tasks a robotic system can perform, while also engaging in lengthy and costly efforts to program, manage, and modify such systems.

Our AI/ML Foundational Technology is designed to enable robotic systems to function with human-like reasoning through flexible and adaptable learning capabilities such that a robotic system can perform a variety of tasks without the need for costly reprogramming efforts.

We believe our AI/ML Foundational Technology will expedite robotic system training, expand task capabilities, enable collaboration among robotic systems and reduce human labor requirements all while significantly decreasing costly programming costs, leading to increased productivity and a higher return on investment for robotic system deployments across various use-cases.

Our AI/ML Foundational Technology is the foundational technology for our two software products.

The first, Palladyne IQ, has been developed for use with industrial robots and cobots, and the second, Palladyne Pilot, is being developed for use with unmanned platforms with our current focus being Class 1 UAVs.

We released the initial commercial version of our Palladyne IQ product in October 2024 and expect to release the initial commercial version of Palladyne Pilot by the end of the first quarter of 2025.

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 believe that our initial customer base will be comprised of innovators and early adopters in the industrial manufacturing, defense, infrastructure maintenance, repair and surveillance, energy and aerospace and aviation industries.

We believe that if we are successful in demonstrating the value of our products with these early adopters, there will be many potential customers that follow.

Palladyne IQ is being offered through a term-based licensing model that would result in a recurring revenue stream.

We may also offer add-on functionality for an additional license fee.

We may charge an upfront fee for the hardware associated with Palladyne IQ or embed the cost into the license fee.

We anticipate offering Palladyne Pilot through a device-based licensing model.

We expect to begin generating revenues from commercial customers of Palladyne IQ and Palladyne Pilot in 2025.

The majority of our sales and marketing efforts are focused initially on U.S.

markets, but we are also exploring opportunities in select non-U.S.

markets on a more limited basis.

Industry Background

Robots have been commercially available and used in industrial and manufacturing automation for many decades.

These industrial robots are typically large, stationary robotic arms designed to automate repetitive tasks in a controlled environment (e.g., a factory assembly line) that require consistency, speed and strength greater than what a human can accomplish.

Industrial robots generally execute plans by rote programming (functions that are programmed in advance by a human engineer).

Over time, industrial robots have become more sophisticated and are now widely adopted in a host of applications and across many industries.

While this kind of automation brings significant benefits to industrial and manufacturing efforts, it also has its limitations.

For example, these robots are typically deployed in controlled settings, fixed in place, used to accomplish a single repetitive task and not easily reprogrammed without costly and time-consuming retraining.

In the industrial and manufacturing automation space, productivity and cost-effectiveness depend greatly on avoiding downtimes.

Downtime can be caused by many factors, but we believe the most significant are due to programming and reprogramming of robotic systems, disruptions to the controlled environment, whether due to physical obstacles or imprecise positioning, and the need to implement production change-overs.

Initial programming or reprogramming of robotic systems is a costly and time-intensive task, requiring highly skilled programmers.

Recent efforts to use AI technologies to enable the use of robotic systems in dynamic physical environments have focused on training foundational models residing in cloud infrastructure with enormous amounts of real-world robotic data sets collected over extended periods of time.

In these cases, training occurs by connecting to these databases, doing extensive searching to try to find case-applicable data and models and then attempting to use the new data to recommend a viable solution.

This process requires persistent cloud connectivity, driving increased costs and time, significantly reducing the benefits of these AI technologies.

Industrial Robotics

Industrial robots have been used in industrial and manufacturing automation for many decades, typically in the form of large, stationary robotic arms that automate repetitive tasks in a controlled environment (e.g., a factory assembly line).

These robots are typically programmed in advance by human engineers and excel at tasks requiring consistency, speed and strength beyond human capacity.

Over time, they have become more advanced and are now widely adopted across various industries.

While industrial robots and cobots offer significant benefits, they also have limitations in that they are not capable of performing a diverse set of complex tasks, and programming and re-programming efforts are costly, time-intensive and require highly skilled programmers.

We understand from early customer engagement that reprogramming a single robotic arm can take weeks to months in some cases.

Reprogramming thousands of robotic arms on a full assembly line to build a different product or accommodate a new component is therefore costly and can put the line out of commission for a significant period of time, reducing or delaying production and sales.

Further, many industrial or manufacturing robotic systems deployed today are not designed to perform tasks in dynamic or unstructured environments.

As a result, a change or disruption in the environment, such as the insertion of an obstacle or the imprecise placement of parts, can result in the system shutting down until human assistance resolves the situation, resulting in additional costs and lost production.

Recent efforts to use AI technologies to address issues such as changing and dynamic environments typically depend on access to enormous databases with large language models (LLMs) residing in the cloud and using enormous amounts of real-world robotic data sets collected over time.

This process requires persistent cloud connectivity, driving increased costs, and is time-consuming, significantly reducing the benefits of these AI technologies.

We are designing our AI/ML Software Platform to enable industrial and manufacturing robots, such as robotic arms to:

• be programmed and reprogrammed quickly with training capable of occurring experientially through teleoperation in as little as a few examples taking only a few minutes;

• observe and assess their environment with our perception functionality that enables robots to distinguish between components essential to their tasks, obstacles to be avoided and irrelevant externalities without the need to connect to LLMs and extensive cloud-based databases;

• learn to recognize and manipulate different objects to accomplish planned tasks quickly and precisely, even in dynamic or unstructured environments, requiring far less training data than traditional AI models;

• quickly reason and determine how to accomplish the desired task in a stable, safe, and controlled manner in the face of obstacles or other unexpected environmental changes;

• make real-time, AI-enabled decisions on the edge without the need to maintain connectivity to the cloud, eliminating the cost and latency associated with cloud-based AI computing;

• work with most industrial robots being sold today.

To accomplish this, we are incorporating our proprietary full stack, closed-loop autonomy technology into our AI/ML Software Platform that operates on the edge, enabling robotic systems to observe, learn, reason and act in real-time without the need to connect to the cloud to try to find an applicable LLM.

Unlike LLMs, which are generally used to predict an outcome and make

a recommendation, our AI methods are designed to enable a robot to make real-time decisions and act while using much less data and taking much less time.

