Palladyne AI Corp. 10-K

Item 8. Financial Statements and Supplementary Da ta. Index to Consolidated Financial Statements Report of Independent Registered Public Accounting Firm (PCAOB: 185 ) 62 Consolidated Balance Sheets 63 Consolidated Statements of Operations 64 Consolidated Statements of Comprehensive Loss 65 Consolidated Statements of Cash Flows 66 Consolidated Statements of Stockholders' Equity (Deficit) 67 Notes to Consolidated Financial Statements 68 61 Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors Palladyne AI Corp.: Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of Palladyne AI Corp. and subsidiaries (the Company) as of December 31, 2025 and December 31, 2024, the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity (deficit), and cash flows for each of the years in the two-year period ended December 31, 2025, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2025 and December 31, 2024, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2025, in conformity with U.S. generally accepted accounting principles. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ KPMG LLP We have served as the Company's auditor since 2024. Salt Lake City, Utah March 5, 2026 62 PALLADYNE AI CORP. CONSOLIDATED BALANCE SHEETS ( in thousands, except share data ) As of December 31, 2025 December 31, 2024 Assets Current assets: Cash and cash equivalents $ 18,219 $ 31,188 Marketable securities 28,836 8,883 Accounts receivable, net of allowance for credit losses of $ 0.0 million and $ 0.3 million at December 31, 2025 and 2024, respectively 1,055 134 Unbilled receivables 2,455 1,179 Inventories 339 71 Prepaid expenses and other current assets 1,653 1,275 Total current assets 52,557 42,730 Property and equipment, net 8,889 4,244 Intangible assets, net 10,430 — Goodwill 14,731 — Operating lease assets 8,645 8,841 Other non-current assets 460 438 Total assets $ 95,712 $ 56,253 Liabilities and stockholders’ equity (deficit) Current liabilities: Accounts payable $ 1,058 $ 435 Accrued liabilities 3,550 2,919 Current operating lease liabilities 1,058 1,079 Total current liabilities 5,666 4,433 Warrant liabilities 2,772 51,396 Operating lease liabilities 9,725 9,957 Other non-current liabilities 2,874 — Total liabilities 21,037 65,786 Commitments and contingencies (Note 13) Stockholders’ equity (deficit): Common stock, $ 0.0001 par value, 165,000,000 shares authorized as of December 31, 2025 and December 31, 2024; 46,117,164 and 33,883,894 shares issued and outstanding as of December 31, 2025 and December 31, 2024, respectively 5 3 Additional paid-in capital 555,451 481,289 Accumulated other comprehensive income 11 6 Accumulated deficit ( 480,792 ) ( 490,831 ) Total stockholders’ equity (deficit) 74,675 ( 9,533 ) Total liabilities and stockholders’ equity (deficit) $ 95,712 $ 56,253 See accompanying notes to the consolidated financial statements. 63 PALLADYNE AI CORP. CONSOLIDATED STATEMENTS OF OPERATIONS ( in thousands, except share and per share data )  Year Ended December 31, 2025 2024 Revenue, net $ 5,246 $ 7,786 Operating expenses: Cost of revenue (exclusive of items shown separately below) 2,690 3,488 Research and development 12,899 10,437 General and administrative 17,199 16,842 Sales and marketing 4,744 4,134 Intangible amortization expense 118 — Asset write-down and restructuring — ( 192 ) Total operating expenses 37,650 34,709 Loss from operations ( 32,404 ) ( 26,923 ) Interest income, net 1,944 1,244 Gain (loss) on warrant liabilities 37,740 ( 46,935 ) Other income, net 221 2 Income (loss) before income tax expense 7,501 ( 72,612 ) Income tax benefit (expense) 2,538 ( 5 ) Net income (loss) $ 10,039 $ ( 72,617 ) Net income (loss) per share Basic $ 0.26 $ ( 2.71 ) Diluted $ 0.24 $ ( 2.71 ) Weighted-average shares used in computing net income (loss) per share Basic 38,841,116 26,774,895 Diluted 42,125,932 26,774,895 See accompanying notes to the consolidated financial statements. 64 PALLADYNE AI CORP. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) ( in thousands )   Year Ended December 31, 2025 2024 Net income (loss) $ 10,039 $ ( 72,617 ) Other comprehensive income: Change in unrealized income on available-for-sale investments 5 3 Total other comprehensive income 5 3 Comprehensive income (loss) $ 10,044 $ ( 72,614 ) See accompanying notes to the consolidated financial statements. 65 PALLADYNE AI CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Year Ended December 31, 2025 2024 Cash flows from operating activities: Net income (loss) $ 10,039 $ ( 72,617 ) Adjustments to reconcile net income (loss) to net cash used in operating activities: Stock-based compensation 4,447 2,805 Depreciation of property and equipment 974 825 Amortization of intangible assets 118 — Change in fair value of warrant liabilities ( 37,740 ) 46,935 Allowance for credit losses — 285 Amortization of investment discount ( 1,386 ) ( 75 ) Deferred income tax benefit ( 2,541 ) — Changes in operating assets and liabilities, net of acquisitions: Accounts receivable 1,096 136 Unbilled receivable ( 960 ) 855 Inventories 58 994 Prepaid expenses and other current assets ( 132 ) 1,048 Operating lease assets & other non-current assets 1,005 1,242 Accounts payable ( 708 ) ( 819 ) Accrued liabilities and current operating lease liabilities ( 904 ) ( 3,164 ) Operating lease liabilities ( 1,003 ) ( 1,077 ) Net cash used in operating activities ( 27,637 ) ( 22,627 ) Cash flows from investing activities: Purchases of property and equipment ( 713 ) ( 265 ) Acquisition of a business, net of cash acquired ( 5,302 ) — Purchases of marketable securities ( 75,563 ) ( 8,859 ) Maturities of marketable securities 57,000 16,000 Net cash (used in) provided by investing activities ( 24,578 ) 6,876 Cash flows from financing activities: Proceeds from exercise of stock options 74 130 Proceeds from issuance of common stock under ESPP 148 — Proceeds from the exercise of warrants 6,419 — Shares repurchased for payment of tax withholdings — ( 105 ) Payment of obligations under finance leases ( 20 ) ( 3 ) Payment of debt obligations ( 3,696 ) — Proceeds from the issuance of warrants — 4,432 Proceeds from issuance of common stock 36,371 20,028 Payment of transaction costs related to issuance of common stock ( 50 ) ( 682 ) Net cash provided by financing activities 39,246 23,800 Net (decrease) increase in cash and cash equivalents ( 12,969 ) 8,049 Cash and cash equivalents at beginning of period 31,188 23,139 Cash and cash equivalents at end of period $ 18,219 $ 31,188 Supplemental disclosure of cash flow information: Cash paid for income taxes $ 2 $ 10 Supplemental disclosure of non-cash activities: Purchases of property and equipment financed through notes payable $ 113 $ — Common stock issued in connection with a business acquisition $ 15,872 $ — Warrant liabilities reclassified to equity upon exercise $ 10,883 $ — See accompanying notes to the consolidated financial statements. 66 PALLADYNE AI CORP. CONSOLIDATED S TATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (in thousands, except share data) Additional Accumulated Other Total Common Stock Paid-In Comprehensive Accumulated Stockholders’ Shares Amount Capital Income Deficit Equity (Deficit) Balance at December 31, 2023 25,877,865 3 459,113 3 ( 418,214 ) 40,905 Stock-based compensation — — 2,805 — — 2,805 Common stock issued under equity award plans 958,553 — — — — — Shares repurchased for payment of tax withholdings ( 57,352 ) — ( 105 ) — — ( 105 ) Exercise of stock options 203,480 — 130 — — 130 Issuance of common stock, net of cost 6,901,348 — 19,346 — — 19,346 Other comprehensive income — — — 3 — 3 Net loss — — — — ( 72,617 ) ( 72,617 ) Balance at December 31, 2024 33,883,894 $ 3 $ 481,289 $ 6 $ ( 490,831 ) $ ( 9,533 ) Stock-based compensation — — 4,447 — — 4,447 Common stock issued under equity award plans 2,240,156 — — — — — Exercise of stock options 57,447 — 74 — — 74 Issuance of common stock under ESPP 30,913 — 148 — — 148 Issuance of common stock in connection with a business acquisition 2,672,013 1 15,871 — — 15,872 Issuance of common stock, net of cost 4,442,041 1 36,320 — — 36,321 Exercise of warrants 2,790,700 — 17,302 — — 17,302 Other comprehensive income — — — 5 — 5 Net income — — — — 10,039 10,039 Balance at December 31, 2025 46,117,164 $ 5 $ 555,451 $ 11 $ ( 480,792 ) $ 74,675 See accompanying notes to the consolidated financial statements. 67 PALLADYNE AI CORP. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of Pr esentation and Summary of Significant Accounting Policies Description of the Business The Company is 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. The Company’s 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. 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. Basis of Presentation and Consolidation The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP"). The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. The Company's fiscal year begins on January 1 and ends on December 31. Business Combinations The Company utilizes the purchase method of accounting for business combinations. This method requires, among other things, that results of operations of acquired companies are included in the Company’s results of operations beginning on the respective acquisition dates and that assets acquired, and liabilities assumed are recognized at fair value as of the acquisition date. Any excess of the fair value of consideration transferred over the fair values of the net assets acquired is recognized as goodwill. Contingent consideration liabilities are recognized at the estimated fair value on the acquisition date and are recorded in other non-current liabilities in the Company's consolidated balance sheets. Subsequent changes to the fair value of contingent consideration liabilities are recognized in general and administrative expenses in the Consolidated Statements of Operations. The fair value of assets acquired, and liabilities assumed in certain cases, may be subject to revision based on the final determination of fair value during a period of time not to exceed 12 months from the acquisition date. Legal costs, due diligence costs, business valuation costs and all other business acquisition costs are expensed when incurred. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make certain estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the balance sheet date, as well as reported amounts of revenue and expenses during the reporting period. The Company's most significant estimates and judgments involve contract revenue recognized based on estimates of total contract costs and cost to complete uncompleted contracts, estimates of potential losses on uncompleted contracts, impairment evaluation of contract assets, goodwill and other long lived assets, assumptions used for leases, valuation allowance for net deferred income taxes and valuation of the Company' s stock-based compensation, warrants intangible assets and contingent consideration. Management bases its estimates on historical experience and on various other assumptions believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results could differ from those estimates. Liquidity and Capital Resources Cash, cash equivalents and marketable securities were $ 47.1 million as of December 31, 2025, compared to $ 40.1 million as of December 31, 2024. The Company has incurred losses from operations and negative cash flows from operations since inception and is likely to continue to incur losses and negative cash flows from operations in the near term. As of December 31, 2025, the Company also had an accumulated deficit of approximately $ 480.8 million and working capital of $ 46.9 million . These financial statements have been prepared in accordance with GAAP and on the basis that the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. The Company’s main source of liquidity has been cash generated by equity offerings. The Company’s primary use of cash is for operations and administrative activities, including employee-related expenses and general, operating and overhead expenses. Future capital requirements will depend on many factors, including the Company’s timing and extent 68 of development efforts, the expansion and success of sales and marketing activities, revenue growth rate, customer retention, the introduction of new and enhanced product offerings and market acceptance of the Company’s products. The Company believes it has sufficient financial resources for at least the next 12 months from the date of this Report. Concentration of Credit Risk Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash, cash equivalents, marketable securities, accounts receivable and unbilled receivables. The Company's cash is placed with high-credit-quality financial institutions and issuers, and generally exceeds federally insured limits. The Company's cash equivalents and marketable securities are money market funds or U.S. Treasury bills with maturity dates within one year. The Company has not realized any losses relating to its cash, cash equivalents or marketable securities. Accounts Receivable As of December 31, 2025 , five customers accounted for more than 10% of the Company's accounts receivable, which in total represented 78 % of the accounts receivable as of December 31, 2025. As of December 31, 2024, three customers accounted for more than 10% of the Company's accounts receivable, which in total represented 100 % of the accounts receivable as of December 31, 2024. Revenue One and two cust omers accounted for more than 10% of the Company's revenue for each of the years ended December 31, 2025 and 2024 , respectively. These concentrations accounted for 73 % and 98 % of revenue for the years ended December 31, 2025 and 2024 , respectively. The total amount of revenue for each such customer was as follows: (In thousands) 2025 2024 Customer A $ 3,852 $ 5,100 Customer B — 2,551 Cash and Cash Equivalents The Company considers cash as deposits held in bank accounts and undeposited funds. All highly liquid investments with an original maturity of three months or less at the time of purchase are considered to be cash equivalents. The Company's cash equivalents may be comprised of money market funds, certificates of deposit of major financial institutions and U.S. Treasury bills. Marketable Securities The Company's marketable securities consist primarily of U.S. Treasury bills. The Company classifies securities that have effective maturities of greater than three months as marketable securities in its consolidated balance sheets. The Company determines the appropriate classification of its investments in marketable debt securities at the time of purchase and reevaluates such designation at each balance sheet date. The Company's marketable debt securities are classified as available-for-sale. The Company carries the marketable debt securities at fair value, and reports the unrealized gains and losses in accumulated other comprehensive income within the consolidated balance sheets. If the fair value of a marketable debt security declines below its amortized cost basis, any portion of that decline attributable to credit losses, to the extent expected to be nonrecoverable before the sale of the security, is recognized in the consolidated statements of operations. There were no allowances for credit losses related to marketable debt securities recorded during the twelve months ended December 31, 2025 and 2024 . Accounts Receivable Receivables are recorded at the amount the Company expects to collect. Management determines the need for an allowance for credit losses using a specific identification method after taking into account all of its remedies for collection. M anagement determined no allowance for credit losses was necessary during the twelve months ended December 31, 2025. M anagement recorded $ 0.3 million allowance for credit losses during the twelve of December 31, 2024 . Receivables are comprised of amounts invoiced for completed contracts and contracts in progress. 69 Inventories Inventories primarily consist of raw materials, work-in-process and finished goods. Inventories are stated at the lower of cost or estimated net realizable value. Costs are computed on the first-in, first-out basis and include material, labor and manufacturing overhead. Adjustments are also made to reduce the value of inventory for estimated excess or obsolete balance by evaluating inventory against forecasted revenue and production requirements. Property and Equipment Property and equipment is carried at acquisition cost less accumulated depreciation. Depreciation is computed using the straight-line method based on the estimated useful lives of the related assets. The estimated useful lives by asset classification are generally as follows: Useful life Robotics and manufacturing equipment 3 – 10 years Computer equipment 3 – 5 years Software 3 years Furniture and fixtures 3 – 5 years Leasehold improvements Lesser of the useful life or the remaining term of the lease Expenditures for maintenance and repairs are expensed when incurred and betterments that extend the useful lives of property and equipment are capitalized. When assets are retired or disposed, the asset's original cost and related accumulated depreciation are eliminated, and any gain or loss is reflected in the statement of operations. Leases In accordance with ASC 842, the Company, at the inception of the contract, determines whether a contract is or contains a lease. For leases with terms greater than 12 months, the Company records the related operating or finance right of use asset and lease liability at the present value of unpaid lease payments over the lease term. The Company is generally not able to readily determine the implicit rate in the lease and therefore uses the determined incremental borrowing rate at lease commencement to determine the present value of lease payments. The incremental borrowing rate represents an estimate of the market interest rate the Company would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of a lease. Renewal options are not included in the measurement of the right of use assets and lease liabilities unless the Company is reasonably certain to exercise the optional renewal periods. Some of the Company's leases contain rent escalations over the lease term. The Company recognizes expense for operating leases on a straight-line basis over the lease term. The Company's lease agreements contain variable lease payments for common area maintenance, utility, insurance and tax. The Company has elected the practical expedient to combine lease and non-lease components for all asset categories. Therefore, the lease payments used to measure the lease liability for these leases include fixed minimum rentals along with fixed non-lease component charges. The Company does not have significant residual value guarantees or restrictive covenants in the lease portfolio. Impairment of Long-Lived Assets The Company evaluates its long-lived assets, which includes property and equipment, definite lived intangible assets, and operating lease assets, for indicators of possible impairment when events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Impairment exists if the carrying amounts of such assets exceed the estimates of future net undiscounted cash flows expected to be generated by such assets. Goodwill Goodwill is initially recorded when the purchase price paid for a business acquisition exceeds the estimated fair value of the net identified tangible and intangible assets acquired. The Company evaluates goodwill at the reporting unit level for impairment annually, or when an indicator of potential impairment exists. The Company has one reporting unit. Revenue Recognition The Company recognizes revenue from the sale of its products and from the delivery of goods and services arising out of its contractual arrangements to provide product development contract services that are funded by the customer. The Company 70 recognizes revenue when promised goods or services are transferred to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services by following a five-step process: (1) Identify the contract with a customer: A contract with a customer exists when (a) the Company enters into an enforceable contract with a customer that defines each party's rights and obligations regarding the products and services to be transferred and identifies the payment terms related to these products and services, (b) the contract has commercial substance and (c) the Company determines that collection of substantially all consideration for products and services that are transferred is probable based on the customer's intent and ability to pay the promised consideration. Contract modifications may include changes in scope of work, and/or the period of completion of the project. The Company analyzes contract modifications to determine if they should be accounted for as a modification to an existing contract or a new stand-alone contract. (2) Identify the performance obligations in the contract: The Company enters into contracts that can include combinations of products and services, which are either capable of being distinct and accounted for as separate performance obligations or as one performance obligation if the majority of tasks and services form a single project or capability. Determining whether products or services are considered distinct performance obligations that should be accounted for separately may require significant judgment. (3) Determine the transaction price: The transaction price is determined based on the consideration to which the Company will be entitled in exchange for transferring goods or services to the customer. Such amounts are typically stated in the customer contract. However, to the extent that the Company identifies variable consideration, the Company will estimate the variable consideration at the onset of the arrangement as long as it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. The