In many instances, we believe our solution will be significantly more data-efficient as compared to deep learning-based methods due to its ability to make decisions with just hundreds of parameters rather than billions.

We aim to address current challenges in automation by developing a software platform that:

• enables humans to intuitively re-train a robot to perform a different task quickly thereby reducing costly delays resulting from the need to reprogram assembly lines;

• enables robots to be capable of dynamic reasoning such that the robot can work around a physical obstacle or dynamically adjust its orientation to achieve the task, thereby reducing the need to reprogram robots and incur costly delays;

• operates “on the edge” without the expense or delay of having to connect to the cloud to exhibit human-like reasoning in real time.

The AI/ML Software Platform’s ability to operate “on the edge” is a key differentiator because, without the need to use large amounts of cloud-based computing, our AI/ML Software Platform can efficiently operate autonomously in dynamic environments while reacting to new circumstances without the need to access new data sets or be reprogrammed or retrained.

In addition, our AI/ML Software Platform is being designed to fuse multi-sensor data inputs together to improve system situational awareness, increasing its flexibility and adaptability.

We expect other important future capabilities to include solving for system stability and automated end-effector orientation to match the target object, enhanced computational efficiencies achieved through the use of our domain-specific language models and the use of dynamic model inference methods to generalize with only a few demonstrations.

Because our AI/ML Software Platform is being designed to work with most industrial robots being sold today, we expect that our AI/ML Software Platform can benefit a wide variety of industries such as industrial manufacturing, warehousing and logistics, defense, infrastructure maintenance and repair, energy and aerospace and aviation, among others.

Based on product testing and trials, we expect our AI/ML Software Platform to greatly increase productivity across a variety of use-cases, while significantly reducing associated costs of programming and deploying these systems.

The AI/ML Software Platform

Artificial Intelligence & Machine Learning

We are designing our AI/ML Software Platform to enable robots to be capable of human-like reasoning in their ability to learn multiple tasks and efficiently manage disruptions or obstacles.

Once initial training/programming occurs, our closed-loop autonomy is expected to enable the robot to adapt to changes in its environment without human intervention or reprogramming.

After minimal initial training, robots using our AI/ML Software Platform are expected to operate in a closed-loop to continuously observe, learn, reason and act so that they can adapt and continue to complete the desired tasks in the face of a changing environment.

We are designing our AI/ML Software Platform to enable robots to:

Using a variety of sensors (e.g., vision, LiDAR, radar and acoustic) to perceive a dynamic and unstructured environment with situational awareness.

Typically learn a task in approximately one to five human-controlled demonstrations via a variety of methods including, remote manipulation, virtual reality manipulation or natural language instruction.

We believe our dynamic reasoning model will require much less training data than traditional models.

Using this learning data, the AI/ML Software Platform is expected to create a mathematical model of the data and store it in the platform as a task.

A disruption to the controlled environment, such as the insertion of an obstacle or the imprecise placement of parts, can result in the system shutting down until human assistance resolves the situation, resulting in additional costs and lost production.

Unmanned Platforms

The defense sector has used unmanned platforms such as UAVs, UGVs and ROVs for many years.

UAV-based missions, particularly in tactical operations, are often personnel-intensive, requiring multiple roles and shifts to ensure continuous situational awareness.

Operators are tasked with managing the drone platforms, analyzing data streams and coordinating between team members to maintain an effective overview of the mission.

Currently, most tactical UAVs rely on manual, 1:1 platform control, where one operator controls a single drone, and one-to-many data coordination is essential for the smooth integration of different information sources.

This setup creates significant operational complexity, particularly when real-time decision-making is required in highly variable and unpredictable conditions, where constant monitoring of diverse data streams is crucial to making timely, accurate choices.

Moreover, tactical UAVs face a number of challenges in target detection, identification and tracking.

Limited or contested radio frequency ("RF") availability causes interruptions in communication that jeopardize persistent target tracking of moving targets.

Additionally, fast-moving targets often exit the field of view or are obstructed from the drone's line-of-sight, complicating continuous tracking efforts.

Distinguishing targets based on visual attributes—such as color, shape or markings—can also be difficult, especially in complex and arbitrary environments.

These challenges highlight the need for advanced technologies that can enhance situational awareness, automate target detection, identification and tracking and improve the precision of decision-making in complex, real-time scenarios.

Our Solution:

The AI/ML Foundational Technology

Our AI/ML Foundational Technology is full stack, closed-loop autonomy software designed to enable robotic systems to observe, learn, reason and act in a manner similar to that of humans to solve tasks in arbitrary environments that have been too complex for traditional automation.

It operates on the edge by using real-time sensor inputs to adjust to a changing environment and accomplish the assigned task without the need to connect to the cloud to try to find and process an applicable LLM.

Specifically, our AI/ML Foundational Technology incorporates internal and external environmental inputs that allow robotic systems 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 apply human-like reasoning to arbitrary environments to expedite robotic system training, expand the tasks that a robotic system can perform, enable collaboration and maximize capabilities.

Our AI/ML Foundational Technology addresses current challenges in automation by:

• Enabling rapid programming and reprogramming of robotic systems through intuitive, minimal training via teleoperation or natural language instruction, allowing re-training with just a few examples, thereby reducing costly delays associated with traditional reprogramming;

• Allowing robots to dynamically reason and adjust to environmental changes in real time, reducing the need for constant reprogramming and making operations more flexible such that robots can switch between varying and/or changing tasks easily, and operate in dynamic environments generally;

• Operating entirely "on the edge," providing real-time human-like reasoning and decision-making without relying on cloud connectivity, thereby eliminating the cost, latency and dependency of cloud-based AI computing;

• Utilizing perception functionality to assess and navigate environments, distinguishing between relevant components, obstacles and irrelevant factors, without relying on LLMs or cloud databases.

We believe that our ability to operate "on the edge" without the need to access large data sets or connect to the cloud is a key differentiator of our AI/ML Foundational Technology and related products.

Unlike traditional LLMs, which predict outcomes and make recommendations, our system allows robots to make real-time decisions and take action using minimal data.

In many instances, we believe our solution will be significantly more data-efficient as compared to deep learning-based methods, such as LLMs, due to its ability to make decisions with just hundreds of parameters obtained through training and real-time sensor inputs rather than billions obtained through the cloud as with LLMs.

Without the need to use large amounts of cloud-based computing, our AI/ML Foundational Technology can efficiently operate autonomously in dynamic environments while reacting to new circumstances without the need to access and process new data sets, with the accompanying delays, imprecision and costs, or be reprogrammed or retrained.

In addition, our AI/ML Foundational Technology is designed to fuse multi-sensor data inputs together to improve system situational awareness, increasing its flexibility and adaptability.

Our AI/ML Foundational Technology empowers robots with human-like reasoning, enabling them to learn multiple tasks and handle disruptions or obstacles efficiently.

Once initial training/programming is completed, our closed-loop autonomy architecture allows robots to adapt to environmental changes without human intervention or reprogramming.

After minimal initial training, robots using our AI/ML Foundational Technology are expected to operate in a closed-loop to continuously observe, learn, reason and act so that they can adapt and continue to complete the desired tasks in the face of a changing environment.

We believe that our products will enable autonomous functionality to address challenging and dynamic environments for industries that can benefit from a high degree of adaptability and efficiency.

These industries typically encounter limitations on the tasks a robotic system can perform, while also engaging in lengthy and costly efforts to program, manage and modify such systems.

Our products are designed to enable robotic systems to function with human-like reasoning through flexible and adaptable learning capabilities such that a robotic system can perform a variety of tasks without the need for costly reprogramming efforts.

Our AI/ML Foundational Technology is the foundation for our first two software products.

The first, Palladyne IQ, has been developed for use with industrial robots and cobots, and the second, Palladyne Pilot, is being developed for use with unmanned platforms.

Palladyne IQ has been developed for use with industrial robots and cobots to empower robots with human-like reasoning, enabling them to learn multiple tasks and handle disruptions or obstacles efficiently.

Potential use cases include:

• manufacturing;

• heavy material handling;

• kitting and parts sequencing;

• surface preparation;

• quality control inspection.

Palladyne IQ enables industrial robots and cobots to do the following.

Advanced perception and observation to improve situational awareness.

Using sensors like vision, LiDAR, radar and acoustic devices, robots gain situational awareness to perceive a dynamic and unstructured environment.

intelligent machine learning to accelerate onboarding for new and complex tasks .

With Palladyne IQ, robots typically learn a task in approximately one to five human-controlled demonstrations via a variety of methods including, remote manipulation, virtual reality manipulation or natural language instruction.

We believe our

dynamic reasoning model requires much less training data than traditional models.

Using this learning data, Palladyne IQ creates a mathematical model of the data and stores it as a task.

The model is then updated over time as more data is obtained.

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By operating "on the edge" and not accessing external large data sets, the learning process can happen faster and cheaper and without the need for a connection to the cloud.

Reason using probabilistic ML techniques, in a similar manner to human logic, when an unexpected or unknown event occurs.

The robot would rely on its Task Library as a starting point and then infer to adjust to circumstances in real time.

Applies human-like logic and adapts its task model in real-time to translate observations into a control message that adjusts the behavior in a safe and controlled manner to complete the task.

human-like, AI-based reasoning to determine best course of action without human intervention .

When an unexpected or unknown event occurs, robots can reason using probabilistic ML techniques in a similar manner to human logic.

The software enables robots to infer how to adjust their actions to complete the task in the changed environment.

precise robotic control and completion of tasks.

Palladyne IQ translates observations into control messages that adjust robot behavior in a safe and controlled manner in real time, ensuring tasks continue without the need for production stoppages.

For example, in our testing lab an arm robot has continued the task of sorting items by color even after an obstacle was placed in its way.

As a result, we expect there will be no need to shut-down production to teach a new task after a disruption in the environment.

We anticipate that our AI/ML Software Platform will enable each robot to have a Task Library such that each robot can perform multiple tasks in a variety of situations and switch between them quickly with no reprogramming and minimal, if any, retraining.

Hardware and Management Platform

We envision that our AI/ML Software Platform will be provided to customers along with the following baseline edge computing and training hardware components:

a controller component that houses the closed-loop autonomy software framework that interfaces with the robot baseline system;

a sensor package for situational awareness;

and a human/machine interface system for training and teleoperation .

The training and teleoperation interface system is expected to include a motion capture device and hand controller that is available as a standalone package.

Along with our AI/ML Software Platform we are developing a cloud-based customer portal to facilitate software purchases, updates, and online customer support.

This customer portal is expected to also include the data analytics, operational tools, and the functionality to monitor, configure, and train the AI/ML Software Platform.

Palladyne IQ enables each robot to have a unique Task Library such that each robot can perform multiple tasks in a variety of situations and switch between them quickly with no reprogramming and minimal, if any, retraining.

We expect other important future capabilities to include solving for system stability, enhanced computational efficiencies achieved through the use of our domain-specific language models and the use of dynamic model inference methods to generalize with only a few demonstrations.

Palladyne IQ is delivered to customers with compute hardware that houses the software.

We are also developing a cloud-based customer portal to facilitate software purchases, updates and online customer support.

This customer portal will include data analytics, operational tools and the functionality to monitor, configure and train Palladyne IQ.

Because Palladyne IQ is designed to work with most industrial robots being sold today, we expect that this product can benefit a wide variety of industries such as industrial manufacturing, defense, infrastructure maintenance and repair, energy and aerospace and aviation, among others.

Based on product testing and trials, we expect Palladyne IQ to increase productivity across a variety of use-cases, while significantly reducing associated costs of programming and deploying robotic systems.

We have released the initial commercial version of Palladyne IQ.

We provided this version to a large global manufacturer for trial, which has resulted in invaluable customer feedback that is currently being incorporated into the next version of the product.

We work to continuously improve our products through debugging and other reliability, stabilizing and functional improvements to improve the customer experience, better meet customer needs and enable our products to address increasingly complex use cases.

Palladyne Pilot

Palladyne Pilot is being developed for use with unmanned platforms with our current focus being on Class 1 UAVs to enable persistent detection, identification, tracking and classification of objects of interest by sharing situational awareness information across multiple drones that is derived by fusing multi-modal sensor data.