Company's current contracts do not include any significant financing components because the timing of the transfer of the underlying products and services under contract are at the customer's discretion. Additionally, the Company does not adjust the promised amount of consideration for the effects of a significant financing component if the Company expects, at contract inception, that the period between when the Company transfers a promised good or service to a customer and when the customer pays for that good or service will be one year or less. Taxes collected from customers and remitted to governmental authorities are not included in revenue. (4) Allocate the transaction price to performance obligations in the contract: Once the Company has determined the transaction price, the total transaction price is allocated to each performance obligation in a manner depicting the amount of consideration to which the Company expects to be entitled in exchange for transferring the good(s) or service(s) to the customer. If applicable, the Company allocates the transaction price to each performance obligation identified in the contract on a relative standalone selling price basis. The standalone selling price represents the amount the Company would sell the good(s) or service(s) to a customer on a standalone basis. For government contracts, the Company uses expected cost plus a margin as the standalone selling price. Because the Company's contract pricing with government customers is generally based on expected cost plus a margin, the standalone selling price of the good(s) or service(s) in the Company's contracts with government customers are typically equal to the selling price stated in the contract. When we sell standard good(s) or service(s) with observable standalone sale transactions, the observable standalone sales transactions are used to determine the standalone selling price. (5) Recognize revenue when or as the Company satisfies a performance obligation : For each performance obligation identified, the Company determines at contract inception whether it satisfies the performance obligation over time or at a point in time. For performance obligations satisfied over time, revenue is recognized as work progresses when the Company is entitled to the reimbursement of costs plus a reasonable profit for work performed for which the Company has no alternate use. For these performance obligations, the Company generally recognizes revenue using an input method with revenue amounts being recognized proportionately as costs are incurred relative to the total expected costs to satisfy the performance obligation. The Company believes that costs incurred as a portion of total estimated costs is an appropriate measure of progress towards satisfaction of the performance obligation since this measure reasonably depicts the progress of the work effort. Revenue for performance obligations that are not recognized over time are recognized at the point in time when control transfers to the customer (which is generally upon delivery). For performance obligations that are satisfied at a point in time, the Company evaluates the point in time when the customer can direct the use of, and obtain the benefits from, the products and services. Shipping and handling costs are recorded at the time of product shipment to the customer and are included within revenue. 71 Revenue from Contracts with Customers The Company derives its revenue from three sources. First, the Company enters into service contracts to provide research and development, engineering and design services with the government and commercial customers. The Company's research and development contracts with the government are leveraged to further our product development efforts where possible. Service revenue consists of revenue arising from different types of contractual arrangements, including cost-type contracts, fixed-price contracts and time and materials contracts. Second, the Company sells its products. Product revenue primarily consists of sales of current and legacy hardware products, including the BRAIN family of guidance and navigation computer chips. Third, the Company generates manufacturing revenue through the sale of precision machined and fabricated components, subassemblies and structures and integrated assembly services for both Defense and Commercial customers in a variety of industries. Services Revenue Cost-type contracts – Research, development and/or testing service contracts, including cost-plus-fixed-fee and time and material contracts, relate primarily to the development of the Company's AI/ML, software and related technology. Cost-type contracts are generally entered into with the U.S. government. These contracts are billed at cost plus a margin as defined by the contract and the Federal Acquisition Regulation ("FAR"). The FAR establishes regulations around procurement by the government and provides guidance on the types of costs that are allowable in establishing prices for goods and services delivered under government contracts. Revenue on cost-type contracts is recognized over time as goods and services are provided. Fixed-price contracts – Fixed-price development contracts relate primarily to the development of technology in the area of robotic platforms. Fixed-price development contracts generally require a significant service of integrating a complex set of tasks and components into a single deliverable. Revenue on fixed-price contracts is generally recognized over time as goods and services are provided. To the extent the Company's actual costs vary from the fixed fee, we will generate more or less profit or could incur a loss. The Company will recognize losses at the contract level in earnings in the period in which they are incurred. Time and materials contracts – Time and materials contracts relate primarily to design-to-field advanced engineering design services that take aerospace programs from early concept through flight-ready prototype in compressed timelines, while engineering every stage for manufacturability and scale. Revenue on time and materials contracts is generally recognized over time as services are provided and materials are purchased and used in the project. Product Revenue Product revenue relates to sales of the Company's commercially available products, and certain miscellaneous parts, accessories and repair services. The Company provides a limited one-year warranty on product sales. Product warranties are considered assurance-type warranties and are not considered to be separate performance obligations. Product revenue is recognized at the point in time when ownership of the goods is transferred, generally at the time of shipment to the customer. At the time product revenue is recognized, an accrual is established for estimated warranty expenses based on historical experience as well as anticipated product performance. Manufacturing Revenue Through its precision U.S. manufacturing capabilities, the Company sells precision machined and fabricated components, subassemblies and structures and integrated assembly services to both Defense and Commercial customers. The Companies operations include machining, fabrication and assembly of aerospace and defense components. Manufacturing revenue is recognized at the point in time when ownership of the goods is transferred, generally at the time of shipment to the customer. 72 The revenue recognized for Services, Product and Manufacturing were as follows: Year Ended December 31, (In thousands) 2025 2024 Services Revenue $ 4,684 $ 5,120 Product Revenue 3 2,666 Manufacturing Revenue 559 — Revenue, net $ 5,246 $ 7,786 Contract Balances The timing of revenue recognition, billing and cash collection results in the recognition of accounts receivable, unbilled receivables, contract assets and deferred revenue in the Company's consolidated balance sheets. Cash funds received in excess of revenue recognized that is contingent upon the satisfaction of performance obligations is accounted for as deferred revenue. Contract assets include unbilled receivables which are amounts resulting from timing differences between revenue recognition and billing in accordance with agreed-upon contractual terms, which typically occur subsequent to revenue being recognized. The opening and closing balances of our accounts receivable, unbilled receivables, contract assets and deferred revenue are as follows: (In thousands) Accounts Receivable Unbilled Receivable Contract Assets (Current) Deferred Revenue (Current) Ending Balance as of December 31, 2023 $ 555 $ 2,034 $ 50 $ 75 (Decrease)/increase, net ( 421 ) ( 855 ) ( 22 ) 173 Ending Balance as of December 31, 2024 $ 134 $ 1,179 $ 28 $ 248 (Decrease)/increase, net 921 1,276 8 71 Ending Balance as of December 31, 2025 $ 1,055 $ 2,455 $ 36 $ 319 The Company recorded its current contract assets, long-term contract assets and current deferred revenue within prepaid expenses and other current assets, other non-current assets and accrued liabilities, respectively. During the years ended December 31, 2025 and 2024, the Company recognized all of the deferred revenue which existed at December 31, 2024 and 2023, respectively. Remaining Performance Obligations As of December 31, 2025, the C ompany had backlog, or revenue related to remaining performance obligations, of $ 13.9 million. The Company expects most of this backlog to be recognized over the next 12 mo nths . The Company's backlog represents the expected value of exercised contracts, both funded and unfunded, less revenue recognized to date. Research and Development Costs Research and development expenses consist of costs incurred for experimentation, design and testing and are expensed as incurred. Sales and Marketing Costs Marketing costs include product demonstration, customer service, lead generation, public relations, market research and internal labor, and are expensed as incurred. Stock-Based Compensation The Company calculates the fair value of all stock-based awards, including stock options, restricted stock units and restricted stock awards on the date of grant. The Company values stock options using the Black-Scholes option-pricing model, which requires the use of a number of assumptions, including expected volatility, expected life, risk-free interest rate and expected 73 dividends. The stock-based compensation expense is recognized on a straight-line basis over the requisite service periods of the awards, which is generally four years. The Company records forfeitures as they occur . Income Taxes Income taxes are provided for the tax effects of transactions reported in the consolidated financial statements and consist of taxes currently due plus deferred income taxes related primarily to differences between the tax bases and financial reporting bases of assets and liabilities. Deferred income taxes represent future tax consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. The Company determines its