Palladyne Pilot is being designed to integrate with third-party autopilot systems thereby enhancing a network of collaborating drones and sensors that can self-orchestrate to provide superior capabilities for applications including intelligence, surveillance and reconnaissance.

While our current focus is on developing Palladyne Pilot for Class 1 UAVs, we envision developing Palladyne Pilot for other unmanned platforms across multiple domains in the future.

Our current Palladyne Pilot development efforts are focused on enabling UAVs to do the following.

advanced perception for enhanced situational awareness.

Improves target detection and tracking by adaptively controlling sensor parameters (e.g., vision, LiDAR, radar, acoustic inputs) and integrating multi-source, multi-modal information, with one or multiple UAVs for multi-vehicle collaboration, enhancing UAV-to-target tracking assignments even when targets are temporarily obscured.

dynamic learning improves detection and surveillance capabilities.

Leverages edge computing to enable real-time learning and decision-making for persistent target tracking and monitoring by integrating various information streams into a single, coherent view, ultimately empowering a single operator - on the loop - to simultaneously operate multiple drone platforms as a coordinated drone team.

dynamic reasoning improves data sharing and collaboration.

Dynamic reasoning facilitates detection and continued tracking of targets that exhibit dynamic, changing behavior.

Further, the quick processing of contextual sensor information from individual UAVs in the network enables persistent target tracking, the timeliness of which is critical for real-time decision making and situational awareness.

Act and Collaborate :

transforms UAVs into an autonomously collaborating team.

Intelligent coordination of information allows UAVs to autonomously share low-bandwidth data, informing a network of collaborating drones and sensors sufficiently to self-orchestrate and work together on mission objectives such that a single operator is capable of managing multiple UAVs.

We expect Palladyne Pilot will be provided to customers in the form of a software download or via the purchase of our original equipment manufacturer ("OEM") partner products that have embedded Palladyne Pilot.

We are also developing a cloud-based customer portal to facilitate software purchases, updates and online customer support.

Market Opportunity

We believe the market for AI/ML software for industrial robotics has been experiencing and is expected to continue to experience significant growth, which we believe is driven by a need for more efficient and flexible manufacturing processes.

Companies such as ABB, Fanuc, Yaskawa, KUKA, and Universal Robots are prominent in providing both robotic hardware and AI-based software solutions to a wide range of industries to promote automation.

We believe our AI/ML Software Platform augments their existing capabilities and will be complementary to their products offerings.

Collaborative robots, or cobots, which can work alongside humans, are also an area of opportunity for our AI/ML Software Platform.

We expect our AI/ML Software Platform to enhance cobots’ ability to adapt to dynamic or unstructured environments.

Further, we believe our AI/ML Software Platform has applicability to the unmanned aerial vehicle (UAV), remotely operated vehicle (ROV) and unmanned ground vehicle (UGV) markets to enable autonomous navigation and functionality especially as it relates to the defense sector.

We have a contract with Air Force Research Laboratory (AFRL) that provides funding to explore this potential.

Should this be a viable opportunity, we may consider selling our AI/ML Software Platform into the UAV, ROV and UGV markets.

We believe that our initial customer base will be comprised of innovators and early adopters in the industrial manufacturing, warehousing and logistics, defense, infrastructure maintenance and repair, energy and aerospace and aviation industries.

We believe that if we are successful demonstrating the value of our AI/ML Software Platform with these early adopters, there will be many potential customers that are fast followers.

In the long run, we believe that our AI/ML Software Platform will benefit many markets and industries.

We believe that Palladyne IQ will expand the market for industrial robotics, including cobots, by enabling industrial robotic systems to address the desire to automate tasks in arbitrary human environments.

The market for industrial robotic systems has been experiencing, and is expected to continue to experience, significant growth.

We believe this growth is driven by a desire for more efficient and flexible manufacturing processes.

Companies such as ABB, Fanuc, Kawasaki, KUKA and Universal Robots are prominent in providing robotic systems to a wide range of industries.

We believe Palladyne IQ can augment the capabilities that these systems offer, enabling Palladyne IQ to be complementary rather than competitive to these existing product offerings.

We believe Palladyne Pilot fills a void in current UAV capabilities by facilitating collaboration between multiple UAVs, enhancing tracking through fusing multi-modal sensor data and enabling autonomous navigation functionality.

These capabilities have the potential to make intelligence, defense, surveillance and reconnaissance missions more effective and efficient.

We believe that if we are successful demonstrating the value of our products with these early adopters, there will be many potential customers that are fast followers.

In the long run, we believe that our products will benefit many markets and industries.

However, it is possible that these beliefs and assumptions will prove incorrect, and, as a result, actual results and market sizes may deviate materially from our estimates.

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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.

Commercialization & Growth Strategy

Our Anticipated Sales Model

At launch, we anticipate offering our AI/ML Software Platform in at least two different packages:

(a) the AI/ML Software Platform with teleoperation devices including a full set of software and hardware needed to facilitate autonomy training and deployment, which is recommended for all first-time customers;

and (b) the AI/ML Software Platform without teleoperation devices, which is recommended for customers who have already purchased the AI/ML Software Platform and wish to expand their capabilities across multiple robotic systems.

Continued Development of our AI/ML Software Platform

Our research and development efforts are primarily focused on the further improvement of our AI/ML Software Platform, although some de minimis hardware-related research and development efforts continue.

We plan to pursue continuous improvement of our AI/ML Software Platform and to develop additional functionalities, for example certain specific Task Libraries.

We believe that as we show the commercial viability and benefits of our AI/ML Software Platform in our initial target markets and use-cases, customers and potential customers will want to use our AI/ML Software Platform to address other use-cases that previously have not been conducive to automation.

Commercialization and Growth Strategy

Continued Development of our Products

Our research and development efforts are primarily focused on the further improvement of our AI/ML Foundational Technology and improvement and enhancement of our related software products, including the minimal hardware associated with Palladyne IQ.

We pursue continuous improvement of our AI/ML Foundational Technology and related products and to develop additional functionalities and expand its use to increasingly complex tasks.

For example, we continue to improve product reliability and the user interface and product documentation and to create new Task Libraries for Palladyne IQ.

We believe that as we show the commercial viability and benefits of our products in our initial target markets and use-cases, customers and potential customers will want to use our products to address other use-cases that previously have not been conducive to automation.

As our products are highly complex, we want to ensure that we continue to develop new systems and solutions to address new markets and use-cases and thereby grow our business.

Focused Effort on Commercialization while Collaborating with Development Customers

Our AI/ML Software Platform is in its development phase.

We will continue to focus on the development and commercialization of our AI/ML Software Platform to bring the initial commercial version to market in a timely manner targeting specific use-cases.

We believe this will prove the benefits of our AI/ML Software Platform in everyday working conditions while confirming market demand and achieving and growing product revenue.

We intend to engage in the future with development customers in various industries.

In some cases, these development customers may pay us to develop our products.

This approach allows us to reduce our net loss and net use of cash while learning from our future customers’ experience with the AI/ML Software Platform, continuing product development efforts to improve and commercialize our product, and establish relationships with potential commercial and government customers.

We believe working with these development customers will allow us to accelerate our brand awareness within our targeted industries and develop products that will meet the needs of a variety of potential customers.

Focused Effort on Commercialization while Collaborating with Third Parties

We continue to focus on development and commercialization of our AI/ML Foundational Technology and related products targeting specific use cases.

For example, for Palladyne IQ, we are focusing on (1) sorting or kitting, (2) inspection and (3) surface preparation, while for Palladyne Pilot we are focusing on (1) surveillance, (2) security and (3) inspection.

strategy is to continue working with potential customers for these specific use cases and build on initial successes with potential customers to expand our customer base and strengthen our pipeline.

We expect to do so by deepening our presence in the applications where we experience initial success and strong demand, while also expanding our offerings to address additional unmet needs.

This will help us demonstrate the value of our products, validate market demand, and drive licensing revenue growth.

As we gain traction, we plan to broaden the application of our products to other use cases.

We also intend to pursue relationships with third parties, which could include robotic system OEMs and system integrators.

In some cases, third parties may pay us to develop our products, which would allow us to reduce our net loss and net use of cash while learning from our future customers' experience with our AI/ML Foundational Technology and related products.

We believe that working with third parties will allow us to accelerate our brand awareness within our targeted industries and develop products that will better meet the needs of potential customers.

We anticipate that these relationships will play an important role in helping us select the markets, use-cases and product capabilities we are currently pursuing.

We released the initial commercial version of Palladyne IQ in October 2024, which continues to undergo reliability testing, debugging and other stabilizing and functional improvements as we continue internal testing and learn from customer trials.

We expect to release the initial commercial version of Palladyne Pilot by the end of the first quarter of 2025.

Competitive Strengths

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As a pioneer in the robotic systems industry, we benefit from lessons learned over 30-plus years and significant investment in research and development.

Through our development efforts, including our software development efforts, we have developed a significant amount of advanced technology that we are leveraging to develop our AI/ML Software Platform.

Our extensive robotics history gives us valuable perspective on how to use software to tackle the challenges associated with training and managing industrial robots in complex and dynamic environments.

We believe that leveraging our previous innovations in hardware and related software, including advances in energetic outdoor mobile manipulation, human like dexterity and immersive teleoperation technology for natural extended reality interactions between humans and robots will enable us to transition our previous software development into a hardware agnostic AI/ML Software Platform to bring the benefits of our software to a much broader base of robots.

We have spent many years working with and listening to people with experience in the industries we expect to target, including advisors and development customers.

Through our hardware product development efforts over many years, including our related software development efforts, we have developed a significant amount of advanced technology and understanding of robotic systems that we are leveraging to develop and commercialize our AI/ML Foundational Technology and related products.

Our extensive robotics history gives us valuable perspective on how to use software to tackle the challenges associated with training and managing robotic systems to solve complex tasks in arbitrary human environments.

We believe that our historical innovations in the development of our legacy hardware products and our related early AI software development for our own hardware, including human like dexterity and immersive teleoperation technology for natural extended reality interactions between humans and robots, have enabled us to transition our previous software development into a hardware agnostic AI/ML Foundational Technology that has the potential for a wide range of use cases and that is compatible with a broad base of robots and unmanned platforms such as UAVs, ROVs and UGVs.

We have spent many years working with and listening to people with experience in the industries we expect to target, including advisors and potential customers.

These early engagements have helped us form relationships with potential customers, helped fund our development efforts and provided critical customer insight and feedback into our development plans and software design.

We believe our early efforts to get this feedback and build these relationships with potential customers situate us well to effectively commercialize our AI/ML Software Platform.

We believe our early efforts to get this feedback and build these relationships with potential customers situate us well to effectively commercialize our products.

Visionary and Experienced Management

We have an experienced and talented team with deep operational expertise.

Our team is led by Benjamin Wolff, our Chief Executive Officer, who has many years of executive-level, operational and corporate board experience.

Our engineering efforts are led by Denis Garagić, our Chief Technology Officer, with over twenty-five years of experience in AI and ML.

Our team is led by Benjamin Wolff, our President and Chief Executive Officer, who has served in various capacities with the Company for more than 10 years and who has many years of executive-level, operational and corporate board experience for public and private companies.

Our engineering efforts are led by Denis Garagić, our Chief Technology Officer and a co-founder of our AI software business, with over 25 years of experience in AI and ML.

Members of our board of directors have extensive experience across a wide array of disciplines.

We believe we are redefining automation to bring human-like reasoning, intelligence and autonomy to robotics through a unique application of AI and ML that has the potential to significantly accelerate growth for our commercial and defense customers.

Our AI/ML Software Platform will compete with companies that have developed or are developing both directly and indirectly competing solutions and capabilities.

While there are many automation-centric companies who are active, especially in early-adopter segments such as warehouse and logistics, and select manufacturing or assembly verticals, we believe our primary competitors are those who are focused on addressing key challenges in robotic deployments via autonomy or automation-enhancing software capabilities.