valuation allowance on deferred tax assets by considering both positive and negative evidence, including its operating results, ongoing tax planning and forecasts of future taxable income on a jurisdiction-by-jurisdiction basis, to ascertain whether it is more likely than not that deferred tax assets will be realized. If the Company determines that it would be able to realize its deferred income tax assets in the future in excess of their net recorded amount, it would make an adjustment to the valuation allowance, which would reduce the provision for income taxes. Conversely, if all or part of the net deferred tax assets are determined not to be realizable in the future, an adjustment to the valuation allowance would be charged to earnings in the period such determination is made. Recently Adopted Accounting Pronouncements As an emerging growth company ("EGC"), the Jumpstart Our Business Startups Act ("JOBS Act") allows the Company to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are applicable to private companies. The Company has elected to use this extended transition period under the JOBS Act until such time as the Company is no longer considered to be an EGC. The adoption dates discussed below reflect this election. In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. ASU 2023-09 requires companies to disclose, on an annual basis, specific categories in the effective tax rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold. In addition, ASU 2023-09 requires companies to disclose additional information about income taxes paid. The Company adopted ASU 2023-09 during the year ended December 31, 2025 , on a prospective basis. Adoption of this standard resulted in changes to the effective tax rate reconciliation as reflected in Note 12, Income Taxes . Recently Issued Accounting Standard Pronouncements In November 2024, the FASB issued ASU No. 2024-03, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, requiring public entities to disclose additional information about specific expense categories in the notes to the financial statements on an interim and annual basis. ASU 2024-03 is effective for fiscal years beginning after December 15, 2026, and for interim periods beginning after December 15, 2027, with early adoption permitted. The Company is currently evaluating the impact of adopting ASU 2024-03. 2. Fair Value Measurements ASC Topic 820, Fair Value Measurement , defines fair value as the exchange price that would be received for an asset, or an exit price paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy defines a three-level valuation hierarchy for disclosure of fair value measurements as follows: Level 1—Fair value is based on observable inputs such as quoted prices for identical assets or liabilities in active markets. Level 2—Fair value is determined using quoted prices for similar assets or liabilities in active markets or quoted prices for identical or similar assets or liabilities in markets that are not active or are directly or indirectly observable. Level 3—Fair value is determined using one or more significant inputs that are unobservable in active markets at the measurement date, such as an option pricing model, discounted cash flow or similar technique. 74 Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis On a recurring basis, the Company measures certain of its financial assets and liabilities at fair value. The fair value of the Company's financial assets and liabilities measured at fair value on a recurring basis was determined using the following inputs: As of December 31, 2025 (In thousands) Level 1 Level 2 Level 3 Total Assets: Marketable securities: U.S. treasury securities $ 28,836 $ — $ — $ 28,836 Total assets $ 28,836 $ — $ — $ 28,836 Liabilities: Warrant liabilities $ 928 $ 330 $ 1,514 $ 2,772 Other non-current liabilities: Contingent consideration — — 1,382 1,382 Total liabilities $ 928 $ 330 $ 2,896 $ 4,154  As of December 31, 2024 (In thousands) Level 1 Level 2 Level 3 Total Assets: Cash equivalents: U.S. treasury securities $ 12,927 $ — $ — $ 12,927 Marketable securities: U.S. treasury securities 8,883 — — 8,883 Total assets $ 21,810 $ — $ — $ 21,810 Liabilities: Warrant liabilities $ 11,630 $ 4,128 $ 35,638 $ 51,396 Total liabilities $ 11,630 $ 4,128 $ 35,638 $ 51,396 As of December 31, 2025 , the Company held $ 28.8 million of available-for-sale debt securities with maturity dates within one year. The fair value of the Company's available-for-sale debt securities approximates their amortized cost basis. The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. The carrying amounts of accounts receivable, unbilled receivables, accounts payable and accrued expenses approximate their fair values because of the relatively short periods until they are required to be settled. The contingent consideration relates to the acquisition of GuideTech during 2025, as discussed in Note 5, Acquisitions. The contingent consideration was initially valued as of November 14, 2025, the acquisition date, and will be remeasured at fair value at each reporting date, or more frequently, if events or changes in circumstances indicate that a remeasurement is warranted. The valuation of the contingent consideration requires the use of a valuation model and assumptions such as projected cash flows and discount rates. The following table sets forth a reconciliation from the opening balances to the closing balances for the Company's Level 3 warrant values: (In thousands) Warrants Balance at December 31, 2024 $ 35,638 Decrease in fair value of warrants ( 23,240 ) Exercise of warrants ( 10,884 ) Balance at December 31, 2025 $ 1,514 75 3. Balance Sheet Components Inventories Inventories, net consist of the following: (In thousands) December 31, 2025 December 31, 2024 Raw materials $ — $ 71 Work-in-process 311 — Finished goods, net 28 — Total inventories $ 339 $ 71 Property and equipment, net Property and equipment, net consist of the following: (In thousands) December 31, 2025 December 31, 2024 Robotics and manufacturing equipment $ 2,857 $ 1,128 Financed lease robotics and manufacturing equipment 996 — Leasehold improvements 4,125 3,927 Land and building 1,832 — Computer equipment 1,196 1,251 Furniture and fixtures, and other fixed assets 1,001 952 Construction in progress 682 — Property and equipment, gross 12,689 7,258 Accumulated depreciation ( 3,800 ) ( 3,014 ) Property and equipment, net $ 8,889 $ 4,244 Depreciation expenses were $ 1.0 million for the year ended December 31, 2025. Depreciation expenses were $ 0.8 million for the year ended December 31, 2024. Accrued liabilities Accrued liabilities consist of the following: (In thousands) December 31, 2025 December 31, 2024 Payroll and related costs $ 1,699 $ 1,811 Legal services accrual 173 230 Deferred revenue 319 248 Other contract liabilities 496 496 Other accrued expenses and current liabilities 863 134 Total accrued liabilities $ 3,550 $ 2,919 Other non-current liabilities Other non-current liabilities consist of the following: (In thousands) December 31, 2025 December 31, 2024 Contingent consideration $ 1,382 $ — Equipment financing liabilities 1,492 — Total other non-current liabilities $ 2,874 $ — 76 4. Leases The Company has operating and finance leases for office space, lab space, machining and certain equipment with varying expiration dates through 2035 . Leases are categorized at their commencement date , which is the date the Company takes possession or control of the underlying asset. Certain of the operating leases include renewal options ranging from three to ten years , which are not recognized as part of the right-of-use assets as the Company is not reasonably certain that the options will be exercised. Lease costs for operating leases are as follows (finance lease costs were not material for the periods presented): Year Ended December 31, (In thousands) 2025 2024 Operating lease cost $ 1,588 $ 1,859 Variable lease cost 889 695 Total lease cost $ 2,477 $ 2,554 The following table summarizes the Company's lease term and discount rate assumptions: Year Ended December 31, 2025 2024 Operating leases Weighted-average remaining lease term (years) Finance leases 6.0 — Operating leases 7.6 8.3 Weighted-average discount rate: Finance leases 10.8 % — Operating leases 5.9 % 5.4 % Supplemental balance sheet information related to leases: (In thousands) Balance Sheet Location 2025 2024 Assets Finance lease right-of-use assets Property and equipment, net $ 987 $ — Operating lease right-of-use assets Operating lease assets 8,645 8,841 Liabilities Financing lease liabilities (current) Accrued liabilities 166 — Operating lease liabilities (current) Current operating lease liabilities 1,058 1,079 Financing lease liabilities (non-current) Other non-current liabilities 761 — Operating lease liabilities (non-current) Operating lease liabilities 9,725 9,957 Supplemental cash flow and other information related to leases: Year Ended December 31, (In thousands) 2025 2024 Cash paid for amounts included in measurement of liabilities: Operating cash flows from operating leases $ 1,631 $ 1,968 77 Undiscounted future minimum lease payments (displayed by year and in the aggregate) under noncancelable operating leases with terms of more than one year, as of December 31, 2025 are as follows: (In thousands) Finance Leases Operating Leases 2026 $ 251 $ 1,630 2027 238 1,676 2028 191 1,707 2029 168 1,733 2030 167 1,780 2031 and thereafter 196 4,847 Total lease payments 1,211 13,373 Less interest 284 2,590 Present value of lease liabilities $ 927 $ 10,783 5. Acquisitions On November 14, 2025, the Company acquired 100 percent of the equity interests of GuideTech, LLC (“GuideTech”), Warnke Precision Machining, LLC (“Warnke Precision Machining”) and MKR Fabrication, LLC (“MKR Fabricators”). These transactions (collectively, the “2025 Acquisitions”) were undertaken pursuant to separate purchase agreements entered into on November 14, 2025. GuideTech is an engineering and aerospace avionics products and services provider. MKR Fabricators and Warnke Precision Machining are U.S.