In the broader automation landscape, we will compete (both directly and indirectly) with companies such as Bright Machines, C3.ai, Dexterity, Gray Matter Robotics, Intrinsic, Mujin, Olis Robotics, Rapid Robotics, and Ready Robotics.

We believe that our competitors are seeking to solve the same or similar industry challenges as we are, but that most are focused on a particular aspect of the functionality of our AI Software Platform rather than a fully competitive solution.

While we view industrial robotics manufacturers, large system integrators, and consulting companies such as Fanuc, Kuka, ABB, Yasakawa, Honeywell, Reply, and Rockwell Automation, as potential target customers and/or channel partners for our software platform, we also recognize that these companies could also emerge as formidable competitors through their own internal development efforts or future technology partnerships with and acquisitions of our direct competitors.

They may bring their robust customer relationships, channels and significant financial resources to help accelerate the market viability of one of our direct or indirect competitors.

Many of our competitors and potential competitors have products that are commercially available and/or in development.

We believe we are redefining automation to bring human-like reasoning, intelligence and autonomy to robotics through an innovative and distinctive application of AI and ML that will provide significant benefits to customers as compared to alternative approaches.

Our products will compete with companies that have developed or are developing both directly and indirectly competing solutions and capabilities.

Many of our competitors and potential competitors have products that are

commercially available and/or in development.

We expect some products currently in development by such competitors and potential competitors to become commercially available in the next few years.

Our competitor base may change or expand as we continue to develop and commercialize our AI/ML Software Platform and develop new functionality or products, or if we return to efforts to develop and commercialize hardware systems.

These or other competitors may develop new technologies or products that provide superior results to customers or are less expensive

than our products.

Our technologies and products could be rendered obsolete by such developments.

See Part I Item 1A Risk Factors - “ 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.”

We expect that we will compete favorably due to our technical innovation and product features and performance.

Some of our potential competitors have greater financial, technical and other resources than we have.

While there are many automation-centric companies who are active, especially in early-adopter segments such as warehouse and logistics and select manufacturing or assembly verticals, we believe our primary competitors for Palladyne IQ are those who are focused on addressing key challenges in robotic deployments via autonomy or automation-enhancing software capabilities.

In the broader automation landscape, our direct and indirect competitors include companies such as Bright Machines, Intrinsic, Liquid AI, Mujin, Physical Intelligence, Rapid Robotics and Skild AI.

We believe that our competitors generally are seeking to solve the same or similar industry challenges as we are, but that most are focused on a particular aspect of the problem we are addressing with Palladyne IQ than a fully competitive solution.

While we view industrial robotics manufacturers, large system integrators and consulting companies such as Fanuc, KUKA, ABB, Yasakawa, Honeywell, Reply and Rockwell Automation, as potential target customers and/or channel partners for Palladyne IQ, we also recognize that these companies could also emerge as formidable competitors through their own internal development efforts or future technology partnerships with and acquisitions of our direct competitors.

They may bring their robust customer relationships, channels and significant financial resources to help accelerate the market viability of their own products or those of one or more of our direct or indirect competitors.

Palladyne Pilot

We believe that our product will face competition from a variety of other UAV software solutions currently available on the market, which may include software developed by manufacturers for use with their proprietary UAVs.

These include solutions offered by Anduril, Shield AI and Skydio.

While certain competitors offer individual functionalities similar to what Palladyne Pilot provides, they do not deliver the full suite of features offered by our product.

Some competitors sell both UAV hardware and its corresponding software, typically at a high price point, which may appeal to customers that are also seeking a hardware solution and do not require the full functionality of Pilot.

Other competitors that sell UAV software as a standalone product tend to focus on software functionality for larger UAVs, which may nonetheless be competitive to us for certain use cases.

While we expect that we will compete favorably against potential competitors for both of our products due to our technical innovation and product features and performance, some of our potential competitors have greater financial, technical and other resources than we have.

Our competitors may be able to deploy greater resources to the design, development, distribution, promotion, sales, marketing and support of competitive products than we can.

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Additional mergers and acquisitions by our existing or potential competitors may result in even more resources being concentrated in our competitors.

Our competitor base may change as other companies introduce products that provide solutions to the same problems addressed by our products or we develop new functionality or products that overlap with current or future products offered by others.

Competitors may develop new technologies or products that provide superior results to customers and/or are less expensive than our products.

Our technologies and products could be rendered obsolete by such developments.

See Part I Item 1A Risk Factors - " 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."

Customers and Partners

Through the end of 2023, our customers have primarily been development customers:

customers funding our hardware product research and development efforts for which we have suspended development efforts.

However, our many years of work with potential customers in many different industries and the U.S.

Department of Defense, in particular the Air Force Research Laboratory, has contributed to the development of our AI/ML Software Platform.

We do not yet have any customers for our AI/ML Software Platform.

We anticipate initial commercial customers for our AI/ML Software Platform will be in industries such as industrial manufacturing, warehousing and logistics, defense, infrastructure maintenance and repair, energy and aerospace and aviation, among others.

We are focused on securing our first paying customers for Palladyne IQ and Palladyne Pilot.

In addition to our ongoing sales efforts, we are actively pursuing opportunities to expand current relationships in an effort to convert those into revenue-generating opportunities in the future.

For example, we continue work to expand our relationship with the Air Force Research Laboratory ("AFRL"), with the most recent success being a new contract to migrate Palladyne Pilot to next-generation, U.S.-made AI computing chipsets.

Separately, we continue to collaborate with Red Cat Holdings, Inc.

to enhance the autonomous capabilities of some of Red Cat's drones by enabling integration with Palladyne Pilot.

We anticipate initial commercial customers of Palladyne IQ will be in the industrial manufacturing sector, while initial customers for Palladyne Pilot will be in the defense sector.

Sales and Marketing

Our sales and marketing efforts include engaging with potential customers with which we built relationships through our previous hardware efforts, contacting potential customers that we believe could benefit from our products, working with manufacturers of robotic systems and systems integrators to offer our products along with theirs to end users, building brand and product capability awareness through targeted activities such as attending trade shows, increasing our presence in social media channels, increasing public relations, increasing earned media, and engaging in speakerships, blogs and white papers.

We also intend on collaborating with leading consultants such that we may offer our products as solutions to their customers.