-based precision manufacturing and fabrication businesses supporting defense and industrial customers. Through the 2025 Acquisitions, the Company acquired engineering design services, advanced avionics products and manufacturing and machining capabilities to complement its AI/ML Foundational Technology and related products and offer vertically integrated solutions for defense and commercial markets. The aggregate consideration transferred for the 2025 Acquisitions was $ 22.6 million, consisting of $ 5.4 million of cash, $ 15.9 million comprised of 2,672,013 shares of common stock, and contingent consideration valued at $ 1.4 million. The contingent consideration arrangement provides for up to $ 25 million in earnout payments payable in cash or stock if certain revenue targets are achieved over a five-year period. The 2025 Acquisitions have been accounted for as business combinations and the total purchase consideration was allocated to the net tangible and intangible assets and liabilities based on their fair values on the acquisition date and the excess was recorded as goodwill. The values assigned to the assets acquired and liabilities assumed are based on preliminary estimates of fair value available as of the issuance date of these consolidated financial statements and may be adjusted during the measurement period of up to 12 months from the date of acquisition as further information becomes available. Any changes in the fair values of the assets acquired and liabilities assumed during the measurement period may result in adjustments to goodwill or identified intangible assets. As of December 31, 2025, the primary areas that remain preliminary relate to the valuation of certain intangible items and various tax implications resulting from the acquisition. The following table presents the preliminary purchase consideration allocation recorded in the Company’s consolidated balance sheet as of the acquisition date: 78 (in thousands) Amount Cash and cash equivalents $ 69 Accounts receivable 2,017 Unbilled receivables 316 Inventories 326 Prepaid expenses and other current assets 246 Property and equipment 4,793 Intangible assets 10,548 Goodwill 14,731 Operating lease assets 831 Accounts payable ( 1,331 ) Accrued liabilities ( 1,455 ) Current operating lease liabilities ( 59 ) Operating lease liabilities ( 773 ) Other non-current liabilities (1) ( 5,093 ) Deferred tax liabilities ( 2,541 ) Total acquisition consideration $ 22,625 (1) Other non-current liabilities includes $ 3.7 million of debt obligations which were repaid prior to December 31, 2025. The following table sets forth the components of identifiable intangible assets acquired and their estimated useful lives as of the date of acquisition: Amounts Weighted Average Useful Life (in thousands) (in years) Customer relationships $ 5,148 8.8 Developed technology 2,600 7.0 Tradename 1,500 10.0 Non-compete 1,300 5.0 Total intangible assets $ 10,548 8.1 Goodwill represents the future economic benefits arising from other assets that could not be individually identified and separately recognized, such as the acquired assembled workforce and synergies expected to be achieved from the integration of the 2025 Acquisitions. Goodwill is not deductible for tax purposes. The results of operations of the 2025 Acquisitions from the date of acquisition have been included in the Company’s consolidated financial statements. Pro forma revenue and results of operations have not been presented because the historical results of the 2025 Acquisitions are not material to the Company’s consolidated financial statements in any period presented. 6. Intangible Assets Goodwill Changes in the carrying amount of goodwill were as follows: (In thousands) Amounts Balance at December 31, 2024 $ - Acquisition 14,731 Balance at December 31, 2025 $ 14,731 There was no impairment of goodwill recorded during the twelve months ended December 31, 2025 and 2024. 79 Acquired Intangible Assets Acquired intangible assets, net consisted of the following: December 31, 2025 (In thousands) Gross Carrying Amount Accumulated Amortization Net Carrying Amount Weighted Average Remaining Useful Life (In years) Customer relationships $ 5,148 $ 53 $ 5,095 8.7 Developed technology 2,600 31 2,569 6.9 Tradename 1,500 13 1,487 9.9 Non-compete 1,300 21 1,279 4.9 Total $ 10,548 $ 118 $ 10,430 The Company recorded $ 0.1 million of amortization expense during the year ended December 31, 2025, which was recorded as intangible amortization expense in the consolidated statement of operations. The Company had no intangible amortization expense during the year ended December 31, 2024. As of December 31, 2025, future amortization expense related to acquired intangible assets was as follows: (In thousands) Amortization Expense 2026 $ 1,421 2027 1,421 2028 1,421 2029 1,421 2030 1,379 2031 and thereafter 3,367 Total $ 10,430 7. Earn-Out Shares On September 24, 2021 (the "Closing Date"), Rotor Acquisition Corp. ("Rotor"), a Delaware corporation, consummated the business combination (the "Business Combination") pursuant to the terms of the Agreement and Plan of Merger, dated as of April 5, 2021 (the "Original Merger Agreement"), by and among Rotor, Rotor Merger Sub Corp., a Delaware corporation and a direct, wholly-owned subsidiary of Rotor ("Merger Sub"), and Sarcos Corp., a Utah corporation ("Old Sarcos"), and Amendment No. 1 to the Agreement and Plan of Merger, dated as of August 28, 2021 (the "Amendment" and the Original Merger Agreement, as amended, the "Merger Agreement"), by and among Rotor, Merger Sub and Old Sarcos. Pursuant to the terms of the Merger Agreement, the Business Combination between Rotor and Old Sarcos was effected through the merger of Merger Sub with and into Old Sarcos, with Old Sarcos continuing as the surviving corporation (the "Merger") and a wholly-owned subsidiary of Rotor. On the Closing Date, Rotor changed its name to Sarcos Technology and Robotics Corporation. To reflect the Company's transition from a hardware-focused company to an AI software-focused company, in March 2024 the Company changed its name from Sarcos Technology and Robotics Corporation to Palladyne AI Corp. As a result of the Business Combination, each holder of Old Sarcos capital stock is entitled to Contingent Merger Consideration following the closing of the Business Combination in the form of earn-outs, up to an aggregate of 4,687,500 shares of Common Stock (the "Earn-Out Shares"). O n September 24, 2025, the four-year anniversary of the Closing Date, 2,343,750 of the Earn-Out Shares expired without having been released as the closing share price of a share of Common Stock of the Company did not equal or exceed $ 90.00 for 20 trading days in any 30 consecutive trading-day period at any time beginning on the first anniversary of the Closing Date and ending on the fourth anniversary of the Closing Date. The remaining 2,343,750 Earn-Out Shares will become payable if the closing share price of a share of Common Stock of the Company is equal to or exceeds $ 120.00 for 20 trading days in any 30 consecutive trading-day period at any time during the period beginning on the first anniversary of the Closing Date and ending on September 24, 2026, the fifth anniversary of the Closing Date . 80 The Earn-Out Shares are treated as equity-linked instruments as opposed to shares outstanding, and as such are not included in shares outstanding on the Company's consolidated balance sheets. As of December 31, 2025 , there remained 2,343,750 Earn-Out Shares potentially issuable . 8. DeSPAC Warrants On January 20, 2021, Rotor consummated the initial public offering ("IPO") of 27,600,000 units (the "Units"), including the full exercise by the underwriters of their over-allotment option. Each Unit included one sixth of a share of Class A Common Stock and one half of one warrant (the "deSPAC Public Warrants"). Simultaneously with the closing of the IPO, Rotor consummated the sale of 7,270,000 warrants (the "deSPAC Private Placement Warrants") in a private placement to Rotor Sponsor LLC (the "Sponsor"), an affiliate of Rotor's officers and directors, and certain funds and accounts managed by two qualified institutional buyers. At the Closing Date, Old Sarcos acquired the net liabilities from Rotor, including the deSPAC Public Warrants, and the deSPAC Private Placement Warrants (together the "deSPAC Warrants"). The deSPAC Public Warrants are listed and traded under the PDYNW ticker symbol on the Nasdaq Global Market. Each whole deSPAC Warrant entitles the registered holder to purchase one sixth of a share of the Company's Common Stock at a price of $ 11.50 per warrant, subject to adjustment as discussed below, at any time commencing on Janu ary 20, 2022, provided that the Company has an effective registration statement under the Securities Act of 1933, as amended (the "Securities Act") covering the shares of Common Stock issuable upon exercise of the deSPAC Warrants and a current prospectus relating to them is available (or the Company permits holders to exercise their deSPAC Warrants on a cashless basis under the circumstances specified in the warrant agreement (the "deSPAC Warrant Agreement") entered into between Continental Stock Transfer & Trust Company and Rotor and such shares are registered, qualified or exempt from registration under the securities laws of the state of residence of the holder. Pursuant to the deSPAC Warrant Agreement, a deSPAC Warrant holder may exercise its deSPAC Warrants only for a whole number of shares of the Company's Common Stock. The deSPAC Warrants will expire five years after the completion of the Business Combination, or September 24, 2026 , at 5:00 p.m., New York City time, or earlier upon redemption or liquidation. As of December 31, 2025 , there were 20,549,453 deSPAC Warrants outstanding. The Company will not be obligated to deliver any Common Stock pursuant to the exercise of a deSPAC Warrant and will have no obligation to settle such deSPAC Warrant exercise unless a registration statement under the Securities Act with respect to the shares of Common Stock underlying the deSPAC Warrants is then effective and a prospectus relating thereto is current, subject to the Company satisfying its obligations described below with respect to registration, or a valid exemption from registration is available. No deSPAC Warrant will be exercisable, and the Company will not be obligated to issue a share of Common Stock upon exercise of a deSPAC Warrant unless the share of the Company's Common Stock issuable upon such deSPAC Warrant exercise has been registered, qualified or deemed to be exempt under the securities laws of the state of residence of the registered holder of the deSPAC Warrants. If the conditions in the two immediately preceding sentences are not satisfied with respect to a deSPAC Warrant, the holder of such deSPAC Warrant will not be entitled to exercise such deSPAC Warrant and such deSPAC Warrant may have no value and expire worthless. In no event will the Company be required to net cash settle any deSPAC Warrant. In the event a registration statement is not effective for the exercised deSPAC Warrants, the purchaser in the Rotor IPO of a Unit containing such deSPAC Warrant will have paid the full purchase price for the Unit solely for the share of the Company's Common Stock underlying such Unit. Except as described herein, the deSPAC Private Placement Warrants have terms and provisions that are identical to those of the deSPAC Public Warrants. If the deSPAC Private Placement Warrants are held by holders other than the initial purchasers or their permitted transferees, the deSPAC Private Placement Warrants will be redeemable by the Company in all redemption scenarios and exercisable by the holders on the same basis as the deSPAC Public Warrants. The deSPAC Private Placement Warrants will not be redeemable by the Company so long as they are held by the initial purchasers or their permitted transferees, subject to certain exceptions. The initial purchasers or their permitted transferees, have the option to exercise the deSPAC Private Placement Warrants on a cashless basis. Redemption of deSPAC Warrants When the Price per Share of the Company's Common Stock Equals or Exceeds $ 108.00 . Once the deSPAC Warrants become exercisable, the Company may call the deSPAC Warrants for redemption: • in whole and not in part; • at a price of $ 0.01 per deSPAC Warrant; 81 • upon not less than 30 days ' prior written notice of redemption (the "30-day redemption period") to each deSPAC Warrant holder; and • if, and only if, the last reported sale price of the shares of the Company's Common Stock for any 20 trading days within a 30 -trading day period commencing after the deSPAC Warrants become exercisable and ending three business days before the Company sends the notice of redemption to the deSPAC Warrant holders (which is referred to as the "Reference Value") equals or exceeds $ 108.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like). If and when the deSPAC Warrants become redeemable by the Company, the Company may exercise its redemption right even if it is unable to register or qualify the underlying securities for sale under all applicable state securities laws. However, the Company will not redeem the deSPAC Warrants unless an effective registration statement under the Securities Act covering the shares of the Company's Common Stock issuable upon exercise of the deSPAC Warrants is effective and a current prospectus relating to those shares of the Company's Common Stock is available throughout the 30-day redemption period. Redemption of deSPAC Warrants When the Price per Share of Our Common Stock Equals or Exceeds $ 60.00 . Once the deSPAC Warrants become exercisable, the Company may redeem the outstanding deSPAC Warrants (except as described herein with respect to the deSPAC Private Placement Warrants if the Company does not utilize this redemption provision): • in whole and not in part; • at $ 0.10 per deSPAC Warrant upon a minimum of 30 days ' prior written notice of redemption; provided that holders will be able to exercise their deSPAC Warrants on a cashless basis prior to redemption and receive that number of shares determined by reference to an agreed table based on the redemption date and the "fair market value" of the Company's Common Stock; • if, and only if, the Reference Value (as defined above) equals or exceeds $ 60.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like); and • if the Reference Value is less than $ 108.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) the deSPAC Private Placement Warrants must also be concurrently called for redemption on the same terms (except as described above with respect to a holder's ability to cashless exercise its deSPAC Warrants) as the outstanding deSPAC Public Warrants, as described above. Both the deSPAC Public Warrants and the deSPAC Private Placement Warrants are recorded as warrant liabilities on the Company's consolidated balance sheets. The Company values both the deSPAC Public and deSPAC Private Placement Warrants using the closing price of the deSPAC Public Warrants on the Nasdaq Global Market as of the reporting date. The fair value measurement for the deSPAC Public Warrants is considered a level 1 fair value measurement, and the fair value measurement for the deSPAC Private Placement Warrants is considered a level 2 fair value measurement, as the deSPAC Private Placement Warrants are substantially the same, but not identical to, the deSPAC Public Warrants. The Company recognized gains of $ 14.5 million and losses of $ 15.7 million related to the change in fair value of the deSPAC Warrants during the years ended December 31, 2025 and 2024, respectively. These amounts are recorded as gain (loss) on warrant liabilities within the consolidated statements of operations. 9 . 2024 Warrants On November 1, 2024, the Company closed a registered direct offering for an aggregate of 2,790,700 shares of its common stock at a purchase price of $ 2.15 per share. In a concurrent private placement, the Company agreed to issue to the same investor warrants to purchase up to 2,790,700 shares of common stock (the "2024 Private Placement Warrants"). The 2024 Private Placement Warrants have an exercise price of $ 2.30 per share and were exercised in May 2025 , as discussed below. In a separate concurrent private placement, the Company's Chief Executive Officer and certain other members of the Board of Directors purchased 430,105 shares of common stock at a price of $ 2.20 per share, which represented the consolidated closing bid price of the Company's common stock on the Nasdaq Global Market on October 30, 2024, and warrants to purchase up to 430,105 shares of common stock, at a price of $ 0.125 per warrant (the "2024 Concurrent Private Placement Warrants"). The 2024 Concurrent Private Placement Warrants have an exercise price of $ 2.30 per share and will expire five and one-half years following the date of issue. 82 The Company received gross proceeds of approximately $ 7 million, before deducting placement agency fees and offering expenses from the registered direct offering, the 2024 Private Placement Warrants and the 2024 Concurrent Private Placement Warrants (together the "2024 Warrants"). On May 9, 2025, 2,790,700 of the 2024 Private Placement Warrants were exercised. As of December 31, 2025 , all 430,105 of the 2024 Concurrent Private Placement Warrants were outstanding. The 2024 Warrants are recorded as warrant liabilities on the Company's consolidated balance sheet. The Company estimated the fair value of the 2024 Warrants using the Black-Scholes valuation model, which is considered a level 3 fair value measurement. The valuation model inputs are based on assumptions related to expected volatility, expected life, risk-free interest rate and expected dividends . These estimates, especially the expected volatility, are highly judgmental and could differ materially in the future. The Company recognized gains of $ 23.2 million and losses of $ 31.2 million related to the change in fair value of the of the 2024 Warrants during the years ended December 31, 2025 and 2024, respectively. These amounts are recorded as gain (loss) on warrant liabilities within the consolidated statements of operations. The following table provides quantitative information regarding assumptions used in the valuation model to determine the fair value of the 2024 Warrants: December 31, 2025 December 31, 2024 Stock price $ 4.26 $ 12.27 Term (in years) 4.3 5.3 Expected volatility 107.0 % 84.9 % Risk-free rate 3.7 % 4.4 % Dividend yield 0.0 % 0.0 % 10. Stock-Based Compensatio n 2021 Stock Plan The Company's 2021 Equity Incentive Plan (the "2021 Plan") provides stock options, restricted stock units ("RSUs"), restricted stock awards ("RSAs"), stock appreciation rights ("SARS") and performance awards for issuance to Company employees, officers, directors, non-employee agents and consultants. In general, outstanding awards granted under the 2021 Plan vest over one to four years and, in the case of options, are exercisable up to 10 years from the date of grant. The maximum number of shares of Common Stock that may be issued pursuant to the 2021 Plan is (a) 5.0 million shares of Common Stock of the Company plus (b) any shares of Common Stock subject to stock options and other awards that were assumed in the Business Combination and expire or otherwise terminate without having been exercised in full, are tendered to or withheld by the Company for payment of an exercise price or for tax withholding obligations, or are forfeited to or repurchased by the Company due to failure to vest, with the maximum number of shares to be added to the 2021 Plan pursuant to clause (b) equal to 2.1 million shares of Common Stock. As of December 31, 2025, 1.9 million shares were available for grant under the 2021 Plan. 2015 Stock Plan The Old Sarcos 2015 Equity Incentive Plan (the "2015 Plan") provided stock options, RSUs, RSAs, SARS and performance awards for issuance to Old Sarcos' employees, officers, directors, non-employee agents and consultants. Outstanding awards under the 2015 Plan generally vest over three to five years and are exercisable up to 10 years from the date of grant. Unvested options are forfeited upon termination. No further awards may be made under the 2015 Plan. Any forfeited awards will be added to the 2021 Plan as described above. 2024 Inducement Plan The Company adopted the 2024 Inducement Equity Incentive Plan (the "Inducement Plan") with an effective date of December 15, 2024 to be used exclusively for grants of nonstatutory stock options, RSUs, RSAs, SARS and performance awards to individuals who were not previously employees or directors of the Company (or who are returning to employment following a bona fide period of non-employment), as an inducement material to the individual's entry into employment with the Company. The Inducement Plan was adopted and approved without stockholder approval pursuant to Nasdaq Listing Rule 5635(c)(4). As of December 31, 2025 , 202,792 shares were available to grant under the Inducement Plan. 83 2021 Employee Stock Purchase Plan The 2021 Employee Stock Purchase Plan (the "ESPP") provides for the issuance of shares of Common Stock pursuant to purchase rights granted to employees over designated offering periods, by funds accumulated primarily through elective payroll deductions. Offerings under the ESPP commenced in December 2024. As of December 31, 2025 , 469,087 shares were available for sale under the ESPP. During the year ended December 31, 2025 , 30,913 shares of stock were sold under the ESPP for total proceeds of $ 0.1 million. No shares of stock were sold under ESPP during the year ended December 31, 2024. Offering periods are generally six months long and begin on June 1 and December 1 of each year. The purchase price for shares of Common Stock purchased under the ESPP is calculated as 85 % of the lesser of the fair market value of the Common Stock on (1) the first trading day of the applicable offering period or (2) the last trading day of the offering period. Stock Option Activity The following summarizes the Company's stock option activity for the years ended December 31, 2025 and 2024: Options Outstanding Weighted-Average Weighted Average Remaining Aggregate Intrinsic Exercise Price Contractual Term Value Number of Shares (Per share) (In years) (In thousands) Outstanding – December 31, 2023 2,845,084 $ 9.82 7.2 $ 91 Granted 555,000 1.77 Exercised ( 203,480 ) 0.64 703 Forfeited or expired ( 1,799,647 ) 10.93  Outstanding – December 31, 2024 1,396,957 $ 1.88 7.5 $ 14,519 Granted 81,667 7.20 Exercised ( 57,447 ) 1.30 Forfeited or expired ( 220,609 ) 1.60  Outstanding – December 31, 2025 1,200,568 $ 2.32 6.5 $ 2,619 Exercisable – December 31, 2024 443,045 $ 2.05 5.2 $ 4,527 Exercisable – December 31, 2025 845,217 $ 2.12 6.0 $ 1,888 For options granted during the years ended December 31, 2025 and 2024, the weighted-average grant-date fair value was $ 5.86 and $ 1.26 per option, respectively. The Company utilizes the Black-Scholes option pricing model for estimating the fair value of options granted, which requires the input of subjective assumptions. The Company calculates the fair value of each option grant on the grant date using the following assumptions: Expected Term—Options granted generally vest over a period of 48 months and expire 10 years from date of grant. The Company uses the simplified method when calculating expected term due to insufficient historical information. Expected Volatility—Due to insufficient historical information the Company uses a blended approach when calculating expected volatility. The Company uses its historic data for the periods it has been publicly-traded and a benchmark of other comparable public companies' volatility rates. Expected Dividend Yield—The dividend yield used is zero as the Company does not have a history of paying dividends on its Common Stock and does not anticipate doing so in the foreseeable future. Risk-Free Interest Rate—The interest rates used are based on the implied yield available on U.S. Treasury zero-coupon issues with an equivalent remaining term equal to the expected life of the award. 