We currently conduct sales and marketing activities primarily through our direct, internal sales and business development team and our internal marketing team.

We intend to continue investing in our sales and marketing efforts in support of the commercialization of our products.

For Palladyne IQ, we intend to pursue strategic relationships with robotic systems manufacturers, systems integrators, companies with complementary technologies, software application providers, distributors and consulting firms as and when we deem appropriate to expand the channels in which Palladyne IQ is marketed.

We believe working with these partners will accelerate our brand awareness and path to market within various industries and provide complementary capabilities and differentiation that will attract new customers.

For Palladyne Pilot, we intend to continue our collaboration with Red Cat and pursue other strategic relationships, such as with companies working with the "5 Eyes" – the militaries of the United States, the United Kingdom, Canada, Australia and New Zealand.

We currently expect to offer Palladyne IQ through a term-based licensing model that would result in a recurring revenue stream.

We may also offer add-on functionality for an additional license fee.

We may charge an upfront fee for the hardware associated with Palladyne IQ or embed the cost into the license fee.

We anticipate offering Palladyne Pilot through a device-based licensing model.

Additionally, while the initial focus of our sales and marketing efforts has been primarily on the U.S.

domestic market, we intend to explore opportunities in select non-U.S.

markets as and when we deem appropriate.

Intellectual Property

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We pursue patent protection at times when we believe we have developed a patentable invention and the benefits of obtaining a patent outweigh the risks of making the invention public through patent filings.

We are in the process of attempting to secure patent protection for aspects of our AI/ML Software Platform but none of these patent applications have yet been granted.

Due to the fact that our extensive patent portfolio is expensive to maintain, we are in the process of culling patents and applications from our portfolio that we do not believe are essential or likely to add value to our ongoing business operations.

We are in the process of attempting to secure patent protection for aspects of our AI/ML Foundational Technology but none of these patent applications have yet been granted.

Due to the fact that our extensive patent portfolio is expensive to maintain, we have been and continue to be in the process of culling patents and applications from our portfolio that we do not believe are essential or likely to add value to our ongoing business operations.

Many of our previously issued patents have expired, with others set to expire on dates ranging from 2024 to 2040, exclusive of any patent term adjustment or patent term extension.

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To protect our brand, we also pursue the registration of our domain names and various trademarks in the United States and in select international locations.

Sales and Marketing

Our AI/ML Software Platform is currently under development.

While we continue to focus on the further development and commercialization of our AI/ML Software Platform, our sales efforts are underway to engage with potential customers.

We intend to leverage many of our relationships built through our previous hardware efforts to sell our AI/ML Software Platform.

We anticipate our potential customers to be in a wide variety of industries such as industrial manufacturing, warehousing and logistics, defense, infrastructure maintenance and repair, energy and aerospace and aviation, among others.

We intend to invest in our sales and marketing efforts in support of the commercialization of our AI/ML Software Platform.

We intend to pursue strategic relationships with systems integrators, companies with complementary technologies, software application providers, distributors, and consulting firms as and when we deem appropriate to expand the channels in which our AI/ML Software Platform is marketed.

We believe working with these partners will accelerate our brand awareness and path

to market within various industries and provide complementary capabilities and differentiation that will attract new customers while helping us expand our customer base.

We currently expect to offer our AI/ML Software Platform through a term-based licensing model that would result in a recurring revenue stream.

We may also offer add-on functionality for an additional license fee.

We may charge an upfront fee for the teleoperation devices needed to facilitate autonomy training and deployment or embed the cost into the license fee.

We expect to continue discussions with potential customers to ultimately determine the appropriate model.

Additionally, while the initial focus of our sales and marketing efforts has been primarily on the U.S.

domestic market, we intend to explore opportunities in select non-U.S.

markets as and when we deem appropriate.

We have a limited set of suppliers for the minimal hardware components that will be offered with our AI/ML Software Platform.

We have a limited set of suppliers for the minimal hardware components that are part of our Palladyne IQ product.

We expect most of our suppliers to be based in the United States and expect most of our supplier relationships to be purchase order based rather than long-term supply contracts.

In some cases, we have sole source (where the component is only available from a single vendor, often as a result of customization for our use) or single source (where we purchase from a single vendor but there are alternative sources of the component) suppliers.

We seek to minimize our dependence on sole or single source suppliers in order to reduce risk in our supply chain, including the risk of losing a sole or single source supplier due to bankruptcy, discontinuing production of the particular component or some other reason.

For additional information related to supply chain issues, see “ Risk Factors— Our AI/ML Software Platform requires certain limited hardware components, and we are dependent on our suppliers, some of which are currently single, sole or limited source suppliers, and any inability of these suppliers to deliver necessary components of our products at the prices, volumes, performance, timing and specifications acceptable to us, could have a material adverse effect on our business, prospects, financial condition and operating results.

We seek to minimize our dependence on sole or single source suppliers in order to reduce risk in our supply chain, including the risk of losing a sole or single source supplier due to

bankruptcy, discontinuing production of the particular component or some other reason.

For additional information related to supply chain issues, see " Risk Factors— 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.

Government Regulation

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We must also comply with export restrictions and other laws affecting trade and investments imposed by other countries to the extent applicable.

We maintain export compliance controls and procedures as part of our broader compliance program, but, as with any compliance program, there are risks that these controls might not prevent every instance of non-compliance, in which case we could be exposed to legal liability.

To date, compliance with these laws has not significantly hampered our efforts to engage and transact with third parties but could further limit them in the future.

Changes in, and responses to, U.S.

We maintain export compliance controls and procedures as part of our broader compliance efforts, but, as with any compliance program, there are risks that these controls might not prevent every instance of non-compliance, in which case we could be exposed to legal liability.

While the industry's regulatory landscape has changed, to date, compliance with these laws has not significantly hampered our efforts to engage and transact with third parties but could further limit them in the future.

Further changes in, and responses to, U.S.

trade policy could reduce the competitiveness of our products by making it difficult or impossible to enter affected markets, which could have a material adverse effect on our business, prospects, financial condition or results of operations.