84 The Company calculated th e fair value of options granted under the 2021 Plan on the respective dates of grant using the following weighted average assumptions: Year Ended December 31, 2025 2024 Options Risk-free interest rate 3.87 % 4.31 % Expected term (in years) 3.4 5.89 Expected dividend yield — % — % Expected volatility 106.42 % 80.39 % Option Repricing On April 17, 2024, the Company amended certain options to purchase 773,551 shares of the Company's Common Stock. All of the options subject to the amendments had exercise prices that exceeded the value of the Company's Common Stock on the amendment date. One set of amendments, which were entered into with seven senior employees of the Company, applied to options to purchase an aggregate of 225,670 shares held by those seven senior employees. These amendments (1) re-started the vesting schedule of the amended options, including for options that had already vested and (2) reduced the per share exercise price of the options to $ 1.59 (the "New Exercise Price"), which is equal to the closing price of the Company's Common Stock on April 17, 2024, the effective date of the amendments. No other terms of these options were modified. The other set of amendments applied to options to purchase an aggregate of 547,881 shares held by other eligible current employees and service providers of the Company with an exercise price per share greater than the New Exercise Price. These amendments reduced the per share exercise price of affected options to the New Exercise Price, which is equal to the closing price of the Company's Common Stock on April 17, 2024, the effective date of the amendments. No other terms of such options were modified. The total incremental fair value to be recognized as a result of the amendments was $ 0.2 million. The incremental fair value attributable to the vested options of $ 0.1 million was recognized as stock-based compensation expense during the twelve months ended December 31, 2024. The remaining incremental fair value attributable to the unvested option shares will be amortized over the remaining requisite service periods. Restricted Stock Units The following summarizes the Company's employee RSU activity for the years ended December 31, 2025 and 2024: Restricted Stock Units Outstanding Number of Shares Weighted-Average Grant-Date Fair Value (Per share) Outstanding – December 31, 2023 1,180,115 $ 4.49 Granted 1,544,319 1.00 Released ( 333,553 ) 3.99 Forfeited ( 933,600 ) 3.37 Outstanding – December 31, 2024 1,457,281 $ 1.62 Granted 1,051,902 6.30 Vested ( 740,156 ) 1.72 Forfeited ( 191,633 ) 4.29 Outstanding – December 31, 2025 1,577,394 $ 4.34 85 RSUs granted generally include service vesting periods of one to four years . Restricted Stock Awards The following summarizes the Company's employee RSA activity for the year ended December 31, 2025: Restricted Stock Awards Outstanding Number of Shares Weighted-Average Grant-Date Fair Value (Per share) Outstanding – December 31, 2023 — $ — Granted 625,000 0.59 Outstanding – December 31, 2024  625,000 $ 0.59 Granted 1,500,000 2.23 Vested  ( 625,000 ) 0.59 Outstanding – December 31, 2025 1,500,000 $ 2.23 Stock-Based Compensation Expense The Company recognized stock-based compensation expense in the consolidated statement of operations and comprehensive loss as follows: Year Ended December 31, (In thousands) 2025 2024 Cost of revenue $ 52 $ 30 Research and development 428 115 Sales and marketing 701 604 General and administrative 3,266 2,056 Total stock-based compensation expense $ 4,447 $ 2,805 As of December 31, 2025 , there was approximately $ 8.6 million of unrecognized stock-based compensation expense, which is expected to be recognized over a weighted average period of 2.6 years. 11. Net Income (Loss) Per Share The following table sets forth the computation of the basic and diluted net income (loss) per share attributable to common stockholders for the twelve months ended December 31, 2025 and 2024, respectively:  Year Ended December 31, (In thousands, except share and per share data) 2025 2024 Numerator:   Net income (loss) $ 10,039 $ ( 72,617 ) Denominator:   Weighted average shares outstanding, basic 38,841,116 26,774,895 Dilutive effect of potential common shares 3,284,816 — Weighted average shares outstanding, diluted 42,125,932 26,774,895 Basic net income (loss) per share $ 0.26 $ ( 2.71 ) Diluted net income (loss) per share $ 0.24 $ ( 2.71 ) Anti-dilutive securities, excluded 5,859,044 14,812,452 Potentially dilutive shares, which are based on the weighted-average shares of common stock, stock options, unvested stock units, unvested stock awards, purchase rights granted under the employee stock purchase plan and warrants using the treasury stock method are included when calculating diluted net income (loss) per share attributable to the Company when their effect is dilutive. Because the Company incurred a net loss for the twelve months ended December 31, 2024 none of the potentially dilutive common shares were included in the diluted share calculation for that period as they would have been anti-dilutive. 86 12. Income Taxes Income (loss) before provision for income taxes was income of $ 7.5 million and loss of $ 72.6 million for the years ended December 31, 2025 and 2024 , respectively, all of which was generated in the United States. The Company's provision for income taxes consists of the following: Year Ended December 31, (In thousands) 2025 2024 Current: Federal $ — $ — State ( 3 ) ( 5 ) Total current ( 3 ) ( 5 ) Deferred: Federal 6,047 5,641 State 2,187 ( 4,933 ) Change in valuation allowance ( 5,693 ) ( 708 ) Total deferred 2,541 — Total income tax benefit (expense) $ 2,538 $ ( 5 ) The Company’s provision for income tax differs from the amount computed by applying the statutory federal income tax rate to income before taxes after the adoption of ASU 2023-09 as follows: Year Ended December 31, 2025 (In thousands) Percent US federal statutory tax rate $ 1,575 21.0 % State and local income taxes, net of federal income tax effect (1) ( 138 ) ( 1.8 ) Tax credits ( 627 ) ( 8.4 ) Change in valuation allowance 3,980 53.1 Nontaxable or nondeductible items Warrant liability revaluation ( 7,925 ) ( 105.7 ) Executive compensation 119 1.6 Share-based payment awards ( 453 ) ( 6.0 ) Transaction costs 124 1.7 Other 17 0.2 Changes in unrecognized tax benefits 195 2.6 Other Deferred adjustments 593 7.9 Other 2 0.0 Total benefit for income taxes $ ( 2,538 ) ( 33.8 )% (1) Massachusetts contributed to the majority of the tax effect in the category. The Company’s provision for income tax differs from the amount computed by applying the statutory federal income tax rate to income before taxes prior to adoption of ASU 2023-09 as follows: Year Ended December 31, 2024 Statutory federal income tax rate 21.0 % State tax provision ( 3.6 ) Change in valuation allowance ( 1.0 ) Research credits 0.3 Change in tax rate ( 1.2 ) Warrant liability revaluation ( 13.7 ) Stock compensation ( 1.3 ) Unrecognized tax benefits ( 0.5 ) Total provision for income taxes 0.0 % 87 As of December 31, 2025 and 2024, net deferred tax assets consisted of the following: December 31, (In thousands) 2025 2024 Deferred tax assets: Accrued expenses $ 259 $ 234 Stock compensation 2,084 1,994 Research credits 9,012 8,427 Research and experimental capitalization 9,700 13,430 Lease liability 2,656 2,588 Intangibles — 230 Net operating loss carryforwards 66,450 55,380 Other 4 2 Total gross deferred tax assets 90,165 82,285 Less valuation allowance ( 85,016 ) ( 79,323 ) Total deferred tax assets 5,149 2,962 Deferred tax liabilities: Property and equipment ( 801 ) ( 889 ) Intangibles ( 2,043 ) — Right-of-use-asset ( 2,130 ) ( 2,073 ) Other ( 175 ) — Total deferred tax liabilities ( 5,149 ) ( 2,962 ) Net deferred tax assets $ — $ — Valuation allowances are established when necessary to reduce deferred tax assets, including temporary differences and net operating loss carryforwards, to the amount expected to be realized in the future. FASB guidance indicates that forming a conclusion that a valuation allowance is not needed is difficult when there is negative evidence such as cumulative losses in recent years. The Company had cumulative losses from continuing operations for the three-year period ended December 31, 2025. The Company considered this negative evidence along with all other available positive and negative evidence and concluded that, at December 31, 2025, it is more likely than not that the Company's U.S. deferred tax assets will not be realized. As of December 31, 2025, a valuation allowance has been recorded on the Company's deferred tax assets to recognize only the portion of the deferred tax asset that is more likely than not to be recognized. The Company's total valuation allowance was $ 85.0 million at December 31, 2025 and $ 79.3 million at December 31, 2024. The Company's valuation allowance increased $ 5.7 million and $ 0.7 million during the fiscal years ended December 31, 2025 and 2024 , respectively. A reconciliation of the beginning and ending amount of the valuation allowance is as follows: December 31, (In thousands) 2025 2024 Valuation allowance at beginning of year $ 79,323 $ 78,615 Change in valuation allowance 5,693 708 Valuation allowance at end of year $ 85,016 $ 79,323 As of December 31, 2025 , the Company had cumulative federal net operating losses of approximately $ 276.5 million. Of these losses, $ 7.6 million were generated in 2015 through 2017, prior to the Tax Cuts and Jobs Act enactment, and will expire between 2035 to 2037 if not utilized. The remaining net operating losses have an indefinite carryforward period. As of December 31, 2024, the Company had cumulative federal net operating losses of approximately $ 230.7 million. As of December 31, 2025 , the Company had a $ 9.7 million deferred tax asset related to a federal research and development credit carryforward. This credit has been offset by a liability for unrecognized tax benefits of $ 2.4 million. If not utilized, the credits will expire between 2037 through 2045. As of December 31, 2024 , the Company had a $ 9.1 million deferred tax asset related to a federal research and development credit carryforward. As of December 31, 2025 , the Company had State net operating losses of approximately $ 224.6 million. Of the total State net operating losses, approximately $ 185.6 million is attributable to Utah. Utah law allows unused net operating losses arising in tax years beginning after December 31, 2008 to be carried forward indefinitely. All of the Utah net operating losses are for tax years beginning after December 31, 2008, and are carried forward indefinitely. Of the total State net operating losses, approximately $ 22.6 million is attributable to Pennsylvania. Pennsylvania net operating losses will expire between 2034 through 2043. The remaining State net operating loss carryforwards are attributable to various other states with varying 88 expiration periods. As of December 31, 2024 , the Company had cumulative State net operating losses of approximately $ 183.7 million. Of the total State net operation losses as of December 31, 2024 , approximately $ 150.3 million is attributable to Utah. As of December 31, 2025 , the Company had a $ 2.7 million deferred tax asset related to State research and development credits carryforward. Of the total State research and development credits, approximately $ 2.1 million is attributable to Utah. This credit has been offset by a liability for unrecognized tax benefits of $ 0.5 million. If not utilized, the credits will expire between 2030 through 2039. Of the total State research and development credits, approximately $ 0.6 million is attributable to Pennsylvania. If not utilized, the credits will expire between 2033 through 2037. As of December 31, 2024 , the Company had a $ 1.9 million deferred tax asset related to a Utah research and development credit carryforward. This credit has been offset by a liability for unrecognized tax benefits of $ 0.5 million. ASC Topic 740-10-05 requires that the impact of a tax position be recognized in the financial statements if that position is more likely than not of being sustained on audit, based on the technical merits of the position. As of December 31, 2025 , the Company had a $ 2.9 million liability for unrecognized tax benefits, all of which is netted against deferred tax assets for related carryforward credits. As o f December 31, 2024 , the Company had a $ 2.7 million liability for unrecognized tax benefits, all of which is netted against deferred tax assets for related carryforward credits. The Company expects no material changes to the liability for unrecognized tax benefits in the next 12 months. Interest and penalties associated with uncertain tax positions are recorded as a component of income tax expense. There would be no impact to the Company’s effective rate if the unrecognized tax benefits were recognized. A reconciliation of the beginning and ending amounts of unrecognized benefits is as follows: Year Ended December 31, (In thousands) 2025 2024 Unrecognized tax benefits at the beginning of year $ 2,738 $ 2,446 Gross increases – current year tax positions 138 106 Gross increases – prior year tax positions 67 186 Unrecognized tax benefits at end of year $ 2,943 $ 2,738 Interest and penalties in year-end balance $ — $ — The Company files U.S. and various State tax returns in jurisdictions with various statutes of limitation. As of December 31, 2024, the tax returns for fiscal year 2015 through fiscal year 2023 remain subject to examination. Annual tax provisions include amounts considered necessary to pay assessments that may result from examination of prior year tax returns; however, the amount ultimately paid upon resolution of issues may differ materially from the amount accrued. As of December 31, 2025, there are no income tax returns currently under audit. The amounts of cash income taxes paid by the Company were as follows: (In thousands) Year Ended December 31, 2025 Federal $ — State Massachusetts 1 All other states 1 Income taxes, net of amounts refunded $ 2 On July 4, 2025, the One Big Beautiful Bill Act ("OBBBA") was signed into law. The OBBBA includes a broad range of tax reform provisions affecting businesses, including extending and modifying certain key Tax Cuts & Jobs Act provisions (both domestic and international), expanding certain Inflation Reduction Act incentives while accelerating the phase-out of others. The Company has accounted for the impact of the applicable OBBBA provisions in its consolidated financial statements for 2025. On November 14, 2025, the Company acquired GuideTech in a tax-deferred stock purchase. The acquired deferred tax liabilities of GuideTech were available to offset the reversal of the Company’s preexisting deferred tax assets. As a result of the acquisition, the Company determined a portion of its preexisting tax assets were more likely than not to be realized by the combined entity, and the valuation allowance was reduced. The Company recorded a deferred tax benefit of $ 2.5 million related to the reduction of its valuation allowance. 89 On November 14, 2025, the Company also acquired MKR Fabricators and Warnke Precision Machining . From a tax perspective, the acquisition was treated as if the LLCs made liquidating distributions of all its assets to the members, and immediately thereafter, the Company purchased all of those assets from the members in a taxable transaction. 13. Commitments and Contingencies Legal Proceedings The Company has been and may in the future be involved in various claims, lawsuits, investigations and other proceedings in the normal course of business. The Company accrues a liability when management believes information available prior to the issuance of its financial statements indicates it is probable a loss has been incurred as of the date of the financial statements and the amount of loss can be reasonably estimated. The Company adjusts its accruals to reflect the impact of negotiation, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular case. Legal costs are expensed as incurred. The Company has not recorded any material loss contingency related to legal proceedings in the balance sheets as of December 31, 2025 and 2024. Indemnifications In the ordinary course of business, the Company provides or may provide indemnifications of varying scope and terms to investors, directors, officers, employees, customers or vendors with respect to certain matters, including losses arising out of the Company's breach of such agreements, services to be provided by the Company or from intellectual property infringement claims made by third parties. These indemnifications may survive termination of the underlying agreement and the maximum potential amount of future payments the Company could be required to make under these indemnification provisions may not be subject to maximum loss clauses. The maximum potential amount of future payments the Company could be required to make under these indemnification provisions is indeterminable. As of December 31, 2025 and 2024, the Company has not accrued a liability for these indemnification obligations as the likelihood of incurring a material payment obligation in connection with these indemnification obligations is either not probable or not reasonably estimable due to the unique facts and circumstances involved. 14. Segment Information The Company has determined that it has a single operating segment. The Company derives revenues from services contracts, existing product lines and manufacturing. The accounting policies of the segment are the same as those described in Note 1, Basis of Presentation and Summary of Significant Accounting Policies. The Company's Chief Executive Officer is the Chief Operating Decision Maker ("CODM"). The CODM allocates resources and makes operating decisions based on consolidated net income. The CODM does not evaluate profitability below the level of the consolidated company. Net income (loss) is used to monitor results on a budget versus actual basis. Net income (loss) is adjusted for various non-recurring and non-cash transactions such as stock compensation expenses and impairment expenses. 90 The following table presents selected financial information with respect to the Company's single operating segment:  Year Ended December 31, (In thousands) 2025 2024 Segment Revenue $ 5,243 $ 5,120 Other Revenue (1) 3 2,666 Total Revenue 5,246 7,786 Less: Cost of revenue 2,638 2,393 Research and development 12,471 10,322 General and administrative 13,131 14,013 Sales and marketing 4,043 3,530 Intangible amortization expense 118 — Other (2) 5,249 4,451 Interest income, net ( 1,944 ) ( 1,244 ) (Gain) loss on warrant liabilities ( 37,740 ) 46,935 Other income, net ( 221 ) ( 2 ) Income tax benefit (expense) ( 2,538 ) 5 Net income (loss) $ 10,039 $ ( 72,617 ) (1) Other revenue includes revenue from legacy product sales. (2) Other for the year ended December 31, 2025, includes $ 4.4 million of stock-based compensation expenses, $ 0.2 million of severance charges and $ 0.6 other non-recurring transactions. Other for the year ended December 31, 2024, includes $ 1.1 million of cost of revenue from legacy product sales, $ 2.8 million of stock-based compensation expenses, $ 0.6 million of other non-recurring or non-cash transactions. The Company's revenue is derived primarily from U.S. customers. During the years ended December 31, 2025 and 2024, the Company ha d no revenue earned from customers located outside the United States. All long-lived assets are maintained in the United States. All losses are attributable to operations within the United States. 15. Employee Benefits The Company has defined contribution 401(k) plans covering substantially all employees as of December 31, 2025 . The plans allow employees to defer up to 100 % of their employment income (subject to annual contribution limits imposed by the I.R.S.) after all taxes and applicable benefit deductions. The Company provides employees with 401(k) matching contributions. The Company recognized $ 0.6 million of expense for 401(k) matching contributions during each of the twelve months ended December 31, 2025 and 2024. 16. Subsequent Events From January 1, 2026 through the date of this filing, the Company sold 368,326 shares of Common Stock under the at-the-market equity offering program for gross proceeds o f $ 2.5 million, before deducting commission and other expenses. 91 Item 9. Changes in and Disagreements w ith Accountants on Accounting and Financial Disclosure. None.