Aspects of our use of sensors in connection with our AI/ML Software Platform must comply with the rules of the Federal Communications Commission (FCC), including with respect to:

the use of any radio frequency, or RF, spectrum utilized for such components as the remote control or teleoperation system;

Aspects of our use of sensors in connection with our products must comply with the rules of the Federal Communications Commission ("FCC"), including with respect to:

the use of any RF spectrum utilized for such components as the remote control or teleoperation system;

the power level and frequency of any RF energy emitted (intentionally or otherwise);

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government contractor, we are subject to various government procurement and other laws, regulations and contract requirements, including provisions and clauses of the Federal Acquisition Regulation ("FAR"), the Defense Federal Acquisition Regulation Supplement ("DFARS") and other agency-specific regulations.

government contracting

requirements further implicate a broad variety of subjects in addition to the areas described above, including security, data management and disclosure, cybersecurity, cost and pricing activity and finance.

government contracting requirements further implicate a broad variety of subjects in addition to the areas described above, including security, data management and disclosure, cybersecurity, cost and pricing activity and finance.

Legal Proceedings

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Human Capital

We conducted two reductions in force (each a “RIF” and together the “RIFs”) in the past 12 months, one in July 2023 (the “July RIF”), affecting approximately 24% of our workforce at the time, and another in November 2023 (the “November RIF”), affecting approximately 70% of our workforce at the time, ultimately resulting from our decision to shift our product development and commercialization strategy to focus on our AI/ML Software Platform.

Following the completion of the RIFs, as of February 1, 2024, we had approximately 70 full-time and part-time employees, with most employees located in our Salt Lake City, Utah office.

As of February 3, 2025, we had approximately 71 full-time and part-time employees, with most employees located in our Salt Lake City, Utah office.

We also engage consultants and contractors to supplement our permanent workforce on an as-needed basis.

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None of our employees are subject to a collective bargaining agreement or represented by a labor union.

We currently operate in a corporate and manufacturing facility in Salt Lake City, Utah consisting of approximately 61,000 square feet, The lease of our Salt Lake City facility expires in May 2033 and has two options to extend the lease for a three-year period each.

As announced on November 14, 2023, we are in the process of winding down our operations in our Pittsburgh, Pennsylvania office.

We currently operate primarily from our facilities in Salt Lake City, Utah consisting of approximately 61,000 square feet, The lease of our Salt Lake City facility expires in May 2033 and has two options to extend the lease for a three-year period each.

We believe that should we need additional or different space, we will be able to obtain such space on commercially reasonable terms.

History, Corporate Information and Website

Sarcos is the result of a decades-long effort in research and development of robotic systems and solutions.

Palladyne AI is the result of a decades-long effort in research and development of robotic systems and solutions.

Our original predecessor was spun-out of the University of Utah in 1983.

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Fraser Smith, and technology and telecom entrepreneur Benjamin Wolff, our Chief Executive Officer, President and member of the Board of Directors.

This acquisition was the basis for the establishment of Sarcos Corp., a Utah corporation (“Old Sarcos”), which was incorporated in Utah in February 2015 as Sarcos Corp.

This acquisition was the basis for the establishment of Sarcos Corp., a Utah corporation ("Old Sarcos"), which was incorporated in Utah in February 2015.

On September 24, 2021, Old Sarcos merged with Rotor Acquisition Corp.

(“Rotor”), a Delaware corporation.

On September 24, 2021, Rotor changed its name to Sarcos Technology and Robotics Corporation.

In April 2022, we acquired RE2, Inc., (“RE2”) a Pittsburgh, Pennsylvania based robotics company.

On November 14, 2023, we announced a pivot in business strategy to prioritize the development of our commercial AI/ML Software Platform and suspend further commercialization efforts on hardware products, although some de minimis hardware-related research and development efforts continue.

After continued analysis of our products and programs and careful consideration of our available cash and other resources, as well as third party dependencies, customer decision timing, and the cost and time to develop and achieve a significant and steady revenue stream from our hardware products, we concluded that focusing on our AI/ML Software Platform and suspending our hardware commercialization efforts gave us the best risk-adjusted opportunity to meet our previously announced goal of pursuing significant near-term revenue tied to acute customer needs and reduce our capital requirements and related risks in line with available resources.

We believe that the expected capabilities described above, combined with a large potential addressable market, create an opportunity to build a robust

software business that has the potential to scale at a substantially faster rate than our hardware solutions.

This pivot in strategy builds on our prior announcement, on July 12, 2023, that we had refined our strategy to focus on products that we believed had the most potential for near-term revenue growth and strategic opportunities, which at the time included our Guardian Sea Class system, certain aviation solutions (baggage handling and exterior aircraft maintenance), a solar (solar field panel installation) solution and our commercial AI/ML Software Platform.

("Rotor"), a Delaware corporation and Rotor changed its name to Sarcos Technology and Robotics Corporation ("Sarcos").

In April 2022, we acquired RE2, Inc., a Pittsburgh, Pennsylvania based robotics company.

On November 14, 2023, we announced a pivot in business strategy to prioritize the development and commercialization of our AI/ML Foundational Technology and suspend further commercialization efforts on hardware products.

As part of the business pivot and to reflect the new focus of the company, on March 18, 2024, the Company changed its name to Palladyne AI Corp.

Our principal executive offices are located at 650 South 500 West, Suite 150, Salt Lake City, Utah, 84101.

Our telephone number is 888-927-7296.

We maintain a company website with the address www.sarcos.com.

We maintain a company website with the address www.palladyneai.com.

We are not including the information contained on our website as a part of, or incorporating it by reference into, this Annual Report on Form 10-K.

We make available free of charge through the www.sarcos.com website our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably practicable after we electronically file such material with, or furnish such material to, the SEC.

We make available free of charge through the www.palladyneai.com website our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably practicable after we electronically file such material with, or furnish such material to, the SEC.

These reports and other information are also available, free of charge, at www.sec.gov.

In addition, our Code of Business Conduct and Ethics is available through the www.sarcos.com website and any amendments to or waivers of the Code of Conduct will be disclosed on that website.

In addition, our Code of Business Conduct and Ethics is available through the www.palladyneai.com website and any amendments to or waivers of the Code of Conduct will be disclosed on that website.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business